[Senate Hearing 114-280]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-280

                     UNLOCKING THE PRIVATE SECTOR:
                     STATE INNOVATIONS IN FINANCING
                     TRANSPORTATION INFRASTRUCTURE

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 25, 2015

                               __________

          
          
          
       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
          
          
          
          
          
                                     

            Printed for the use of the Committee on Finance
                                  ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

20-445-PDF                     WASHINGTON : 2016 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001











                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3
.................................................................

                               WITNESSES

Daniels, Hon. Mitchell E., Jr., president, Purdue University, 
  West Lafayette, IN.............................................     7
Bhatt, Hon. Shailen P., Executive Director, Colorado Department 
  of Transportation, Denver, CO..................................     9
Narefsky, David, partner and co-leader, Infrastructure Practice 
  Group, Mayer Brown LLP, Chicago, IL............................    11
Feigenbaum, Baruch, assistant director for transportation policy, 
  Reason Foundation, Los Angeles, CA.............................    13

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bhatt, Hon. Shailen P.:
    Testimony....................................................     9
    Prepared statement...........................................    35
    Responses to questions from committee members................    38
Daniels, Hon. Mitchell E., Jr.:
    Testimony....................................................     7
    Prepared statement...........................................    39
Feigenbaum, Baruch:
    Testimony....................................................    13
    Prepared statement...........................................    44
    Responses to questions from committee members................    47
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    49
Narefsky, David:
    Testimony....................................................    11
    Prepared statement...........................................    50
    Responses to questions from committee members................    55
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    57

                             Communications

American Society of Civil Engineers..............................    59
Public Citizen...................................................    63

                                 (iii)

 
                     UNLOCKING THE PRIVATE SECTOR:
                     STATE INNOVATIONS IN FINANCING
                     TRANSPORTATION INFRASTRUCTURE

                              ----------                              


                        THURSDAY, JUNE 25, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Cornyn, Coats, Heller, Wyden, Menendez, 
Carper, Brown, Bennet, Casey, and Warner.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; James Lyons, Tax Counsel; and Nicholas Wyatt, Tax and 
Nominations Professional Staff Member. Democratic Staff: Ryan 
Abraham, Senior Tax and Energy Counsel; Robert Andres, Research 
Assistant; and Jocelyn Moore, Deputy Staff Director.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. I would 
like to welcome everyone to today's hearing on alternatives and 
additions to Federal and local infrastructure funding.
    Last week we had a hearing on infrastructure funding 
specifically focusing on the status of the Highway Trust Fund 
and our looming deadline for renewal at the end of July. Today 
we will discuss a separate but important topic, which is how 
States are using innovative financing to facilitate 
construction of infrastructure projects.
    At the outset, I want to make sure that it is clear that, 
while they are important, these financing alternatives and 
ideas are not meant to address the immediate shortfalls in the 
Highway Trust Fund. As long as our Federal highway program is 
based upon reimbursements to States made on a formula basis, 
there is no workable substitute for Federal funding, in the 
opinion of many.
    Instead, today's discussion will be about additional tools 
that States can use to better determine and respond to their 
own infrastructure needs. I think we also need to be clear on 
what financing is and what it is not. Because of the large 
capital costs associated with infrastructure, financing 
alternatives can give States more flexibility in producing the 
capital they need to build projects faster. However, we should 
also remember that financing carries with it the expectation of 
repayment and future return.
    During last week's hearing, Dr. Kile from the Congressional 
Budget Office noted that, ``Regardless of its source, financing 
is only a mechanism for making future tax or user fee revenues 
available to pay for projects sooner. It is not a new source of 
revenues.''
    Pulling taxes and other revenues from the future into the 
present does not create new resources. It is also important to 
remember that there are various ways to use alternative 
financing mechanisms to shift risk, but financing tools alone 
do not get rid of risks.
    Having said that, as Mr. Narefsky, who is on our panel 
today, notes in his written testimony, ``There is bipartisan 
support for public-private partnerships at both Federal and 
State levels.''
    Now this is certainly true, and I think this distinguished 
panel of witnesses we have here today demonstrates that 
interest. However, while there is bipartisan consensus on 
examining alternative ways of financing for infrastructure 
projects, many obstacles facing infrastructure projects remain, 
including significant obstacles imposed by the Federal 
Government itself.
    For example, as Governor Daniels notes in his written 
testimony today, it takes an average of 7 years for the Federal 
Highway Administration to complete an environmental impact 
statement on a single proposed highway project. By comparison, 
the Hoover Dam, often cited as an exemplar of robust 
infrastructure policy, was built and completed in only 4 years.
    We need to do better. I hope today we can have a robust 
discussion on what we can do at the Federal level to make these 
processes more efficient. Working with States on innovative 
infrastructure financing allows for decisions to be made closer 
to the people whom the projects are intended to benefit.
    I have an example from my own home State of Utah. In 2008, 
the Utah Department of Transportation, or UDOT, was in the 
process of designing and constructing the first phases of the 
Southern Corridor near St. George. The Southern Corridor is a 
brand new highway that provides regional transportation among 
multiple communities, plus a new access point for those 
communities to Interstate 15 and improved access to a new, 
larger airport constructed in St. George to accommodate the 
growing communities.
    During the design of the Southern Corridor, a private 
developer expressed a desire for an interchange to access his 
property. This interchange was not in the original plans. 
However, the developer was willing to pay for the construction 
of the additional interchange himself.
    Using a State Infrastructure Bank, UDOT partnered with both 
the city of St. George and the private developer in order to 
finance the interchange. Under the arrangement required by the 
State Infrastructure Bank, UDOT entered into a loan agreement 
with the city of St. George in the amount of $3.7 million to 
construct a bridge for the interchange.
    Afterward, the developer repaid the cost of the loan to St. 
George and chipped in another nearly $2 million of his own 
capital to build the ramps and street network required for the 
new interchange.
    I am recounting these transactions not because they 
represent high political drama or intrigue, but because they 
demonstrate how innovative financing arrangements with the 
private sector can be useful in improving our infrastructure by 
making new opportunities possible and relieving the burden on 
taxpayers.
    For me, the larger questions for today's hearing are not 
whether we should encourage public-private partnerships and 
innovative financing, but how we can ensure that the taxpayers 
are the ultimate beneficiaries of these deals and not just 
bearers of risk. It is clear that done right, these types of 
financing mechanisms can help us cut through red tape and 
promote local control of infrastructure development.
    Now, I hope that we can have a good discussion of these 
issues and work toward improving a system that clearly could 
benefit from increased efficiency.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. With that, I yield to our ranking member, 
Senator Wyden.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    Mr. Chairman and colleagues, I am sure a lot of Americans 
this morning wonder if the Congress can put together a two-car 
parade. When you look at 33 consecutive short-term patches for 
infrastructure, it certainly seems that the Congress may not be 
able to pave the parade route either.
    Now, this is the second time in 8 days the Finance 
Committee has come together to take a hard and careful look at 
the Nation's infrastructure challenge. By now, there is a 
pretty good consensus with respect to the dire condition of our 
roads, highways, bridges, railways, and ports. You simply 
cannot have a big league economy with little league 
infrastructure. Yet, our transportation networks are crumbling. 
The price tag of maintenance down the road is growing, and 
America's infrastructure is falling far behind our competitors.
    Now, last week our hearing focused on the drastic shortfall 
in transportation infrastructure funding, which leaves the 
Highway Trust Fund running on fumes every few months. Finding a 
pathway to a long-term source of revenue for the trust fund is 
absolutely essential so that projects can get underway and 
construction workers can stay on the job.
    To solve this challenge, the Highway Trust Fund has to be 
solvent and healthy. But I want to make clear this morning, 
that is only one part of the solution. Our country needs more 
than $1 trillion of new investment just to get our 
infrastructure up to a level of good repair.
    Even with a steady stream of revenue, there is still a big 
gap between the work that needs to be done and the resources 
needed to make it happen. That is why it is so critical that 
the Congress find some fresh ideas to get projects off the 
ground, including financing tools with proven records of 
success.
    That is why today's hearing is going to focus on getting 
private dollars off the sidelines and into the game on 
infrastructure. Six years ago, when the Senate was looking for 
a way to spark investment in infrastructure, it turned to a 
proposal that I and a bipartisan group of colleagues had been 
supporting for some time, called Build America Bonds.
    At that time, I think I was sitting down with my friends 
Senator Brown and Senator Casey. I was a little surprised I got 
called on. And people said, ``Ah, that is kind of a nice little 
idea that the fellow has that might generate $4 billion or $5 
billion in private investment.''
    That was a pretty big underestimation. In less than 2 
years, Build America Bonds sparked more than $180 billion worth 
of investment. My State took advantage of the program to build 
a new interchange in Eugene, improve the highways around 
Clackamas County and Bend, and a whole host of other projects 
around the State.
    States all across America used these dollars to put similar 
projects together. So there should not be any question as to 
whether there is an appetite for effective financing tools for 
infrastructure.
    Last month, Senator Hoeven of North Dakota and I introduced 
a bipartisan bill called the Move America Act to provide an 
effective new approach to financing. It picks up on several of 
the best features of Build America Bonds, and our new proposal, 
according to the Joint Committee on Taxation,* which is sort of 
our scorekeeper around here, states that our proposal would 
turn an $8 billion taxpayer investment into $226 billion worth 
of infrastructure projects.
---------------------------------------------------------------------------
    * For more information, see also, ``Overview of Selected Provisions 
Relating to the Financing of Surface Transportation Infrastructure,'' 
Joint Committee on Taxation staff report, June 23, 2015 (JCX-97-15), 
https://www.jct.gov/publications.html?func=startdown&id=4796.
---------------------------------------------------------------------------
    Our bipartisan proposal cuts red tape that has been a 
bureaucratic nightmare for States, localities, and the private 
sector in the past. But unlike Build America Bonds, this is not 
a 2-year proposal. This is a proposal that would be permanent. 
The Congress should not put an expiration date on sensible 
bipartisan ideas.
    I believe the Move America Act, and the smart approach to 
financing it represents, can be a key part of the long-term 
plan that solves our transportation infrastructure crisis. 
There is a lot of work to be done, and it cannot begin as long 
as the Congress keeps falling back on short-term funding 
patches. On this issue, the Congress has punted more times than 
the Oakland Raiders.
    So it is time to do better. And I just want to make one 
last point, because I know Governor Daniels is here, and I just 
want to say that I think the Governor, in particular, has been 
a real force for State innovation in a whole host of fields.
    I remember his tenure at the Office of Management and 
Budget, and the Governor helped me, in particular, with 
focusing on approaches to encourage State innovation in health 
care, the approach I got in the Affordable Care Act, which 
fortunately has now been sustained by the Supreme Court.
    We are going to be able to build on that. We are going to 
be able to build on State innovation. States with progressive 
ideas and States with conservative ideas, they are all going to 
be able to use the States as a laboratory of ideas. And 
Governor Daniels had that conversation with me a number of 
years ago.
    So I really welcome him here. I think he is going to get a 
formal bouquet-tossing from my friend and colleague, Senator 
Coats, but, Governor, we are glad you are here. And I want to 
thank all of you from the private sector as well, because I 
understand you sort of burned up the phone lines with my staff 
working on Move America.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Thank you, Senator.
    Yes. King v. Burwell was sustained, something I said this 
morning to a group that I thought would happen, and we can live 
with that, whatever the Court does.
    But we have a very distinguished panel here this morning, 
and I want to thank all of you in particular for being with us 
today.
    Our first witness is the former Governor of Indiana and 
current president of Purdue University, Mitch Daniels. Let me 
just say that Mitch came with Senator Lugar and me to the 
United States Senate back in 1977, and I have known him ever 
since and have been very privileged to know him as one of the 
truly great people on Capitol Hill, but also one of the truly 
great staffers, and also a really wonderful Governor.
    A lot of us have always been a little bit miffed that you 
did not run for President so far. So if that is a little prod, 
pay attention.
    We are glad to have you here. We have Senator Coats, who is 
our Senator from Indiana now, and he will introduce the 
Governor formally.
    Senator Coats. Mr. Chairman, thank you. I really appreciate 
you chairing this hearing this morning. It is an important one 
as the committee continues to address the very critical needs 
of America's infrastructure and particularly the issue of 
building highways, repairing highways, and repairing bridges 
that are crumbling across the United States.
    I am really pleased to have our former Governor and now 
president of Purdue here to testify. We in Indiana do not like 
to go into debt. We do not like to raise taxes. Governor 
Daniels found a way to address the issue of repairing and 
building roads in Indiana and repairing and building bridges in 
Indiana without having to do either one of those.
    The purpose of our hearing is how we can address issues 
that would incorporate the private sector into helping us 
advance transportation improvements. Public-private 
partnerships, or P3s as they are called, get the private sector 
off the sidelines and create new resources to meet our growing 
transportation needs, and they also accelerate the process of 
addressing these needs.
    Obviously, P3s do not solve all of our infrastructure 
problems, but they can play an important role.
    So I am pleased to introduce Governor Daniels to talk about 
a major P3 success in my home State of Indiana that 
demonstrates the benefits offered by such partnerships. After 
his election in 2004, Governor Daniels tasked his Cabinet to 
find a way to fund the hundreds of road and bridge projects 
that had been promised to Hoosiers for years, but not 
accomplished.
    They needed a solution that did not involve raising taxes 
or taking on more debt, and they began exploring the 
feasibility of leasing the Indiana toll road to a private 
entity. After a bidding process involving 11 proposals, a 75-
year lease concession was awarded to a private consortium for a 
single lump-sum payment of $3.8 billion. That figure is nearly 
four times the yearly allocation that Indiana receives from the 
Federal highway programs under MAP-21.
    Governor Daniels used the proceeds from the lease to fund a 
large number of highway construction and preservation projects 
under his monumental Major Moves initiative. Major Moves fully 
funded the State's 10-year transportation plan, including 65 
roadway projects and 720 bridges rehabilitated or replaced by 
2012.
    Major Moves accelerated critical projects throughout the 
State, such as Interstate 69, the Hoosier Heartland Highway, 
US-31 from Indianapolis to South Bend, Fort to Port, and the 
Ohio River bridges. In addition, the seven counties through 
which the toll road ran received payments of between $15 
million and $40 million for local transportation projects.
    The 75-year lease that Governor Daniels secured was an 
extraordinary accomplishment with spectacular results for our 
transportation system. This is just one example of Governor 
Daniels's many visionary moves for the State of Indiana during 
his tenure. During that tenure, Indiana went from a bankruptcy 
situation to a AAA credit rating. He led the Nation in 
infrastructure-building and passed sweeping education reforms, 
as well as the Nation's first Statewide School Choice voucher 
program.
    Governor Daniels is currently the 12th president of Purdue 
University. He has gone forward with his vision to prioritize 
affordability and student success. He froze tuition hikes and 
has committed to maintain that freeze for 4 years. He has 
called for greater accountability in higher education, and in 
recognition of that and his leadership, both as a Governor and 
now as a university president, he was named among the Top 50 
World Leaders by Fortune magazine just recently.
    His public service, Mr. Chairman, as you have acknowledged, 
included his engagement with Senator Lugar. He went on to be 
senior advisor to President Reagan, and then Director of the 
Office of Management and Budget under President George W. Bush.
    I would like to welcome Governor Daniels to the committee. 
And again, Mr. Chairman, thank you for the opportunity for me 
to introduce our Governor.
    The Chairman. Thank you, Senator. I thought you did a great 
job for a very fine, great man, as far as I am concerned.
    Our next witness is the Executive Director of the Colorado 
Department of Transportation, Shailen Bhatt. He has previously 
served as the Cabinet Secretary of the Delaware Department of 
Transportation and served as an Associate Administrator at the 
Federal Highway Administration.
    I recognize Senator Bennet to introduce Director Bhatt.
    Senator Bennet. Thank you, Mr. Chairman. I am very 
grateful.
    It really is my pleasure to introduce our second witness, 
Shailen Bhatt, Executive Director of the Colorado Department of 
Transportation.
    CDOT maintains and repairs over 23,000 lane miles of 
highway and more than 3,400 bridges. Our roadways handle more 
than 28 billion vehicle miles of travel per year, and, if you 
are on our roads this weekend, the likelihood is you would see 
a license plate from almost any State in the Union, people who 
have come from all over the country to visit what we consider 
to be the most beautiful State in the country.
    Before he moved to Colorado for this job earlier this year, 
Director Bhatt served as the Cabinet Secretary for the Delaware 
Department of Transportation. In that role, he developed a 
prioritization process for capital projects, tracked 
performance management, and reduced his agency's debt by nearly 
40 percent.
    Before then, he served as Associate Administrator at the 
Federal Highway Administration. There he established the Every 
Day Counts initiative, which helps States to identify and 
deploy proven innovations that shorten the project delivery 
process, enhance roadway safety, and reduce congestion.
    He also served as Deputy Director of the Kentucky 
Transportation Cabinet and as chair of the I-95 Corridor 
Coalition.
    As you can tell from his resume, he has a lot of experience 
with identifying innovative financing solutions for 
infrastructure projects. That is why I know the Governor wanted 
him to come to Colorado, even though he was coming from a State 
that is smaller than some of the counties in Colorado.
    In Colorado, we have a few projects that we are 
particularly proud of that I believe can serve as models for 
the country in terms of multimodal transportation and public-
private collaboration. I look forward to his testimony, as well 
as the other panelists.
    Thank you, Mr. Chairman, for the honor of introducing this 
witness.
    The Chairman. Thank you, Senator.
    Next, we will hear from David Narefsky, who is a partner 
and co-leader of the Infrastructure Practice Group at Mayer 
Brown LLP. Mr. Narefsky is a graduate of the University of 
Michigan law school and has been involved in infrastructure 
agreements in both States represented here, Indiana and 
Colorado. He has also advised on numerous projects, including 
the Chicago Skyway Toll Bridge.
    Last, we will hear from Baruch Feigenbaum, the assistant 
director for transportation policy at the Reason Foundation. 
Prior to that, Mr. Feigenbaum handled transportation issues for 
Representative Lynn Westmoreland. He has a master's degree in 
transportation from the Georgia Institute of Technology.
    I want to thank you all for being here.
    I also want to take a minute to recognize the roles of 
Senator Coats and Senator Bennet in putting this hearing 
together with the excellent panel we have before us.
    So, Governor Daniels, we will start with you. Go ahead with 
your testimony.

 STATEMENT OF HON. MITCHELL E. DANIELS, JR., PRESIDENT, PURDUE 
                 UNIVERSITY, WEST LAFAYETTE, IN

    Mr. Daniels. Thanks, Mr. Chairman.
    These days I do wear the uniform of Purdue University, 
which, as it happens, has probably produced more engineers, 
specifically civil engineers, than any university in the 
country. But I know I was invited here for a different reason, 
and that is because of Indiana's unique status as a State which 
has, not solved its infrastructure problems forever and all 
time, but has advanced more directly against them than any I 
know of.
    Indiana is now in year 9 of the 10-year program that 
Senator Coats referenced. By the time it is done, more than 100 
new projects will have been completed, more than 1,000 bridges 
will have been repaired or replaced, and more than 6,000 miles 
of roadway will have been resurfaced.
    It was a great joy of public service to watch literally the 
dreams of decades become real. Project after project that 
people said would never happen are now being completed in 
Indiana.
    This was only possible because of the lease which we were 
able to secure. We essentially converted a toll road losing 
money to a tightly regulated public utility. The tolls on that 
road, by the way, are the same today that they were in 1985 and 
will only rise under regulated rates throughout the duration of 
the lease.
    We received--and there was some good fortune and good 
timing involved--three times the status quo present value of 
that road in government hands. It is very important to say that 
every penny, we insisted from the beginning, had to be 
reinvested for long-term purposes.
    So, having paid off the 50-year-old debt still on the books 
of the State and setting aside $.5 billion as a trust fund to 
augment highway money in perpetuity, all the rest went into 
long-term investment. Not one penny, I have to reiterate, was 
allowed to be spent on current operational problems or 
priorities.
    This is a practice which is familiar in the rest of the 
world and is spreading, in fact, often with the active 
encouragement of government. I refer you to Australia as 
perhaps the single best example. But this was simply, as we saw 
it, a way to liberate the trapped value from an underperforming 
asset and then to reinvest it in assets, these new projects I 
talked about, that we thought were in the long-term interest of 
our State.
    Along the way, we experimented with a variety of other ways 
to involve private capital, that capital which, as Senator 
Wyden correctly said, is sitting eagerly still on the sidelines 
in this country, although actively employed in other places, 
and each of those experiments was a big success.
    At this moment, one of the mega-projects that I talked 
about is within a year or so of completion: two new bridges 
across the Ohio River at Louisville. Thousands of new jobs have 
already been associated in southern Indiana with the projects, 
and the bridges are not even open yet.
    But by using a P3 approach, so-called availability payment 
approach, the bridge Indiana was responsible for came in 23 
percent, which was $225 million, below the estimate. Plus, 
Indiana will never pay a nickel for the maintenance of that. 
That is all part of the winning bidder's proposal.
    In another case, a bridge which was built conventionally 
years ago and turned out to be unsafe when it should have had 
another 2 or 3 decades to run, we are replacing with an 
entirely private bridge, where the constructor and operator 
will be entirely at risk.
    Now, these approaches, I do not think even the strongest 
proponents, certainly not I, will ever suggest are a complete 
answer to the very real problem the committee is here to talk 
about, but I just submit that no answer will be complete 
without them.
    Without the involvement, the creative involvement, of 
private financing--it is so ironic that this Nation, which 
prides itself on being the world's innovation leader, is such a 
laggard in this area, and even a cursory look around the world 
will show you that we are trapped in old practices when the 
rest of the world has left them behind.
    I have mentioned in my written testimony other obstacles 
that I hope earnestly the Congress will deal with. The absurd, 
almost surrealistic permitting regime has sooner or later got 
to change.
    I will just conclude by reminiscing that I was invited to 
talk about this very same subject 9 years ago. I sat here with 
then-Governor Kaine of Virginia, and I got that testimony out 
and looked at it, and I am discouraged to say that I almost 
could have Xeroxed it and submitted it again. Little or nothing 
has changed in the interim except the severity of the problem.
    I will just say that, as I did then, in a Nation that is 
sometimes so divided over so many questions, this strikes me 
not only as an urgent national priority, but a huge opportunity 
for bipartisan cooperation, and I appreciate the chance to come 
here and implore the Congress once again to seize this 
opportunity and to do it in a cooperative way.
    [The prepared statement of Mr. Daniels appears in the 
appendix.]
    The Chairman. Thank you so much.
    Mr. Bhatt, we will turn to you next.

    STATEMENT OF HON. SHAILEN P. BHATT, EXECUTIVE DIRECTOR, 
       COLORADO DEPARTMENT OF TRANSPORTATION, DENVER, CO

    Mr. Bhatt. Thank you, sir. I first want to thank Chairman 
Hatch for the invitation to testify and to acknowledge our 
Colorado Senator who had to step away from the committee, 
Michael Bennet. I thank him for his many years of service to 
the State of Colorado and to my boss, who was then Mayor 
Hickenlooper.
    And I am sorry that Senator Carper is not here. He is one 
of the nicest recovering Governors I know in the Senate, and I 
know transportation is very important to him.
    It has already been listed where I have worked before. I 
will just say that I have been appointed by three Governors, I 
have worked as a presidential appointee, and I do it because, 
in public transportation and public service in transportation, 
you have this amazing ability to impact people's lives, 
hopefully in a good way. And I am just grateful for the 
opportunity to talk about ways that we can find more resources 
to make that happen.
    I just want to begin with a story that illustrates the 
transportation situation or dilemma in Colorado. During my 
first 3 days as CDOT's executive director, I took an 1,100-mile 
tour around the State, which was not possible in Delaware.
    As those of you who are familiar with Colorado know, I-25 
is the major north-south artery tying urban communities 
together along our front range. It is also an important freight 
corridor for the United States, running all the way from Canada 
to Mexico.
    The first leg of the journey was on I-25 heading north out 
of metro-Denver, and I got stuck in my first traffic jam in 
Colorado, not in the Denver metro area, but in a rural section 
of Colorado on I-25. I thought there might have been an 
accident. I asked my regional engineer where the crash was. He 
said, ``This is just everyday traffic.'' And then I said, 
``Well, when will this road get widened,'' and I was told 
2070--2070.
    So, 18-year-olds who are getting their drivers' licenses 
today will be 73 years old before that road gets widened. That 
is just unacceptable. There is a commercial impact, there is a 
jobs impact, and there is a safety impact.
    So, based on that story, it should be no surprise that this 
year, during the Colorado State legislative session, there was 
a bill introduced that was promoted by both the business 
community and primarily Republican elected officials along the 
north I-25 corridor that I just mentioned. The bill would have 
asked Colorado voters to bond against future Federal revenues 
for $3.5 billion and to take about $1 billion of that and widen 
I-25.
    Now, we had to oppose that bill because expanding capacity 
by essentially doing a GARVEE bond, which would have pulled 
some of our Federal revenues, would have decimated our ability 
to maintain existing infrastructure assets. But the example 
illustrates how important the Federal revenues are to Colorado, 
where we spend 2 out of every 3 of our Federal dollars on 
construction. But more importantly, if we had some more 
revenue, we could enter into more of these public-private 
partnerships and quickly seek a bonding solution to accelerate 
some of these important improvements.
    The bottom line and the most important thing I want to 
leave you with today is that, similar to Colorado's proposed 
bonding bill, Congress cannot fix a funding problem just 
through financing alone, and I know the chairman had mentioned 
some of that earlier on.
    I cannot emphasize enough what is a critical point: 
financing mechanisms cannot correct what is essentially a 
funding problem due to revenue shortfalls. We need a stable 
funding source, first and foremost, if we want to move ahead in 
transportation.
    I believe it is critical that we address these 
infrastructure improvements not only in Colorado, but for all 
the States in the Nation.
    Mr. Chairman, by necessity, Colorado has turned to a 
variety of creative financing methods in an effort to move 
these critical projects forward. This week we had the ribbon-
cutting on our first P3 project from the highway side, the 
first phase of US-36, which connects the urban centers of 
Denver and Boulder. Even with the great Federal and local 
support for this $450-million multimodal project, it would not 
have been possible without the State entering into a P3.
    US-36 is one example of a P3, and it is one where our 
private partner is taking on the toll risk. Toll risk is not 
the only risk you are looking to transfer. Sometimes there is a 
lot of construction risk as well.
    I have cited several other examples in my written testimony 
where CDOT is using managed toll lanes. We do not have a lot of 
appetite nor the ability to toll the entire interstate, but 
what we are saying is, we can add capacity, and we will toll 
that capacity that we are adding.
    In one example, I-70 through Denver, we do not expect to 
move forward on the P3. We do expect to move forward on a P3 on 
another corridor, C-470. We did a Value for Money study, and we 
do not know that a P3 will provide the best value. So we are 
trying to find the right situations. In that case, a TIFIA loan 
we believe will be the right solution.
    Mr. Chairman and members of the committee, it is important 
that States have different financing tools in the toolbox, 
driven by a constrained funding reality, to meet the 
transportation investment needs of the State and the Nation.
    Colorado certainly needs to step up and do our part, and we 
are trying, but our transportation system has Federal 
interests, including interstate commerce and quality of life of 
all of our citizens, and we need to continue to have a strong 
Federal partner in transportation.
    I appreciate the committee's time and attention to the 
important topic of transportation funding and financing, and I 
am happy to answer any questions you may have.
    [The prepared statement of Mr. Bhatt appears in the 
appendix.]
    The Chairman. Thank you so much, Mr. Bhatt.
    Mr. Narefsky, we will now turn to you.

      STATEMENT OF DAVID NAREFSKY, PARTNER AND CO-LEADER, 
  INFRASTRUCTURE PRACTICE GROUP, MAYER BROWN LLP, CHICAGO, IL

    Mr. Narefsky. Thank you, Chairman Hatch. It is an honor for 
me to be here today to discuss the increased use of public-
private partnerships to finance transportation infrastructure.
    I prepared a map to just highlight representative 
transactions that we have seen implemented or in process over 
the last decade. There are many transactions to talk about. 
Many of them are described in some detail in my written 
testimony.
    What I was hoping to do this morning was to highlight for 
the committee a number of what I think are the key lessons 
learned from this last decade of State and local governments 
partnering with the private sector to develop transportation 
infrastructure. And in most cases, many of the most significant 
infrastructure projects that have been undertaken in the United 
States in the last decade have, in fact, benefitted from this 
use of the public-private partnership model that has been 
developed and refined in Europe, Australia, and Canada and now 
increasingly is being used in the United States.
    So, to highlight what I think are the key lessons learned, 
as the chairman noted before, there is bipartisan support for 
public-private partnerships at both the Federal and the State 
level. Federal financing incentives and regulatory flexibility 
have been encouraged by each of the Clinton, Bush, and Obama 
administrations and both Republican and Democratic Governors, 
who have been strong advocates for public-private partnerships 
supporting transportation infrastructure.
    Protecting the public interest is paramount. Successful 
public-private partnerships require the private partner to 
comply with detailed and comprehensive operating standards, 
with noncompliance resulting in monetary penalties and/or 
default and the loss of the right to continue to operate the 
project.
    A reliable legal framework is a critical precondition to 
getting things done. Private parties investing in a 
jurisdiction need to know that the identified sources of 
revenue will be available throughout the term of the agreement 
and that when the project procurement is initiated, it will get 
to the finish line.
    Having a public champion is critical. Jurisdictions that 
have been successful in developing public-private partnerships 
have had a public champion who clearly articulated policy 
rationale for the project, moved forward with bold initiatives 
to develop new projects, and developed a vision in the face of 
uncertainty and oftentimes opposition.
    And I really have to note, because Governor Daniels is 
sitting to my right and Shailen Bhatt, who works for Governor 
Hickenlooper, is also sitting here, that having had the 
pleasure of working on many transactions in both Indiana and in 
Colorado, they really represent kind of the best in class of 
public champions who have made these projects work and have 
really resulted in both Indiana and Colorado being models for 
how to get P3s done.
    Continuing on, though, with lessons learned. Federal 
financing incentives, in particular tax-exempt private activity 
bonds and low-cost TIFIA financing, have been critical for the 
successful implementation of transportation public-private 
partnerships.
    Important and critical government policy objectives can and 
are regularly incorporated into public-private partnership 
transactions. These objectives include labor protections, such 
as offers of employment to existing employees, and maintaining 
wages and benefits of current public-sector employees. They 
also include contracting requirements for women, minority, 
disadvantaged, and veterans' business enterprises, and they 
often include limitations on tolls or other fees that can be 
charged by the private-sector partner.
    Successful public-private partnerships often result in 
significantly reduced construction costs, as well as lower and 
more predictable life cycle, operation, and maintenance costs 
over the useful life of the asset.
    Finally, the successful models that have been developed for 
the transportation public-private partnerships that are on the 
map are being increasingly applied to other types of 
infrastructure in the United States, including water supply and 
public buildings, such as courthouses and university 
facilities.
    As I noted, there are a lot of projects that have been 
accomplished in the last decade. I would be happy during the 
question-and-answer period to focus on any one in particular, 
and a number of them are described in my written testimony.
    So, again, thank you very much for the invitation to speak 
today on what is a really important topic for U.S. 
transportation infrastructure.
    [The prepared statement of Mr. Narefsky appears in the 
appendix.]
    The Chairman. Thank you for being here.
    Mr. Feigenbaum, we will now turn to you.

    STATEMENT OF BARUCH FEIGENBAUM, ASSISTANT DIRECTOR FOR 
   TRANSPORTATION POLICY, REASON FOUNDATION, LOS ANGELES, CA

    Mr. Feigenbaum. Thank you, Chairman Hatch, Ranking Member 
Wyden, and fellow members, for the opportunity to testify 
today.
    While the Federal Government continues to delay action on 
meaningful transportation reform, States are leading the way. 
Understandably, raising taxes is unpopular. While several 
States have increased their gas tax, moved to a gas tax/sales 
tax combo or begun testing mileage-based user fees, many others 
have chosen to stretch their resources further with innovative 
financing.
    Given scant political support for funding increases at the 
Federal level, Congress should examine what States are doing to 
stretch their resources. At the same time, innovative financing 
is not a panacea for our transportation problems.
    Financing is the act of obtaining full project funding up 
front from investors, while funding is the actual revenue 
itself. While financing can stretch resources, States must have 
some underlying funding, such as gas taxes, tolls, or mileage-
based user fees.
    States want to avoid a situation, such as New Jersey's, 
where the State has become so overly leveraged through 
borrowing that 100 percent of its annual gas tax revenue must 
go to repay its debt. And that is still insufficient, so the 
State would need to actually tap other funding in order to 
fully repay the debt.
    Most of the innovative financial activity has taken place 
through public-private partnerships using TIFIA and private 
activity bonds, and a smaller source of innovative financing 
has been State infrastructure banks.
    A powerful tool that fewer than a dozen States are actively 
using so far is the long-term public-private partnership, in 
which the private sector designs, builds, finances, operates, 
and maintains a major highway or bridge, typically on the scale 
of $500 million to several billion dollars in cost.
    Over the past 12 years, the largest 16 P3 projects have 
involved a total investment of nearly $28 billion. Most of 
these projects involve some degree of State investment on the 
order of 20 percent to 25 percent, the rest privately financed 
by the winning concession team using a mix of debt and equity.
    There are many advantages to this type of procurement. 
Because the same entity will be constructing and then operating 
the project over many decades, the incentive is to build the 
project more durably so as to minimize the life-cycle costs 
rather than minimizing only the initial construction costs.
    The P3 company also accepts many of the risks that are 
usually borne by taxpayers: construction costs, overruns, late 
completion, inadequate maintenance, and, in many cases, traffic 
and revenue. Because these are examples of project finance, the 
total cost is raised up front and the bonds are paid off over 
many years, as highway users benefit from the improved 
infrastructure, and proper maintenance is contractually 
guaranteed for these high-profile projects.
    A toll concession P3 is the best deal for taxpayers, as the 
toll can provide most of the revenue to repay the financing for 
the project. Availability payments, the other type of P3s, also 
need a source of revenue. However, both types of P3 projects 
transfer risk to the private sector, which is the biggest 
advantage of all P3s.
    P3 contractors also deliver projects more cost-effectively. 
The I-70 Value for Money report prepared for the Colorado DOT 
HPTE unit looked at six projects, comparing the actual project 
costs with the costs estimated by the procuring agency if the 
project were delivered internally. All five U.S. projects, 
including I-595 in Florida, FasTracks in Denver, the Port of 
Miami Tunnel, the Goethals Bridge in New York, and Presidio 
Parkway in San Francisco, were delivered at a lower cost, 
typically 12.5 percent to 20 percent.
    There are two financing tools which help make these 
projects possible: private activity bonds and TIFIA loans. The 
private activity bond program in recent years has been well 
used. At the end of 2014, about $5 billion of these bonds had 
been issued, another $5 billion have been approved for issuance 
by DOT, which leaves only $5 billion of the original $15 
billion available. So if Congress were to enact a 6-year bill, 
we would recommend increasing the cap to $30 billion, with 
lower amounts for a lower bill.
    The TIFIA program is also popular as a source of 
subordinated loans. We recommend several reforms to the TIFIA 
program, including reducing the total amount of loan coverage 
from 49 percent to 33 percent and streamlining the program so 
that more projects can get covered. We think some of the 
restrictions used by USDOT are perhaps a tad onerous.
    I also want to briefly touch, in the time I have left, on 
State infrastructure banks. State infrastructure banks were 
authorized in SAFETEA-LU and in T-21. They were not authorized 
in MAP-21.
    We think they are an important tool. There are 32 States, 
plus Puerto Rico, that have Federally capitalized SIBs. There 
are four other States that have either State-capitalized SIBs--
Georgia and Kansas--or State and Federal--Florida and Ohio. The 
leader in SIB activity has been South Carolina, with $3.3 
billion. Most of the State activity has taken place in 
Florida--$762 million.
    Thank you for the opportunity to testify today on 
transportation finance. I would be happy to answer any and all 
questions either orally or in writing.
    [The prepared statement of Mr. Feigenbaum appears in the 
appendix.]
    The Chairman. Thank you so much.
    Governor Daniels, your testimony identifies the remarkable 
statistic that it typically takes 7 years for the Federal 
Highway Administration to complete an environmental impact 
statement. And as you identified, by comparison, in countries 
like Canada and members of the European Union, none of which 
you would think of as lacking in environmental protection, 
those environmental reviews take far less time.
    Now, lag times before infrastructure projects can even 
break ground associated with permits and reviews and studies 
and the like are simply inefficient and hard to justify.
    Now, Governor Daniels, would you talk a little about the 
needless Federal red tape, inefficient wait times, and delays 
associated with clearing Federal hurdles and getting to the 
groundbreaking stage of an infrastructure project? I know you 
have covered it to a degree. And do you think it would be 
difficult to eliminate some hurdles and make the processes more 
efficient?
    Mr. Daniels. It would be hard to have a less efficient 
process than what we have now, Senator. And while there are 
people far more expert on the details of this, I can testify 
that I watched it get worse, not better, during the years in 
which I was actively involved in trying to make infrastructure 
and other projects real.
    The multiplicity of agencies with hands on in this 
situation has aggravated the problem. I know one suggestion 
that makes common sense to me is that there really needs to be 
a lead agency designated, and I would absolutely prefer a 
system which we see elsewhere in the world in which there is a 
presumption of approval. We should shift the burden from those 
who would build, who would thereby trigger employment and 
growth and upward mobility for Americans, shift the burden off 
of them onto those who would stop a project, with some sort of 
time limit attached to that.
    All these practices are in operation elsewhere, as you say, 
in places which do not take a back seat to anyone in their 
concern for the environment. But if we had set out to design a 
system guaranteed to thwart, delay, and often, therefore, kill 
needed projects of all kinds, we could hardly have done better 
than what we have today.
    The Chairman. Thank you.
    Mr. Feigenbaum, could you follow up on Governor Daniels's 
remarks and tell us which red tape is the most detrimental to 
infrastructure?
    Mr. Feigenbaum. I think probably just the overall timeline 
and some of the environmental reviews that projects have to go 
through. The fact that it takes 12 to sometimes 15 years from 
conception of a project to actual completion increases the 
cost. And if there is a way that we can streamline the 
environmental process, some of which I think we did do in MAP-
21, I think that is probably the biggest thing that we can do 
to help speed these things along and lower costs as well.
    The Chairman. That is great.
    Governor Daniels, let me come back to you again. Your 
testimony describes the Indiana toll road project as a large 
success for your State, the State of Indiana. The project 
brought in nearly $4 billion in revenue to Indiana while 
providing for hundreds of millions of dollars in improvements 
to be made to the toll road.
    Now, despite this success, public-private partnerships have 
been slow to catch on in the rest of the States, and even last 
week the CBO said that the U.S. had relatively little 
experience with these deals when compared to the rest of the 
world.
    Now, given your stated success with this arrangement, why 
do you think more States have not followed Indiana's example?
    Mr. Daniels. They would have to speak for themselves, 
Senator, but first of all, there were unique aspects to our 
opportunity. Not everybody has an existing asset of that size 
that would be subject to the actions that we took, although one 
of the great tragedies I saw was when Pennsylvania, with a toll 
road worth probably three to four times ours and with a 
tremendous infrastructure problem, when Governor Rendell was 
unable to persuade people in both parties to come along with 
it.
    If people would simply start with the questions of, what 
result are we trying to reach and what tools, tools plural, 
will be necessary to solve a problem this big, I think you 
would see a lot more of these. But there are people with a 
theological, I would describe it, commitment to the old-
fashioned mode who cannot see their way clear to anything that 
is not government-owned, government-built, and government-
operated all the way through, and that is very shortsighted and 
I think ultimately very damaging to the interests of our 
country and particularly low-income Americans.
    The Chairman. I loved your idea about presumption, your 
presumption of approval idea.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Narefsky, let me start with you. It seems to me what 
you are saying is, with the right government policies, there is 
a mother lode of potential for the private sector to invest in 
infrastructure; is that right?
    Mr. Narefsky. Yes it is, Senator. I think that is quite 
right. There is no question that there is a large amount of 
capital, investment capital, private-sector investment capital, 
available to be deployed for the type of infrastructure 
projects we have been talking about. So what is really 
important is to find the right tools to incentivize the 
deployment of capital, which, in some cases, is either sitting 
on the sidelines or, frankly, is being deployed in Canada or in 
other jurisdictions where sometimes the projects are easier to 
move forward and get done.
    Senator Wyden. Let me get your suggestion on this question 
of the government tools. This committee has jurisdiction over 
one, and that is tax-exempt private activity bonds that can 
help the private investor put their money in infrastructure 
projects.
    In your view, what is the potential of that tool, and do 
you have some ideas that our committee could pursue to improve 
that?
    Mr. Narefsky. Yes. So I think building on the success of 
the current private activity bond program is one area to focus 
on. This was authorized back in 2005, a $15-billion 
authorization very much designed to encourage private-sector 
investment and public-private partnerships in transportation 
infrastructure.
    As often happens, I think, with new Federal programs, it 
took a little while for the market to understand how the 
program could be utilized. But if you fast-forward, in the last 
couple of years, this is a very active program.
    As Baruch had said, of the $15 billion, more than $5 
billion has been issued. There is another $5 billion that has 
been allocated. So the inventory is really being spoken for.
    So the Move America Act that you are a cosponsor of, I 
think is a very good way to build on the private activity bond 
program that is in place now. It builds on it, it expands it, 
it provides for additional types of projects that can benefit 
from tax-exempt financing.
    It gets rid of the alternative minimum tax penalty that is 
associated with certain of the private activity projects. And 
the other aspect, I guess, of the Move America bill that is 
interesting to me is the potential use of tax credits.
    I have worked before on some of the other tax credit 
programs for public-sector infrastructure, for energy projects. 
There was an earlier one for school construction. And they 
tended to suffer from being very small, so it was hard for a 
market to develop, and it was not clear that the pricing, the 
credit pricing, really was at the right level.
    From what I have seen of the Move America bill, this could 
take place on a much larger scale and might allow the credits 
to be sold separately from the project itself.
    Senator Wyden. That is the key. That is one of the major 
features that Senator Hoeven and I have been pursuing.
    Mr. Narefsky. Well, it is an important concept, because 
rules were never developed for some of the prior tax credit 
bond programs. There has been talk about the separate sale of 
the tax credits, but that never really happened. So I think 
this is a potentially interesting opportunity to raise 
additional capital and have it deployed in the service of these 
large-scale infrastructure projects.
    Senator Wyden. I appreciate your kind words for it. And in 
one of the other key areas, colleagues, Senator Hoeven, a 
former Governor--and this is apropos of Governor Daniels--said, 
in particular, one of the lessons learned from Build America 
Bonds is, we have a chance to use the States and localities to 
play a bigger role than was pursued in the Build America 
program. So I think that ought to be attractive as well.
    I see Governor Warner down there as well, and he too very 
much wants to pursue this area and to have the States and 
localities play a bigger role.
    Now, it is probably not a Finance hearing without at least 
one controversy. So I want to kind of start it a little bit, 
and perhaps we can have you comment on this, Mr. Bhatt.
    You talked about the promising projects that you all had 
pursued in Colorado, the I-25 corridor between Denver and Fort 
Collins and the like. We have had some in the Senate and 
certainly in the academic community talk about the concept of 
devolution and, in effect, turning back the Federal highway 
program to the States.
    What would have happened in Colorado if you were looking at 
a project like that, the one that you have considered so 
promising, if you had gone to this devolution concept?
    Mr. Bhatt. Thank you for allowing the controversy to start 
here. [Laughter.]
    A couple of things. To build off of what Governor Daniels 
had talked about, you need two things to build a major project. 
You need the funding, and you need a record of decision to say 
that you have cleared through the environmental process.
    In this case, we actually have a record of decision to 
build this project, which is a big hurdle. What we do not have 
is the funding.
    On the devolution side--and I had heard this when I was in 
Kentucky, when I was in Delaware--the whole donor-donee State 
thing has sort of now gone by the wayside, since everybody is 
now getting these general fund transfers. I think that, to me, 
the Colorado example--and I think this would be true of 
Delaware as well--is that, if you devolve the Federal role--and 
I think that the way I understand this is that you just say, 
well, we will get rid of the Federal gas tax and we will let 
the States collect it themselves.
    The particular challenge in Colorado is around this idea of 
TBOR, the Taxpayer Bill of Rights. So any gas tax increase, any 
tax increase, would have to go to a vote of the people. And so 
what you would have to then do is take that 18.3 cents and say 
to the Colorado voters, ``Hey, would you like to just switch 
this over,'' right? ``It is a Federal tax now, would you like 
to switch it over here? '' And my fear is, just like there is 
no appetite for a gas tax increase, or limited appetite, there 
is no guarantee that when that Federal money was then no longer 
Federal, it would be at the State level, that the State itself 
would take the chance to make those investments. I think that 
is one issue.
    The second part on the devolution side is one of the things 
that we are very focused on in Colorado right now, which is 
technology: connected vehicles, autonomous vehicles, how we can 
squeeze more toothpaste through this tube using technology.
    I think there needs to be a strong Federal role in making 
sure that the technology that is adopted in Colorado works with 
the technology that gets adopted in Utah or works with 
technologies that are being adopted by many States so that you 
have consistency across the country.
    Senator Wyden. I am over my time, Mr. Chairman. Thank you. 
Thank you all.
    The Chairman. Thank you.
    Our next person will be Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Chairman, I have been a long and consistent supporter 
of harnessing private-sector financing to invest in our 
infrastructure, and, to this end, we have introduced 
legislation to roll back the Foreign Interest in Real Property 
Tax Act, FIRPTA, to increase the use of private activity bonds 
in various ways.
    But, while I recognize the role of the private sector, we 
should not lose sight of the fact that financing is not a 
replacement for funding. We saw this when, despite the fact 
that MAP-21, which I helped draft, increased the TIFIA 
financing program nearly tenfold, tenfold, but it failed to 
address the central problem, which is a lack of adequate 
funding.
    And that fundamental problem is not going to go away. We 
are going to have to work together and make some tough choices 
in order to find the revenue necessary to fully invest in 21st-
century infrastructure. I hope we do not fall into the trap of 
taking legitimate options off the table regardless of how 
unpopular they might seem at the moment.
    I know that there has been some talk in this body about the 
need to focus on financing rather than funding because the 
House has no appetite for revenue increases, but I do not think 
the Senate Finance Committee should be giving the House veto 
power over its work.
    There is a lot of support on this committee for investing 
in our infrastructure, and I would challenge the House at the 
end of the day as to where, in fact, they are willing to go as 
it relates to the critical infrastructure challenges we have in 
this country. I do not want to wait for the next bridge to 
collapse for them to come to an awakening of that need.
    The private sector is not going to choose its investments 
based on whether it will bail Congress out of a funding crisis, 
whether it is good for the U.S. economy, or whether it will 
benefit the society as a whole. They are going to choose their 
investments based on their financial interests. That is the 
essence of why they exist, and that is what they are supposed 
to do.
    So that is not going to cover every element of our 
transportation system, particularly if you are talking about 
smaller projects, if you are talking about rural projects, or 
projects that preserve access for the elderly or disabled.
    So to that point, in a recent hearing of the Banking 
Committee Transit Subcommittee, which I serve as the ranking 
member on, we heard testimony from Jane Garvey, who has held 
senior roles in both the public and private sectors, and her 
testimony argued that if the only reason a public-sector agency 
is considering a P3 is for financial reasons, it is probably 
not the right model.
    So, Mr. Bhatt, your State has a range of transportation 
challenges: highway and transit, rural and urban. Do you agree 
with Ms. Garvey's statement? Can private-sector financing serve 
as a replacement for any of your State's funding needs?
    Mr. Bhatt. Sir, I think the private sector plays an 
important role and a critical role, and in Colorado, over the 
next 20 years, we have about a $1 billion a year shortfall in 
transportation investment. We have projects, and these are not 
fluff projects. These are really good projects that could go. I 
think the challenge in transit is that transit does not pay for 
itself. When I was in Delaware, our fare box recovery is the 
metric that people look at, and it was around 20 percent, 20 
cents on every dollar that we put in is what we would get out. 
And lots of people point to that and say, look, transit does 
not pay; we should not pay for it.
    But there are millions of people in this country who do not 
make a decision on how they get to their destination based on 
the choice of taking a car or taking transit. They rely on 
transit to get to jobs.
    So to me, I think that there needs to be a mix of private-
sector profit motive and government sense of what is a social 
responsibility in terms of providing for----
    Senator Menendez. I agree with you that the private sector 
is important. I started my prefatory comments in that regard. 
The question is fundamental, though. Can financing solve all of 
your transportation problems in your State?
    Mr. Bhatt. No, because there has to be the profit motive in 
the transportation property to get out----
    Senator Menendez. So you mentioned that Colorado is 
considering a public-private partnership for the viaduct along 
I-70, and you go on to say you do not expect the private-sector 
partner to take on the toll risk.
    Given the Indiana toll road concession, where the private-
sector partner assumed the toll risk and ultimately went 
bankrupt, why would the State not seek to put more of the toll 
risk on the private sector?
    Mr. Bhatt. Well, sir, they are two very different projects. 
Obviously, the Indiana toll road, and I do not want to speak 
for Governor Daniels, was much longer and the entire facility 
was tolled. This is a managed lane. So this is one lane in each 
direction that is being tolled, and it just does not throw off 
enough revenue.
    So on a $1.2-billion project, the State and local partners 
are putting in, I want to say, $900 million of that.
    Senator Menendez. So the bottom line is, there is not 
enough potential profit in order for the private sector to come 
in.
    Mr. Bhatt. Only if you toll the entire facility, and that 
is just not allowed.
    Senator Menendez. Right. And then finally, when the private 
sector invests in a project, they are rightly working to earn a 
return on investment. That is the very essence of what they do, 
and I applaud that. But the role of the public sector is much 
broader. It is more than getting people from point A to point 
B. It includes questions of access, equity, and service quality 
for people of all incomes and all abilities.
    So is that not part of the factor that we have to put into 
these equations as it relates to how we are going to go ahead 
and achieve some of the transportation projects that are 
critical, whether it be for your State of Colorado or mine in 
New Jersey or others similarly situated?
    Mr. Bhatt. Yes, in my opinion.
    Senator Menendez. Thank you, Mr. Chairman.
    The Chairman. Thank you. I have to go to the floor for an 
important reason. So I am going to turn the committee over to 
Senator Coats, who has graciously agreed to follow up.
    I am grateful to all four of you for being here. Your 
testimony has been very important.
    So I will turn it over to Senator Coats, and he is next 
anyway.
    Senator Coats?
    Senator Coats. Mr. Chairman, I have only been a member of 
the committee for 6 months. To be given the gavel for a short 
amount of time is one of the singular accomplishments of my 
service in the United States Senate. [Laughter.]
    The Chairman. You make me feel very, very powerful. 
[Laughter.] But I know better. We are really happy to have you 
on the committee.
    Senator Coats. My concern is, once I have the gavel in my 
hand, you might have to pry my cold dead fingers from it. 
[Laughter.]
    The Chairman. I could not be succeeded by a better person, 
is all I can say. [Laughter.]
    Senator Coats [presiding]. Mr. Chairman, thank you.
    I am up next. In deference, though, to my colleagues here, 
as my first action as chairman, I am going to defer my 
questions and turn to the next in line, Senator Cornyn, who is 
significantly more senior than I, and seniority means something 
in the Senate.
    Senator Cornyn. I am enjoying the tenure of Chairman Coats 
already. [Laughter.]
    This is great. Well, the Environment and Public Works 
Committee recently passed a $278-billion 6-year highway bill, 
and we are only $90 billion short--$90 billion short.
    It strikes me that we have gotten into a bad habit here in 
Congress of thinking tactically in terms of how to deal with 
our transportation infrastructure, rather than coming up with 
some sort of strategy, because what invariably happens is that 
Environment and Public Works passes a highway bill and then 
they kick it over to the Finance Committee and say, you pay for 
it, and we are not really thinking, I think, in a big way about 
what the Federal role in the Nation's infrastructure and 
highways and bridges should be.
    The ranking member talked about devolution as if it were 
all or nothing, and I just would be interested in your 
comments, starting with Governor Daniels.
    But here is the problem we have, particularly in a big 
State like mine. In Texas, we get about 95 cents back on the 
dollar. So why should we raise the Federal gas tax so we get 95 
cents back? As a matter of fact, like your State, Governor, and 
like other States represented here, we have not been waiting on 
the Federal Government. Governor Abbott and the Texas 
Legislature and Texas voters have taken important steps to put 
$4 billion to $5 billion additional State funds into our 
transportation infrastructure, because frankly the Federal 
Government has been unreliable when it comes to those funds.
    But if you talk about the red tape issue that has also been 
raised here, a lot of that red tape comes from the fact that it 
is Federal dollars. And if it was done at the State level, 
these projects could be done much more quickly and in a less 
costly sort of way.
    But can you help us think about this in a way that would 
deal with those problems? Is there some sort of way to think 
about what is the Federal versus State responsibility when it 
comes to this?
    Mr. Daniels. Well, I will try. We are a long way from the 
Interstate Highway Act and the benefits it brought to the 
Nation, but yet we are living with basically the regime that it 
created.
    It is a legitimate question how much of that we still need. 
I cannot speak for anybody in Indiana these days but myself, 
but I will say, and did then, that if the Federal Government 
had been willing to step back from some of its gas tax, I would 
have advocated for its replacement at the State level.
    But I will give you a small example. Because we managed to 
harvest such an enormous amount of money for reinvestment 
through the toll road success, we undertook, almost as an 
experiment, some projects, smaller road projects and trails. I 
said, use entirely State money; I want to know what the result 
is. And the result was, they were built in less than half the 
time at about half the cost, just as a rough measure of what 
one might expect if we could disentangle, to some extent, the 
necessary reconstruction of America from the Federal 
requirements and limitations that are placed on States.
    I would also say that that committee you talked about, in 
an indirect way, could do a lot here. If we would commit to 
exploit the magnificent opportunity that is right in front of 
us for a long-term run of more affordable energy prices, if we 
were to liberate fully, maximize that opportunity, you could 
make a lot stronger case for the gas tax at today's levels or a 
higher level if the cost of the underlying product you knew was 
going to be moderate on a sustained basis.
    Senator Cornyn. I would be delighted to hear from each of 
you in turn if you have some views about the question I have 
posed to Governor Daniels.
    Mr. Bhatt. Sir, just very briefly, I would applaud Texas 
and any other State that is raising its own resources, because 
I do not think people are doing it because it is a nice thing 
to do. I think it is not only the right thing to do, it is an 
economic imperative and an economic competitiveness question, 
and countries around the world are making massive investments 
in transportation.
    They are not doing it because they like to have these 
things. They want to compete with us. They want to take our 
jobs and they want to come after the U.S. economy, and we need 
to compete. So I applaud any investment like that.
    I think, on the red tape issue, I have worked now in three 
different States and struggled with some of the Federal 
requirements, but I also say that the people who attend the 
school beside the highway that we want to widen, if my children 
went to that school, I would want them to have a forum, a place 
to be able to stand up to the government, to the State that 
wants to widen that road, and that is one of the things that 
the Federal Government provides through the National 
Environmental Policy Act.
    Yes, it takes more time and, yes, we can probably be much 
more efficient with doing it and doing things concurrently, but 
like I said, there are lots of people who do not get to testify 
and who do not get to come to these sorts of hearings, and 
those laws protect their interests.
    Senator Cornyn. I apologize. It looks like my time has 
expired, Mr. Chairman. Thank you.
    Senator Coats. Senator Bennet?
    Senator Bennet. Thank you, Mr. Chairman. I am happy to 
support a coup, if that is what you want. [Laughter.]
    Senator Coats. A bipartisan coup has more chance of 
succeeding. [Laughter.]
    Senator Bennet. Just picking up on where Senator Cornyn 
was, I think that maybe we should be having a debate about what 
the Federal and State role is. In fact, I would invite that.
    The problem that we have is that, because of the stasis 
here in Washington and because we keep extending highway bills 
month to month to month more than 20 times now, I think we have 
created huge uncertainty in America at a moment when our 
competitors are investing heavily in their infrastructure.
    As I often say, at this point, because of our politics--and 
it really is because of our politics; I am not blaming anybody; 
it is just true--we do not even have the decency to maintain 
the assets and infrastructure that our parents and grandparents 
built for us, much less build the infrastructure that our kids 
and grandkids are going to need in the 21st century, and time 
is wasting.
    When you look at the last 6 years and you consider how low 
interest rates have been over that period of time, the idea 
that we were allowing deferred maintenance to pile up and pile 
up on the roadways and bridges of America is a travesty from a 
fiscal point of view.
    If all you cared about was the fiscal condition of the 
country, you would not defer maintenance that could have been 
dealt with at a relatively cheap price, because every dollar 
that we did not spend 6 years ago is a dollar we are going to 
have to spend 6 years from now or 10 years from now, unless we 
really are going to let our infrastructure crumble into dust, 
which is what is happening.
    This is the committee that has to figure out how to pay for 
this, and I hope this committee will do its job.
    Even though our State is recovering, our economy is doing 
incredibly well, the businesses that are engaged in building 
roads in our State are actually laying people off during this 
economic recovery because of the uncertainty being caused by 
this Congress and, to be precise about it, this committee.
    So I hope we can act in a bipartisan way to create a 6-year 
bill. And with that, what I would just ask the panel is to 
describe for the committee what kinds of projects are better-
suited for public-private partnerships than others and which 
kinds do we need to continue to rely on the public sector to 
underwrite?
    Mr. Narefsky. That is a very good question.
    Senator Bennet. Finally, I asked a good question. Sorry for 
the long windup.
    Mr. Narefsky. But it is a very good question. I often say 
that it is important to note that, when you are talking about 
whether to do a P3 or not, you should not flip the coin in the 
air and always assume it is going to come up heads. You really 
need to think carefully, Senator, about exactly the question 
you pose: what projects are the ones that make the most sense?
    So I think part of it is a size issue and maybe a 
complexity issue, because I had the good fortune, for example, 
to work on the Denver FasTracks project in your State, and I 
think that is a perfect example of where a P3 does make good 
sense.
    There was, first of all, the need to accelerate project 
delivery. It obviously was very important for the region to get 
that transit line going between the airport and downtown Union 
Station. Also, there were some real engineering challenges in 
how the line was going to be constructed, and there were cost 
constraints.
    One thing that we have seen in that project, and I think 
you see in a lot of successful P3s, is the creativity of the 
private sector reducing construction costs considerably. And in 
the Denver project, it was probably about 25 percent under what 
were the original Regional Transportation District estimates.
    And I think the last point--and this actually ties into 
what you were saying in your earlier remarks--is projects where 
it is so important not just to have the project constructed 
well, but to have it maintained well, require the private 
sector in the agreement to have long-term operation and 
maintenance responsibility and avoid the problem you described 
of having infrastructure built well, but maintained poorly, if 
at all.
    Mr. Feigenbaum. Building on what Mr. Narefsky just said, 
the big projects--what we call mega-projects of $500 million or 
more--are the ones that most lend themselves to the private 
sector, because usually there is some profit in those projects. 
Usually there is a lot of risk, and so it is easy to transfer. 
And usually, as was just said, the maintenance is better.
    I think your point about maintenance is really excellent. 
Oftentimes, there is a sort of public give-and-take between 
building a new sexy infrastructure project which people want 
and maintaining the roads which people need, and I think most 
State DOTs have actually done a really good job of trying to 
maintain roads. But anytime you have sort of that political 
decision there, it is really tough. So when you have the 
private sector involved, they can make those decisions.
    I would also say Pennsylvania has done what I think is a 
really innovative project they are just entering into with 
their bridges--and Pennsylvania had a large number of 
structurally deficient bridges. And what they have done is, by 
bundling the contract with these bridges together, they have 
actually been able to get some of these smaller bridges which 
might not normally work as a P3 bundled with the larger 
bridges. And for smaller projects, I think that is a really 
good model.
    Mr. Bhatt. I would just say I agree that with larger 
projects, there has to be a profit motive. There usually has to 
be some toll revenue that is involved, but there is risk. There 
is risk on the construction side, and there is risk on the 
revenue side, and that is where you want to defer that risk. 
That is where the P3 model makes sense.
    Nobody wants to put money into maintenance and resurfacing. 
It is just not sexy.
    Senator Coats. Senator Warner?
    Senator Warner. Thank you, Mr. Chairman.
    I want to build off what my friend, Senator Bennet, said; 
first, that financing is great--and I have a proposal I want to 
talk about--but we have to have funding as well.
    It is also great to see Governor Daniels, somebody whom I 
have enormous respect for. I want to add to what Senator Hatch 
said. If you want to run for President, you have a lot of folks 
on your side, so jump on in. The pool is pretty big, and you 
would be a great addition.
    I think there are a couple of things that have not been 
brought out in the testimony yet. We actually have an office in 
the Treasury Department--I am not sure you know about this--
that advises American pension funds on how to invest in 
European or Canadian infrastructure, because there is not a 
real tool on a national basis to do it here, number one.
    Number two, on Monday, 57 nations are going to sign, led by 
China, a $100-billion Asian infrastructure bank deal. It is 
fundamentally changing--we do not have any such tool here on 
our side.
    I appreciate what Governor Daniels said about his testimony 
a number of years back with Governor Kaine. I would remind him 
there was another Governor there who started on these public-
private partnerships, and I think Virginia has, Mr. Narefsky, 
probably as much history as anybody, some going back into the 
1990s. And while we celebrate our successes today on public-
private partnerships, we have also had some dogs, and, quite 
honestly, one of the things I am concerned about is that we 
have relatively large States here that can do sophisticated 
financings.
    But sometimes there is a lack of sophistication at the 
State level. I remember when I was Governor and some people 
came and there was a proposal, say, we will give you $100 
million for the Dulles Toll Road or the Dulles Access Road, and 
the legislators felt like they were coming out of an Austin 
Powers movie--$100 million! [Laughter.] If you put pen to paper 
on it--and anybody with a first-
year MBA would have realized it was a total sucker deal.
    So I think we need to have, at the Federal level, an 
infrastructure financing authority, and I support what Senator 
Wyden has done on Move America Bonds, but we need an 
infrastructure financing authority.
    Senator Coats is familiar with my effort. We have actually 
got legislation that has 11 Senators on it--six Democrats, five 
Republicans--and there are others, if we get a better pay-for, 
whom I think we could add to the effort.
    For a $10-billion initial capitalization, $6 billion 
scored--this would only be a debt support program--we could 
leverage $300 billion of projects. And one of the things that 
is important is, if you look at your map, Mr. Narefsky, most of 
these are larger States. Smaller States sometimes do not have 
the expertise.
    I think there is a place, as Mr. Feigenbaum said, where we 
could do smaller projects, but you have to have the expertise 
to go toe-to-toe with Wall Street.
    So the idea of this financing authority that would only 
have creditworthy projects, that would only have public debt 
guarantees on the 49 percent, that would have first dollar 
loss, so it would have to be the private-sector partner, that 
would also have a set-aside so smaller projects would be in the 
mix, I really think ought to be on the agenda.
    If we start with 11 Senators--and there are a number more 
who I think would be supportive--this ought to be something 
subject to discussion. It is called the BRIDGE Act. I am going 
to try to get to a question here, but I want to finish my 
commercial.
    Because really, at the end of the day, a lot of these 
projects do not get done for three reasons. One, we need long-
term debt, which we can sometimes only get, I think, with a 
bigger entity; second, we need a lower debt price, and 
obviously some level of guarantee lowers that price; and 
third--and I do not think we can emphasize this enough--you 
have to have the expertise to go toe-to-toe with Wall Street.
    I believe from a financing standpoint--and I am a great 
supporter of the TIFIA program, and TIFIA is a kind of a one-
off inside of DOT--the idea that someone is going to have the 
expertise to be able to go toe-to-toe at the State level or as 
a one-off in TIFIA is just wrong.
    This needs to be a long-term career path so that we can 
guarantee the taxpayer the best value, because what we do not 
have on this, while we do have the Midtown Tunnel project, we 
do not have the project in Virginia, the Route 460 project that 
the State spent, under a certain Governor, not this one or 
Kaine, $200-and-some-plus million on and did not move an ounce 
of dirt, and we basically put an end to it because the deal was 
not negotiated well.
    So the question, Governor Daniels, is, we all applaud good 
projects, but do we not have to be careful that not all 
projects fit the bill?
    Mr. Daniels. Senator, just to put it delicately, dogs are 
not the exclusive province of the private sector or P3 
projects, and I will be wise enough not to name any, but the 
biggest canine experiences I can remember happened under 
conventional funding and financing mechanisms.
    Senator Warner. There is a certain project in Boston that 
might fit in that category.
    Mr. Daniels. I will not specify. I see a couple more coming 
on the other coast, but each of us can think of his own 
examples.
    I will just use the opportunity to say I have appreciated 
our past conversations. You know from them that I see a lot of 
appeal in the approach that you are suggesting. I think 
properly crafted, it too should be a part of the solution. This 
problem is so big and so urgent that there is not going to be 
any one fix, in my opinion, and each of the ideas that I have 
heard mentioned here today and elsewhere I think is legitimate 
for consideration.
    But I will just say that it would be a huge missed 
opportunity to sit out while the rest of the world takes 
advantage of the possibility of major private participation in 
addressing this shortfall. But no solution will be complete 
without that being a significant part.
    Senator Warner. I know I have gone over, Mr. Chairman. I 
would simply ask to make a final comment. Based on Governor 
Daniels's suggestions, in our BRIDGE proposal, we did put in 
that any project that would qualify for this financing would 
have an expedited permitting process.
    Senator Coats. Thank you, Senator.
    Senator Carper has dedicated an extraordinary amount of 
time to this issue, calling on me numerous times and bringing 
me up to date. Senator Carper, you are on.
    Senator Carper. Thank you, Your Eminence. [Laughter.]
    From one recovering Governor to another, welcome. From one 
Delawarean to an immediate past Delawarean, Shailen, it is 
great to see you too. Our other colleagues who are here today, 
welcome.
    I think one of the things that Senator Warner said at the 
beginning of his comments is that, while financing is 
important, funding is critical. And the financing, it is not 
that it is easy, but it is easier, and the really tough thing 
is, how are we going to fund these investments that we all know 
we need?
    The President has actually said--here is his idea. He has 
given us a big idea, and basically it says that $2 trillion is 
part of the overseas profits of American companies, that they 
are just not bringing it home. Why do we not deem it 
repatriated and tax it at 14 percent and use the revenues 
derived therefrom to fund a robust transportation and 
infrastructure program?
    At least he has an idea, and it is not just a cheap idea. 
It is something that would create a whole lot of money for 
investment.
    Several years ago, when Bowles-Simpson was being stood up, 
they invited input from all of us, and George Voinovich and I 
suggested that we raise the gas tax and the diesel tax by a 
penny a month for 25 months, and 10 cents of that would go for 
deficit reduction, and 15 cents would go for roads, highways, 
bridges, and transit.
    They took that idea and said, we are not going to do it by 
a penny a month for 25 months, but a penny a quarter, every 3 
months, for 15 quarters and then index it to the rate of 
inflation going forward. If we had done that 5 or 6 years ago, 
we would not be sitting here having this conversation today. We 
would be well on our way to meeting the concerns.
    I think long-term increases in the gas or diesel tax are 
not the solution. They are not the solution. They can be and 
need to be part of the solution for the next 5 or 10 years or 
so. But I think at the end, what we want to do is come up with 
a better tool, a better way to ensure that folks who are using 
these services, using the roads, highways, bridges, transit 
systems are actually paying for them and we have a fair way to 
do that. And that is our ultimate goal.
    Speaking of responsibilities, I serve on the Environment 
and Public Works Committee, and I am privileged to serve here 
as well. The Environment and Public Works Committee reported 
out yesterday unanimously a bill. I think Senator Cornyn may 
have said it was a $750-billion bill. It is not. It is about a 
third of that. He overstated it by threefold, I believe, if I 
heard him correctly. But it is still a decent amount of money 
we could spend. Obviously, we could use a whole lot more.
    But the Environment and Public Works team, in reporting out 
the authorizing bill, is like a kickoff team, and this 
committee, in football, is the receiving team. I serve on both. 
I get to be both. Imagine in a football game, I am on the 
kickoff team, and serving here I would help receive the ball 
and try to move it up the field.
    I think if things are worth having, they are worth paying 
for, and I have heard so many of my colleagues at hearings like 
this just bemoan the situation that we face: the awful roads, 
highways, bridges, transit systems we face. And people come up 
with ideas to finance this stuff, but not to really fund it.
    So, having said that, let me just ask a couple of 
questions, if I could.
    I am a believer in private-public partnerships. I believe 
in tolling and trying to find ways to do this, rogue user 
charges, vehicle miles--I am all for doing that. I think some 
of the financing works. It is not a majority solution. It may 
help, 5 or 10 percent of it, but it is not the real deal.
    Would each of you give us one idea on funding, just one 
piece? If we are going to, what should we do?
    Governor, just give us really briefly one good funding 
idea, please.
    Mr. Daniels. Well, I think the fairest and most efficacious 
way is a major expansion of user fees and tolling. There is 
nothing novel about it. It is more equitable and it is more 
flexible, and I have advocated for it in multiple contexts now 
and am perfectly prepared to do it again. I think that is the 
single biggest opportunity I see.
    Senator Carper. Thank you, sir.
    Secretary Bhatt?
    Mr. Bhatt. The gas tax, for all of its inequities, is 
incredibly efficient, and I think that, to me, the easiest and 
the right thing to do is just to take a tough vote and raise 
the gas tax. I think that tolling and user charges are another 
way.
    Any way you slice it, it is a tough choice. The money has 
to come from somewhere. So I think, to me, we have a gas tax, 
it should just be raised.
    Senator Carper. Thank you.
    Please?
    Mr. Narefsky. I think one idea worth consideration that I 
think is already on the table in one of the administration's 
proposals is to significantly expand the ability to toll 
existing interstates. That idea combined with some additional 
flexibility for how those projects could be financed and to 
keep existing tax-exempt debt outstanding, I think could 
provide States with an additional significant source of money.
    Senator Carper. Good. Thank you.
    Mr. Feigenbaum. I agree with the idea of expanding tolling 
on the interstates. I think that is something that is really 
needed. I think there is a lot of interest. It is not forcing 
States to do it. It is an option that might allow them to shift 
the gas taxes around to other projects. And, over the long 
term, it is definitely mileage-based user fees. There is 
testing in Oregon right now. We are not there nationwide, but 
in 10 to 15 years we should be there.
    Senator Carper. Oregon has been doing this for 10 years. 
They are a good laboratory of democracy, and hopefully we can 
learn from them.
    My time has expired. Could I ask just one quick follow-up 
on tolling, Mr. Chairman?
    Senator Coats. Given the privilege of being the chairman, I 
can say, yes, you surely may.
    Senator Carper. Thank you so much.
    With respect to tolling, if we were to loosen the Federal 
restrictions on tolling highways--several of you mentioned 
tolling--how would that impact the ability to develop strong 
public-private partnerships? Anyone, please.
    Mr. Narefsky. Well, I will be happy to speak to that, 
Senator. So it would not necessarily require public-private 
partnerships. Obviously, the State could choose to proceed in 
the way existing toll road and toll authorities exist purely in 
the public sector.
    But I believe that if the States had this enhanced 
authority to toll existing interstates, with the right 
financing solutions that either exist now or could be provided, 
I think you would be able to have a real opportunity for States 
to expand these public-private partnerships and use the toll 
revenues to pay for all this badly needed infrastructure that 
we have all been talking about that we cannot find a way to pay 
for.
    Senator Carper. Maybe one more view, please.
    Mr. Feigenbaum. Yes. I actually think that is a critical 
tool, because in my view, the best kind of public-private 
partnerships are the ones supported by revenue.
    We have all discussed how there is a revenue problem. You 
can enter into an availability-payment P3, but that is 
supported by gas taxes. So you are doing some financing, but 
you are not really solving the revenue.
    If you have tolling, you are going to have a lot more 
States that can make use of that and are going to enter into 
P3s. So, as we talk about how the U.S. is in some way behind on 
P3s, I think that tolling is both a great source of funding and 
a way to allow States to enter into more P3s.
    Senator Carper. Good. Thanks.
    Mr. Chairman, could I just say, Shailen Bhatt was our 
Secretary of Transportation for not long enough, and he has 
left us for Colorado. We miss him and have a good successor, 
but we will always be grateful for his service.
    The other thing I would say, on the bill that we reported 
out yesterday unanimously, out of the Environment and Public 
Works Committee, in the authorizing legislation, one of the 
things--and I have met with everybody on this committee, asking 
what would you do, what should we do, what do you think we 
ought to do to help fund this stuff, and among the ideas that I 
got were, find out and figure out how to build roads, highways, 
bridges, transit systems in a more cost-effective way.
    And one of the things I asked Secretary Anthony Foxx, our 
U.S. Transportation Secretary, is, ``Do you guys have any 
ideas? '' As it turns out, they do, and the bill we reported 
out of committee yesterday includes a number of those ideas, 
for what it is worth.
    Thank you, and thanks very much for being so generous with 
the time. Shailen, nice to see you; Governor, everyone, thank 
you.
    Senator Coats. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman. I am grateful for 
the opportunity. I know we are late in the morning, and I will 
be probably under my time.
    I wanted to say to Senator Coats, you gave a great 
introduction of Governor Daniels, but you did not mention that 
he has roots in Pennsylvania. Monongahela?
    Mr. Daniels. Yes. My dad is from Monessen, and I have an 
uncle from Charleroi.
    Senator Casey. So we just want to add that to the record. 
But we are grateful for the opportunity to talk about what I 
think is among the most pressing issues we have in the country, 
both from a safety perspective, but also because of the 
economic benefit that we derive from these investments.
    Several of the witnesses referred to an effort in 
Pennsylvania. In fact, Mr. Narefsky mentioned in his testimony, 
and I am quoting, ``The Pennsylvania Department of 
Transportation undertook a new initiative to address the 
State's growing inventory of structurally deficient bridges, 
the initiative to replace 558 of those bridges in just 3 
years.''
    The reason why we need efforts like that is because we have 
a big problem. Pennsylvania leads the country, unfortunately, 
in a category we do not want to lead in, and that is the number 
of structurally deficient bridges.
    We are not alone though, just looking at a number of 
States, frankly, that are smaller by way of population but 
proportionately have an even greater problem than we have: 
Iowa, structurally deficient bridges 5,022; Missouri 3,310; 
Nebraska 2,654; Mississippi 2,275; Oklahoma 4,216; North 
Carolina, just a little less than 2,200. So we have a major 
problem with bridges and a good idea in Pennsylvania.
    I guess for my first question, I would start with Mr. 
Narefsky. Analyzing this Pennsylvania idea, this initiative, 
what would you hope or what do you think the Federal Government 
could do to encourage more ideas like this? And I realize that 
some of this is redundant, but I just want to go through it 
again.
    Mr. Narefsky. One idea is to provide more of the financing 
incentives. With the Federal Government, that has been one 
consistent role that they have played, whether it is through 
the TIFIA program or through an expansion of tax-exempt 
financing opportunities.
    The Pennsylvania Rapid Bridge Replacement Project is the 
kind of project that certainly can benefit--both the public 
sector and the private sector can benefit from additional 
access to those programs.
    Senator Casey. Is there anything that you are seeing, any 
idea that has been proposed lately here or as part of the new 
transportation initiative or actually the new transportation 
bill that would match this, or do you think we have the 
existing authority or programs to do that?
    Mr. Narefsky. No. I think we should be building on the 
existing authority, but we need to expand it. I know the 
administration has its QPIB proposal, Qualified Public 
Infrastructure Bonds, and there is the Move America Forward Act 
that Senator Wyden was talking about before. Both of those 
build, I think, on what has been a very successful framework.
    Senator Casey. I appreciate that. I want to leave that 
question open to the panel but also add a question on the 
challenges that State and local governments might have when 
they are trying to enter into public-private partnerships.
    Are there any concerns there from the panel? Maybe just 
start from my right to left.
    Mr. Feigenbaum. I guess one thing that I think is 
important, especially for States and also for local 
governments, is to have someone in the State government who is 
really an expert on P3s.
    I know one of the Senators before mentioned the frustration 
that sometimes the State does not know if it is getting a good 
deal, and it has to be a two-way street. The State has to have 
someone who knows what is going on partnering with the private 
sector, because public-private partnerships are a great tool 
and I think a big solution.
    But obviously, nothing is right for everything, and so 
sometimes there has to be someone in the State who can make the 
decision whether this is good or not for the taxpayers.
    Mr. Narefsky. Sometimes when people ask me this question, I 
say, ``Make sure you hire good lawyers.'' But personal 
promotion aside, I think beyond what Baruch said, it is not 
just having the right people to decide whether to do the deal 
or not, it requires a kind of different skill set, and I think 
Governor Daniels saw this in Indiana.
    It requires a different skill set to manage these projects 
in the implementation and oversight stage, because it really is 
a long-term agreement. And you can have the best-drafted 
agreement with the best public-sector protections, but you 
really need to have people in the government who know how to 
manage those kinds of long-term arrangements and make sure that 
the private sector is doing what it committed to do and the 
public is really getting the benefit that was negotiated.
    Senator Casey. Mr. Bhatt?
    Mr. Bhatt. I think one of the challenges is that there is a 
lot of distrust among the public for public-private 
partnerships. I think that they just have this picture of 
bankers in suits skimming money out of their pockets as they 
drive by, and we have to do a very good job of explaining to 
them why it is a good deal.
    Second, I think that there is a perception that, in the 
public sector, we bring a knife to a gun fight, that we are 
going up against these sharks in suits and we just do not stand 
a chance, and that is why it is important to have the right 
people in place.
    We have a high-performance transportation enterprise, and 
we have some good people on it, but it is tough because there 
are some of the sharpest, brightest minds talking about LIBOR, 
50 basis points, and that is not the conversation that a lot of 
the public have often. So we have to be careful of that.
    Senator Casey. Governor?
    Mr. Daniels. I just do not buy it. Potential incompetence 
is not an excuse for inaction. And besides, you can hire, and 
we did, advisors. You can hire people with the same pricey 
suits as the other side. But it is just part of the 
responsibility of government.
    If you are trying to achieve the result, it is your job to 
make certain you do not get the short end. In our case, you 
could argue it the other way. We knew what the valuation of our 
road was, and when we got a big three times the status quo--or 
even if you assumed the impossible, namely, the escalation of 
tolls, which had not happened in 25 years, for all time with 
inflation, we still got two times the value, so, who lost their 
shirt in our deal? The investors. Sorry about their luck.
    But I just think that it is a legitimate concern. If the 
shackles are taken off, as I hope they will be, there probably 
will be some mistakes, but the Federal system is all about 
learning from mistakes and being accountable, politically, if 
you make them. So I really hope that this concern will not 
interfere with the possibilities of moving aggressively 
forward.
    If I could just have 30 seconds, since it is you asking 
this question--one of my most vivid memories of back then was, 
after Pennsylvania saw what we had done in Indiana, I had a lot 
of exchanges with then-Governor Rendell. He told me, if I 
remember correctly, he had 10,000 substandard bridges. This was 
shortly after Minnesota had experienced its tragedy.
    And I tried to help him with Republicans in his State to 
see the opportunity that was in front of them. They tore up a 
lottery ticket for $13-point-something billion that could have 
done wonders for the economy and the safety of that State, and 
it is just an enduring tragedy that things like that get in the 
way of progress.
    Senator Casey. Well, we are at about 5,000 structurally 
deficient bridges now, a little more than 5,000. So we have 
made some progress, but we have a ways to go.
    Thanks very much. I appreciate your testimony.
    Senator Coats. Well, hearing that last statement about your 
bridges, I may alter my route on the way back to Indiana. 
[Laughter.] I usually go up to the toll road and pay the fee.
    Senator Casey. I might have the Indiana number here; let me 
check. [Laughter.]
    Senator Coats. I am told Senator Thune may be on his way. I 
do not want to hold anybody longer than we need to. I think it 
has been a very substantive hearing, and we have had a panel of 
experts that has given us a range of alternatives, and that is 
what we are looking for.
    I think that, if there is a consensus, it is that the 
current system does not work anymore, for whatever reason and a 
variety of reasons, one of which is that no one wants to add a 
penny of taxes. Here, there just simply is not the political 
consensus for that.
    I was struck by the fact that--I think it was Mr. Narefsky 
who said, you have to have a champion. That champion usually 
has to be the Governor, and it is not without significant 
political risk for those Governors to step out and essentially 
market and sell to their constituents that the State needs to 
take action because the Federal Government no longer is able to 
provide everything that they need.
    Governor Daniels experienced that, I think, balancing the 
choice between asking Hoosiers to pay an increase in taxes to 
fix the bridges and roads as opposed to looking at 
alternatives. And in this case, a P3 that turned out to be very 
successful for the State was not without very considerable 
political risk for the Governor, and it took a major selling 
job.
    So, when Mr. Narefsky mentioned that it takes a champion, 
whether it is a champion like in Tennessee where the Governor 
had sold the ability to fix the roads and bridges on the basis 
of a tax increase, whether it is engaging in the potential risk 
of a P3, or adding additional tolls and so forth, all of this 
is part of the process that we have to go through.
    But I think what has been laid out here for us today is a 
very significant range of options, and maybe a combination of 
those options--depending on what the situation is in the State 
and how the State applies that and how it sells its 
constituency that this is the best way to go--is clearly 
something that needs to be addressed.
    We bear responsibility here too, as was mentioned, because 
we have failed, I think, in trying to reach and test some 
alternative ways in which we can help the States and help our 
country have better infrastructure. If there is a consensus 
here, it is that we are behind the curve and that 
responsibility falls on us also.
    With that, let me just ask one last question, and it would 
be to each of you. If you had one thing that you wanted us to 
take away, this committee, one thing you would want us to take 
away, and I know this has been somewhat asked, but what would 
that one thing be?
    We are walking out of here, and if we want to look back on 
the record and say, what is the most important thing that each 
of the four witnesses thought we ought to be focused on or 
think about as we go forward here, what would that be?
    I will start with you, Governor Daniels, and then we will 
just go down the line.
    Mr. Daniels. Say ``yes'' to each other's ideas this time 
instead of vetoing each other's ideas. I think that, as we said 
earlier, this is a matter of enormous national urgency. I think 
history teaches that a pretty reliable sign of a declining 
society is when it stops investing in its future, and in its 
infrastructure specifically. And this is so ripe, I think, for 
the bipartisan cooperation that has been scarce lately. And 
since it will take multiple pieces to make a sufficient dent in 
the problem, I hope that you will all find a way to each accept 
the other's ideas and aim big and, for goodness's sake, take 
the wraps off.
    Pouring more money, wherever you get it, through the same 
filter of all of the processes that we are made to live with 
now would be really shortsighted.
    Senator Coats. Thank you, and thank you for your testimony.
    Mr. Bhatt?
    Mr. Bhatt. I would just say two things. I know that the gas 
tax or whatever the funding is--we are competing in a global 
economy, and other economies are investing in infrastructure, 
and, as the Governor said, it is incredibly important that we 
do that. So, if we do not want to raise the gas tax, we should 
at least index it.
    And the second thing would be, financing is incredibly 
important. It is an incredible tool that is being used, but 
financing is not funding, and we just need more in the system.
    Senator Coats. Thank you.
    Mr. Narefsky?
    Mr. Narefsky. I would say, recognize that there are 
multiple solutions required. Do not believe that there is one 
answer. This is a problem that has grown and increased, and I 
think everyone recognizes it needs to be addressed. It is going 
to need to be addressed by a series of complementary solutions, 
whether it is funding, financing, or other regulatory 
flexibility. Do not get convinced that there is one answer. 
This is a problem that has multiple solutions required.
    Senator Coats. And, Mr. Feigenbaum?
    Mr. Feigenbaum. I would want to echo what Governor Daniels 
said about thinking creatively and really looking at other's 
ideas. And I think sometimes, when something new is introduced, 
it is kind of scary and, oh, we do not really want to go with 
it.
    But if you look at something like mileage-based user fees 
in terms of funding for the long term, I think there is a lot 
of potential, and it is really an issue of just having the 
courage to look at it.
    I would also say, in this committee's jurisdiction, I think 
the most important thing is an increase in the private activity 
bonds, which are really critical for P3 projects. If we want to 
move forward, that really needs to happen.
    Senator Coats. Well, thanks to each and every one of you. I 
thought it was a very, very constructive panel--the questions 
that were asked and the discussion that was held.
    I hope that somebody is taking a picture of me gaveling out 
the Finance Committee. [Laughter.]
    Let me say this. Any written questions for the record that 
will be submitted need to be submitted by Monday, July 6th. 
With that, the hearing is adjourned.
    [Whereupon, at 11:56 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


   Prepared Statement of Hon. Shailen P. Bhatt, Executive Director, 
                 Colorado Department of Transportation
    First of all, I would like to thank Chairman Hatch for the 
invitation to testify, and acknowledge our Colorado Senator on the 
committee, Michael Bennet and thank him for his many years of service 
to the state, including his time as Chief of Staff to then Denver Mayor 
John Hickenlooper, and as Colorado's Senior Senator. For those of you 
who do not know, before coming to Colorado I served as the Cabinet 
Secretary for the Delaware Department of Transportation, served in the 
Administration at the Federal Highways Administration (FHWA) and also 
served as a Deputy Director of the Kentucky DOT. My testimony today 
will be Colorado focused.

    I want to begin with a story that illustrates the transportation 
situation in Colorado. During my first 3 days as CDOT's Executive 
Director, I took an 1,100 mile tour around the state. As those of you 
who are familiar with Colorado know, Interstate 25 (I-25) is the major 
North/South artery, tying urban communities together along the Front 
Range. It also is an important freight corridor for the United States, 
running all the way from Canada to Mexico. The first leg of the journey 
was on 
I-25 heading north out of metro Denver. Outside Denver we drove through 
a pretty rural area on the 4-lane interstate (2 lanes in each 
direction). It was a Thursday morning, after rush hour, and we were 
stuck in traffic. I assumed there was an incident ahead but my Region 
Engineer informed me that was how the corridor travelled. It reminded 
me of Washington D.C.'s beltway traffic, and was a striking 
demonstration of the need to add capacity. When I asked what the plan 
was for widening, the response I received was based on current funding 
availability, we expect to be able to add one managed lane (a toll 
lane) in each direction, from Denver to Fort Collins (45 miles) by 
2070. Think about that--18 year olds getting their driver's license 
this year will be 73 years old before they will benefit from a capacity 
increase--most of them will never get to enjoy the benefit.

    Like the rest of the nation, funding for transportation in Colorado 
is at a crossroads. Our primary source of funding, the gas tax, hasn't 
increased in over 20 years (neither the federal gas tax nor Colorado's 
gas tax), and the recession eliminated General Fund investment by our 
Colorado Legislature in transportation in 2009. To update our 
infrastructure, keep pace with population growth, and improve safety 
and promote multimodal options, Colorado currently has an almost $1 
billion annual shortfall and a budget that is inadequate to avoid a 
steady decline in the condition of our assets.

    It is no surprise that this year during the 2015 Colorado 
legislative session there was a bill introduced that was promoted by 
the business community and primarily Republican elected officials along 
the North I-25 Corridor I mentioned earlier to ask voters to bond 
against future federal revenues for $3.5 billion in transportation 
improvements, including over $1 billion to fix the North I-25 Corridor 
between Denver and Fort Collins. As much as CDOT would love to improve 
the I-25 Corridor, we had to oppose the bill because expanding capacity 
by simply bonding against our federal revenue without any additional 
revenue to pay for bonds would have decimated our ability to maintain 
existing infrastructure assets. It would have been akin to the example 
of building an addition on the house while ignoring our leaking roof. 
Our priority here in Colorado has been to build a strong asset 
management program to make the very best use of our limited funds in an 
effort to keep that roof from leaking even more. The North I-25 example 
illustrates how important the federal revenues are to Colorado, and 
shows that if Congress were to expand revenue, Colorado could enter 
into a Public Private Partnership (P3) and quickly seek a bonding 
solution to accelerate the improvements on this and other critical 
transportation corridors across Colorado.

    About 65% of CDOT's capital budget (dollars CDOT uses for 
maintenance and capacity improvements) comes from the federal 
government. We rely on those funds. Other states that have more clearly 
recognized the critical link between economic health and transportation 
tend to be less reliant. In our neighbor state to the west, the 
Chairman's home state of Utah, for example, you can almost flip the 
Colorado situation around. Utah relies much less on funds from the 
federal government and therefore is better equipped to handle any ebbs 
in federal transportation funding.

    As Senator Bennet has expressed to the committee, Colorado is a 
rapidly growing state. Currently, our population is 5.3 million people 
and is expected to increase by almost 50% by 2040. As mandated by 
federal regulations, CDOT just adopted our 2040 Statewide 
Transportation Plan and the results are stunning--CDOT expects to have 
over that time $21 billion in revenue and a need of $46 billion. That 
leaves an unfunded gap of $25 billion over the next 25 years. These are 
numbers that reflect real, quantified need. If we can't fill the gap, 
CDOT will not have the money to maintain the system in its current 
condition, and will have increasing travel times and decreasing 
traveler convenience with ripple effects on the economic vitality of 
the state. Mr. Chairman and members of this committee, in Colorado we 
have a funding problem and we need your help--not to solve our problem 
for us, but to partner with Colorado to address these critical needs.

    The bottom line and most important thing I want to leave you with 
today is that similar to Colorado's proposed bonding bill I talked 
about earlier, Congress can't fix a funding problem through financing. 
I cannot emphasize enough that critical point: financing mechanisms 
cannot correct what is essentially a funding problem due to revenue 
shortfalls. We in Colorado would love to bond and accelerate our most 
important projects, but we need a revenue stream to pay for it--our 
nation's highways need a stable funding source first and foremost if we 
want to move ahead in transportation. I believe it is critical we 
address these infrastructure improvements not only in Colorado but 
nationally. As Senator Bennet has repeatedly said back in Colorado 
while touring CDOT infrastructure projects--we should have the courtesy 
to maintain the infrastructure our parents and grandparents provided 
for us so that our children and grandchildren can enjoy the same 
quality of life that was given to us. In that spirit, I implore you to 
find a way to secure a stable, long-term revenue base for a robust, 6-
year surface transportation bill this year.

    Mr. Chairman, these times have also led CDOT (by necessity) to 
enter into an innovative era of how we meet the transportation needs of 
our state. In the past, we built more general purpose lanes to meet 
capacity needs. Now, we increase choice in travel, promote walking and 
biking, work to increase mobility through the use of operational 
improvements, and use pricing on new express lanes to manage travel 
reliability and growth. We have no ``planned for'' funds for capacity 
improvements and please remember that in Colorado any taxes must be 
approved by a vote of the people in accordance with our Taxpayer Bill 
of Rights (TABOR). That difficulty has made us very focused on 
squeezing the most out of the dollars we do have. The department has 
many successful ``LEAN'' process improvements that have allowed us to 
stretch our dollars and become a better, more efficient, customer-
focused agency.

    By necessity and as this hearing is focused on, our use of 
partnerships has changed as well. In the past we delivered a project 
through the federal and state gas tax and we would design, bid and then 
build the project. Today our toolbox includes working with the private 
sector on a wider variety of project delivery options, such as Design 
Build or Construction Manager General Contractor (CMGC). Of course, 
these and other project delivery options are only available if you have 
the funds to deliver the project.

    Colorado has turned to a variety of options, including creative 
financing methods, in an effort to fill the investment gap and move 
critical projects forward. In 2009 Colorado created the High 
Performance Transportation Enterprise (HPTE), a Division within CDOT 
whose mission is to pursue innovative financing partnerships to move 
forward badly needed projects.

    I'm sure the committee has already heard about the Denver area's 
transit agency--Regional Transportation District (RTD)--and its 
successful use of partnerships with the private sector with the Eagle 
P3 light rail line and the rehabilitation of Denver Union Station. The 
state has joined RTD with our first P3 by entering into a 50 year 
agreement with a concessionaire to design, build, operate, finance and 
maintain the second phase of our U.S. 36 improvement project. Just this 
Monday, we had the ribbon cutting on the first phase of U.S. 36, which 
connects the urban centers of Denver and Boulder. It is amazing to 
think this project started with a $10 million TIGER ``Challenge Grant'' 
from the first round of the U.S. Department of Transportation's TIGER 
grants in 2009 which we leveraged into two TIFIA loans totaling $114 
million for the project. But even with state funds, and funds from RTD 
and the Denver area Metropolitan Planning Organization (DRCOG), the 
full $450 million multimodal project wouldn't have been possible 
without the state entering into a P3.

    I believe Colorado has an interesting perspective to offer on this 
subject, because we are utilizing so many options to deliver 
transportation improvements in this new environment. U.S. 36 is one 
example of a P3, and it is one where our private partner is taking on 
the toll risk for the project, but that is not the only option for 
delivering managed lane projects in our state.

    Another example is Colorado's major East/West corridor, Interstate 
70. In Denver I-70 includes a viaduct that is over one mile long and is 
in critical need of replacement. It was constructed in 1964 as a four-
lane bridge, and today carries more than 115,000 vehicles per day. The 
viaduct made news this month as repairs made to the bridge in 1997 are 
beginning to fail. Several tension rods that were installed to stop 
additional cracking in have broken. The bridge remains safe for travel, 
but we are increasing our inspection frequency and developing repair 
plans should further components deteriorate before we reach a Record of 
Decision (ROD) and move forward with the permanent improvements for 
this project.

    The improvements needed to replace the existing viaduct and improve 
mobility on the corridor are estimated to cost $1.2 billion, and CDOT 
anticipates the replacement will include managed lanes in each 
direction (again, we have not completed a ROD and therefore these 
elements are not final at this time). If all goes well, we hope to have 
a P3 for that project as well. We don't expect the private partner to 
take on the toll risk. In fact, the tolls expected to be collected will 
not help pay for the cost of construction but instead will help defray 
a portion of the costs for maintenance and operations. Colorado would 
make what is known as availability payments to the private partner in 
exchange for arranging the financing for the project up front and 
covering all capital and annual maintenance of this critical Interstate 
section for the next 35 years.

    As we assess our project delivery and financing options, we are 
considering many variables, but the one that seems to rise above the 
others is risk. What risks does the state want to transfer or optimize 
between the public and private sectors? What is the value of 
transferring the risk of the toll collection? What is the value of 
transferring the risk of long-term capital costs? What is the value of 
transferring ongoing maintenance operations versus maintaining those 
operations ourselves? When we assess those risks, sometimes we 
determine a P3 is not the way to go and other times a P3 provides the 
taxpayers with the best option in going forward.

    Colorado's highway 470 (C-470) is another managed lane example, 
where we will be building an express toll lane in each direction. We 
have determined that a P3 would not be the best option for the state on 
that $200 million project, but we hope to secure a federal TIFIA loan 
and utilize toll revenue to cover about half the construction costs of 
that project.

    On a different section of I-70 west of Denver we are converting the 
shoulder for 13 miles eastbound which carries traffic into Denver into 
a weekend travel lane during the peak periods. While we can't afford 
new lanes, travelers will have the option to travel in the shoulder 
lane for a toll. CDOT is financing the project in part with the 
expected toll revenue from the corridor, but without any private sector 
or federal financing assistance. To put in perspective the benefit 
states could see from creative ideas from Congress, Colorado's own 
Senator Michael Bennet introduced bi-partisan legislation last year to 
create a National Infrastructure Bank that proposed to provide loans at 
a 1% interest rate. The I-70 mountain corridor project I just 
referenced is a $72 million project. The financing included a 10 year, 
$25 million commercial loan at what we consider to be very favorable 
rates and terms given the infancy of the project and the speculative 
nature of the pledged revenues. Had Senator Bennet's proposal been 
enacted and if Colorado could have made use of that financing for this 
relatively small but important project, the taxpayers of Colorado would 
have saved the state over $6 million during the 10-year life of the 
loan.

    Mr. Chairman and members of the committee, in conclusion it is 
important that states have different financing tools in the toolbox--
driven by a constrained funding reality--to meet transportation 
investment needs of the state and the nation. From a project delivery 
perspective, since January 2008, CDOT has advertised 29 Design Build 
Projects worth about $953 million in total project budget. Since 
January 2010, we have advertised 11 CMGC projects worth about $418 
million in total project budget. From a financing perspective we now 
have one public private partnership on a $450 million project and one 
on the way for an additional $1.2 billion.

    Not to be forgotten is what we have learned about the importance of 
public engagement in the discussion of project delivery and project 
financing. A financing partnership with the private sector is not only 
new to us but new to the taxpayers and not only can a P3 change how we 
finance and deliver a project, but it has changed how we discuss a 
project publically. In the past, project financing and project delivery 
was a much more internal discussion. Now, we recognize the need to 
engage the public and stakeholders at different milestones, from 
project visioning during the environmental review process, to how we 
plan to build it, how it will operate once complete, and who will 
maintain the new facility.

    Our funding crisis only increases the importance of engaging the 
public, stakeholders, local governments and more into a broader 
conversation regarding the needs of the transportation system. Colorado 
certainly needs to step up and do our part, and we are, but our 
transportation system has federal interests, including interstate 
commerce and quality of life of all citizens, and we need to continue 
to have a strong federal partner in transportation.

    I appreciate the committee's time and attention to the important 
topic of transportation funding and financing, and I am happy to answer 
any questions you may have.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Shailen P. Bhatt
            Questions Submitted by Hon. Robert P. Casey, Jr.
    Question. Public-private partnership agreements can often be 
complex and need to be carefully negotiated. Do you believe that local 
and State governments are equipped with the resources and expertise 
necessary to negotiate public private partnership deals? Could the 
Federal Government provide more resources to assist them in these 
complex negotiations?

    Answer. Thank you, Senator Casey, for this question. In Colorado, 
we have created two specific resources for the Department to address 
Public Private Partnerships and their formation. CDOT identified a 
shortfall in expertise several years ago when working to create 
innovative project delivery methods. First we have created the High 
Performance Transportation Enterprise (HPTE) that is a government 
sponsored enterprise that has some independent authority outside of the 
traditional CDOT structure to identify, create, and negotiate P3 
projects that are more private sector facing. Also, CDOT created the 
Office of Major Projects (OMP) to help identify, create, and negotiate 
P3 projects that are more traditional facing but have innovative 
project delivery methods.

    Specifically, the USDOT should create an office of excellence 
within the Department that would help States and local governments with 
the best practices clearing house for P3 negotiations. This small but 
efficient office could be a tremendous help for those entities without 
resources to create programs as CDOT did, but also could help those of 
us who have created these offices for those staff members to associate 
with their peers to exchange ideas among themselves for new innovative 
delivery methods.

    Question. I have been interested in exploring tax credit bonds for 
transportation infrastructure projects. Similar bond programs already 
exist for forestry conservation, renewable energy, energy conservation, 
and new school construction. This initiative could augment the Highway 
Trust Fund and provide another tool to fund our aging infrastructure, 
thereby creating jobs and spurring our Nation's economy. Do you think 
this type of tax credit proposal could be a useful tool to help finance 
our Nation's transportation infrastructure?

    Answer. Thank you, Senator Casey, for this question. Tax Credit 
Bonds are a good example of how CDOT could use a financing tool to help 
deliver a project faster. Here in Colorado, we are always looking for 
ways to speed project delivery. However, we need additional revenue to 
re-pay the bonds or other financing tools used to speed project 
delivery. As I stated in my testimony, financing is not a sustainable 
solution to our funding problems. At the end of the day, without 
increased funding for projects, CDOT's ability to use financing tools 
to deliver more projects is limited.

                                 ______
                                 
                 Question Submitted by Hon. John Thune
    Question. I understand that this hearing is meant to focus on 
financing, but given your intimate knowledge of the planning process 
that goes on at the State level, I thought it might be useful to hear 
about how, from your perspective, not having a long-term bill in place 
has impacted States--particularly those with a short construction 
season. Can you talk about the transportation planning process and how 
the timing of congressional action when it comes to funding impacts 
States--including the impact felt by State DOT's this construction 
season?

    Answer. Thank you, Senator Thune, for this question. Short-term 
extensions of the authorization program have coincided with short-term 
extensions in the appropriations process. These together do have a 
direct impact on project delivery as well as project selection in cold 
weather States.

    Another important factor is the flat funding amounts. As you know, 
CDOT is federally mandated to produce two significant planning 
documents that affect project selection and funding (the 20 year 
fiscally constrained plan and a 5 year financing document called a 
STIP)

    When delays in either authorization or appropriations by Congress 
happen, they directly impact the STIP and how CDOT is able to move 
projects into construction in any given year. Here in Colorado we are 
somewhat sheltered from this problem because we have maintained a cash 
balance. However, we are rapidly spending down that cash balance and 
this will become a more significant issue moving forward.

    Finally, I would be remiss if I did not highlight how the lack of 
additional Federal revenue is having a significant impact on project 
planning here in Colorado. Specifically, CDOT has completed several 
large scale environmental documents to address large financial 
corridors within the State. Unfortunately, we do not have funding 
available to construct these critical projects nor the ability to use 
P3s in large ways to accelerate these projects because CDOT does not 
have the ability to repay large new bonding projects outside of the 
projects already identified.

    The impact of this is tremendous. In my testimony before the 
committee I reported that the Interstate 25 North of Denver Corridor 
that links Colorado and Wyoming has a build-out schedule through the 
year 2075 with current funding levels. Think about that. We have 
identified improvements that need to be addressed today, but will not 
have the revenue to build these projects until the year 2075. That 
means a 16 year old getting their driver's license today will be 76 
years old before they see all of the project completed.

                                 ______
                                 
         Prepared Statement of Hon. Mitchell E. Daniels, Jr., 
                      President, Purdue University
    Chairman Hatch, Ranking Member Wyden, and members of the Committee 
on Finance, thank you for the opportunity to testify before you about 
the critical issues facing our nation's transportation system.

    No country can have first-rate infrastructure without first-rate 
engineers. I am proud to represent Purdue University, a land-grant 
school with a long history of infrastructure research and the second 
largest engineering program in the country. We are home to the Center 
for Aging Infrastructure, the Center for Road Safety, and the annual 
Road School, a conference that for the last 100 years has attracted 
thousands of infrastructure professionals who gather to share best 
practices.

    We graduate quality engineers who are prepared to maintain the 
structures of our past and to invent the infrastructure we will need in 
the future. Through research and our growing engineering programs, 
Purdue supports infrastructure that is cheaper, safer, more resilient 
and more environmentally friendly.

    My interactions with the next generation of American engineers make 
me confident in the nation's technical ability to build infrastructure 
that is state of the art. I am less optimistic about how we go about 
approving and financing the projects these engineers will oversee.

    Nine years ago, as a first-term governor, I was on the Hill, 
testifying hopefully with then Governor Tim Kaine about these same 
issues, which were highly topical already. Federal progress since then 
has been disappointing, and we now have an even bigger problem today 
than we did back then. The size of our infrastructure gap presents a 
growing challenge. We cannot continue to be timid and traditional in 
our actions. We need new thinking and strong partnerships that harness 
the potential of private dollars. Public-private partnerships (P3s) are 
not a complete answer for all our challenges, but Congress will not 
find a complete answer without them.

    I wish I could come here highlighting progress, but instead the 
facts require that I give a very similar message today as I gave 9 
years ago: We may be a very innovative country in other areas, but the 
way we approve and finance infrastructure projects is antique compared 
to the rest of the world. We will never bring our economic endoskeleton 
up to date with the regulatory morass we have created; we will never 
assemble the resources to rebuild without involving private capital as 
a significant part of the solution.
                         regulatory efficiency
    While the financing of infrastructure is of vital national interest 
and the jurisdiction of this committee, upgrading our nation's roads, 
ports and bridges will depend at least equally on a national agreement 
to reexamine the system that makes ``shovel ready projects'' a myth. No 
conversation about infrastructure would be complete without 
acknowledging that the permitting process is costly and broken.

    At the center of the need for reform is the National Environmental 
Policy Act of 1969, which requires all federal agencies to generate 
detailed assessments of the environmental impact of ``major federal 
actions.'' The implementation of NEPA has evolved over time, becoming 
more burdensome with every decade. According to one observer, in the 
1970s a final EIS was typically 22 pages long. Today, an EIS commonly 
exceeds a thousand pages, despite regulations directing that statements 
should normally be less than 150 or 300 pages, depending on the 
complexity of the assessment.\1\
---------------------------------------------------------------------------
    \1\ Todorovich, P., and Schned, D. (2012). Getting Infrastructure 
Going. RPA. Also, 40 CFR 1502.7.

    Similarly, 40 years ago it took the Federal Highway Administration 
2 years on average to complete an EIS.\2\ Today, it typically takes 7 
years.\3\ Wasting time and money has become the standard operating 
procedure.
---------------------------------------------------------------------------
    \2\ FHWA, and Louis Berger Group, Inc. (2001). Evaluating the 
Performance of Environmental Streamlining: Phase II.
    \3\ FHWA. (2011). Estimated Time Required to Complete the NEPA 
Process. http://www.environment.fhwa.dot.gov/strmlng/nepatime.asp.

    This contrasts with much of the developed, environmentally 
conscious world. In Canada, regulations stipulate that after a 20-day 
public comment period, that nation's environmental assessment agency 
has 25 days to determine whether an environmental assessment is needed. 
If one is necessary, the agency has 1-2 years to complete the 
assessment.\4\ Likewise, European Union regulations allow for a maximum 
of three and a half years for cross-national energy infrastructure 
projects.\5\
---------------------------------------------------------------------------
    \4\ Canadian Environmental Assessment Act, 2012 (S.C. 2012, c. 19, 
s. 52).
    \5\ Regulation (EU) No. 347/2013 of the European Parliament and of 
the Council of 17. (2013).

    Our inability to meet such standards in this country stymies growth 
and is costly to the environment. How many gallons of gasoline are 
wasted as Americans sit idly on congested roads? How many pollutants 
are emitted while projects that improve energy efficiency are mired in 
red tape? In my state, we reduced collective emissions by thousands of 
tons per year by clearing out a backlog of some 450 expired air and 
water permits. In some cases, these had been pending for more than 20 
years, even though new permits invariably require lower limits and 
tighter restrictions than the expired version. Moving fast in 
government is one of the most pro-environment things you can do. As 
much as anyone, the most devout of environmentalists need efficient 
permitting and economic growth if they are to realize their goals and 
---------------------------------------------------------------------------
the purpose of NEPA.

    The overarching problem is a culture where the burden of proof is 
always on the pro-growth side, which has to prove that creating a new 
job won't hurt the environment, in even some infinitesimal way, 
interfere with some previously unheard of species, or disrupt some 
ground of alleged, often highly debatable historical value. Our 
national interests would be better served if we switched the 
presumption so that requests for more study beyond a reasonable review 
would need to prove that the additional delays wouldn't unnecessarily 
cost jobs and hinder growth. Today's regulatory regime can fairly be 
described as cruel in the damage it inflicts on unemployed and 
underemployed Americans.

    As the chair of Common Good, Philip K. Howard has stated, ``Red 
tape is not the same as good government. . . . Congress must create 
clear lines of authority to make decisions. . . . [A]n environmental 
official should have responsibility to draw lines on how much review is 
sufficient. Similarly, one agency should have overriding permitting 
authority, balancing the concerns of other agencies and departments.''

    Sen. Portman and Sen. McCaskill's ``Federal Permitting Improvement 
Act,'' which was recently reported out of the Committee on Homeland 
Security and Governmental Affairs with strong bipartisan support, is a 
good first step. Quantifying the costs and benefits of federal 
regulations is a goal of Indiana's Sen. Dan Coats through the ``Sound 
Regulation Act'' which he will soon reintroduce and which will 
hopefully lead to more reasonable policies.
                the role of public-private partnerships
    A notable exception to our national capital deficit is in Indiana, 
now in year 9 of a 10-year, multi-billion dollar infrastructure plan 
with no new debt, no new taxes and no significant permitting delays.

    When I became Governor of Indiana, my administration inherited a 
transportation infrastructure gap of at least $3 billion, equal then to 
10 years of new road construction.

    We looked at every option to address this funding shortfall, 
including raising the state gas tax, indexing the gas tax, transferring 
state sales tax on gasoline revenue to transportation, issuing more 
debt, increasing heavy truck fees, and increasing vehicle registration 
fees, to name just a few. After assessing the traditional options it 
became clear that we would never break ground on our backlog of 200-
plus priority projects with a business-as-usual approach.

    Instead of allowing long-sought, long-delayed projects to languish 
on the drawing board, we launched a search for partners who could 
augment state resources through a series of P3s. These partnerships 
varied significantly in size, location and circumstance, but each had 
at least one thing in common--they allowed the state to build vastly 
more than Indiana could have by traditional means alone. While the 
complete highlight list is long, three partnerships in particular 
illustrate the problem-solving way we approach every infrastructure 
challenge.
Ohio River Bridges Project
    Southeastern Indiana and Louisville, Kentucky comprise one 
metropolitan community separated by the Ohio River. For decades, both 
states struggled to implement plans to improve transportation between 
the cities, and to better connect the regions economically. The 
question of how to finance and efficiently construct two necessary new 
bridges, various interchanges and miles of roadway was a subject of 
much debate.

    Initially, both states planned to pay for the project with state 
and federal tax revenue, but that proved cumbersome, dilatory and 
unrealistic. A breakthrough came when the Indiana and Kentucky 
legislatures gave a bi-state authority the power to explore innovative 
project delivery options, including a P3. That resulted in Indiana 
taking the lead on what's known as an ``availability payment'' P3 on 
the new East End Crossing, in which a private partner will bear the 
risk of building and financing the bridge, while the state, in 
partnership with Kentucky, will maintain authority over tolls. Using 
revenue from the tolls and other state funds, Indiana will now 
compensate its private sector partner as milestones are met during 
construction and operation of the East End Crossing.

    The partnership streamlined the project and saved the state 
millions. For example, after the market had spoken, the actual cost to 
build the East End Crossing Bridge was $225 million lower (or 23 
percent less) than the original estimate. The agreement also committed 
our partner to decades of operations and maintenance services, saving 
the state tens of millions of dollars in future expenses, and 
guaranteeing that Indiana will receive a bridge that is in excellent 
condition at the end of the 35-year concession. Most importantly, over 
the next 50 years the project is expected to generate an average of 
15,000 jobs a year and a total of $30 billion in personal income and 
$87 billion in economic output for the region.\6\ Construction will not 
be complete until late 2016, but the region has already reported the 
addition of 5,000 new jobs and millions of dollars in business 
expansion along the river.\7\
---------------------------------------------------------------------------
    \6\ Economic Impact Study of the Ohio River Bridges Project, 2014 
Update.
    \7\ Inside Indiana Business (2015). Regional Approach Boosts 
Jeffersonville.
---------------------------------------------------------------------------
Cline Avenue Bridge
    The Indiana Harbor Canal extends from Lake Michigan into the 
Indiana community of East Chicago, near the Illinois border. For most 
of the last 35 years, the Cline Avenue Bridge has passed over the 
canal, connecting several commercial sites in the area. The lengthy 
bridge, which was financed using traditional methods, opened in 1983 
and should have lasted for at least another 25 years without serious 
issues.

    But in 2009, the state discovered significant weaknesses in the 
bridge's structural integrity and was compelled to condemn it a short 
time later.

    Although the bridge was an important asset in the community, the 
expected usage levels could not justify the enormous expense it would 
take to rebuild the structure in its original form. Our cost-benefit 
analyses concluded that unless we could find a way to make taxpayer 
funds go farther, the wisest action would be to help the community 
adapt to life without a bridge by strengthening the surrounding roads.

    For months, that outcome seemed the most likely. But in an 
arrangement becoming more and more common throughout the world, we were 
eventually able to craft an agreement with a private partner to 
construct a replacement bridge. Under the agreement, the partner is 
building the structure using entirely private funds, with no risk or 
cost to government at any level. The contract also obligated the 
partner to invest $3 million in improvements on the state road that 
leads to the new bridge, and to return a share of all toll revenue back 
to the local community for economic development.
Indiana Toll Road/Major Moves
    By far the most successful of our efforts to find new revenue for 
infrastructure came through a P3 agreement that leased the 50-year-old 
Indiana Toll Road. The agreement was unique in the United States, but 
fairly common globally.

    Nations such as Australia and the United Kingdom have long 
understood that, just as many business units are more valuable if 
separated from their conglomerate parent, an asset like a highway can 
be worth vastly more under different management. If it were merely a 
matter of bringing forward money that would otherwise come in over the 
years, such a tactic would make little sense. The goal is to capture 
far more value than an asset would be worth operated in public hands.

    Under these partnerships, many existing roads, bridges, and other 
public facilities are operated by private companies who are more 
efficient in running them and have private funds to upgrade and 
maintain them better than the governments that contracted with them for 
the operations. There is nothing remotely radical about this idea; 
these are simply a new form of regulated public utility, like our 
electric companies, few of which are owned by government.

    The Indiana Toll Road, which runs 156 miles from Illinois to Ohio, 
was an obvious candidate to become such an asset. At the time, instead 
of making money for the state, the road had operated at a loss for 5 of 
the previous 7 years. It was badly in need of an expansion, repairs and 
the installation of electronic technology that makes tolling 
convenient. In political hands, it was a chronically underperforming 
asset. Political timidity had kept tolls locked at the same price since 
1985. In one section, motorists waited in a long line to pay a 
political patronage worker 15 cents in cash.

    Even if we raised the tolls, there was little reason to believe 
that the governors who would come after me would have the inclination 
or the political ability to do the same. I once asked how much it cost 
to collect that 15-cent toll on the road and the answer came back at 34 
cents. I joked that we would have been better off with the honor system 
and a fishbowl for occasional donations.

    The estimated net present value of the road in state hands was no 
more than $1.92 billion. Even that valuation assumed the state would 
begin raising tolls with inflation, a total change in the state's 
historic behavior. It made for an easy decision when we received a high 
bid of $3.85 billion, three times the road's realistic status quo 
value, to enter into a long-term agreement that, under intensive state 
oversight, would give a private concessionaire the responsibility to 
upgrade, operate, and maintain the road in exchange for the right to 
collect tolls. To acquire revenues of that magnitude, we would have had 
to roughly triple our gas tax, an economically ruinous and politically 
impossible idea.

    As thrilled as we were with the bid, we knew the details of the 
contract would determine whether the deal was good for Indiana in the 
long run. We negotiated a highly detailed legal document that keeps 
rigorous oversight of the road in state hands. Performance expectations 
were clearly identified for a long list of metrics including litter 
removal, pavement quality, pothole repair, sign maintenance and safe 
lighting, with penalties and fines for shortfalls. The agreement also 
obligated the private operator to upgrade the road, add electronic 
tolling, expand lanes, and make other improvements valued at about $450 
million--in addition to the original $3.85 billion.

    The agreement locked in the 1985 toll rates for passenger car 
drivers for an additional 10 years, and it limited increases in rates 
to inflation, GDP growth or 2 percent. If the concessionaire makes a 
profit on the tolls, it will pay income taxes, and unlike with 
government procurement, it pays sales taxes on all its purchases.

    An often overlooked benefit of P3s is that when agreements are 
properly constructed, as ours was, the P3 shields taxpayers from some 
of the risks that are unavoidable with the construction and operation 
of any infrastructure. For instance, our transaction shifted the risk 
that revenues might not meet expectations away from Hoosier taxpayers 
and back on our private partner. The timing of the agreement, made 
months before the economy imploded, could not have been more fortuitous 
for the state. Absent our transaction, the state would have endured 
disappointing toll revenues as the economy collapsed and more drivers 
stayed home.

    Instead, that burden fell on the lessee. Indiana taxpayers had 
already received the nearly $4 billion lease payment in upfront cash, 
and the agreement was locked in place. Even when traffic levels were 
still not meeting expectations years later and the concessionaire 
succumbed to bankruptcy, all of the taxpayer protections and benefits 
were preserved. The lease simply shifted to another lessee and the 
agreement continued unchanged.

    Of crucial importance, every penny of the $4 billion went to long-
term purposes. Whether in business or government, no asset should be 
monetized for current operational spending. The only defensible 
transactions are those that redeploy the proceeds to a different long-
term capital purpose that yields a higher ROA. That was a non-
negotiable tenet of our 2006 proposal, and we stuck to it.

    After paying off the 50-year-old toll debt, we created a $500 
million dollar permanent trust fund that earns interest for future 
projects. We invested the rest in a 10-year transportation plan. Known 
as ``Major Moves,'' it's paying for 104 new roadways by 2015, the 
rehabilitation or replacement of 1,000 bridges, and more than 6,000 
miles of highway to be resurfaced. We became the only state in the 
union to have a fully-funded, 10-year infrastructure plan that required 
no new taxes and no new debt.
         congressional support for innovation and new revenues
    P3s are more the rule than the exception in Asia, Europe and the 
developing world. The United States, in so many ways the world's 
leading innovator, lags behind in the area. While that is starting to 
change, most U.S. P3s are designed to directly finance new 
construction, or so called greenfield projects. These partnerships, as 
in the case of the Ohio River Bridges project, diversify risks across 
sectors and allow public investments to go farther. But in contrast to 
P3s on existing assets, they still create new debt.

    In addition to P3s on greenfield projects, Congress should also 
encourage states to create new revenue by making P3s on existing assets 
common. As my state proved through the Indiana Toll Road, these so 
called recycled assets can be very effective at creating new and 
unprecedented means to finance new infrastructure. And again, I cannot 
stress enough that all new revenue generated by these agreements should 
go towards long-term infrastructure funding, as we did in Indiana. It 
would be irresponsible to use the funds for current government 
operations.

    The most basic way to promote P3s on existing assets is to make 
sure our tax code doesn't discourage them. One issue Congress should 
address is how the law treats tax-exempt government bonds when a 
government enters into a P3. For example, as we were negotiating the 
Indiana Toll Road partnership, Indiana still owed $200 million on 50-
year old tax-exempt bonds, a common scenario for large infrastructure. 
Current law does not allow such debt to continue into public-private 
partnerships. Before the program could go forward, we either had to pay 
off the debt or refinance it as taxable bonds at a higher interest 
rate.

    Because we achieved such a spectacular lease payment, 19 times the 
outstanding debt, it was no problem to pay it off and we did so 
immediately and eagerly. But for other potential agreements, the tax 
code has been an impediment both practically and politically. For 
instance, some commentators blame the P3 tax penalty as one factor in 
the collapse of a deal explored by Mayor Rahm Emmanuel to lease the 
Midway Airport.

    The P3 tax penalty contrasts starkly with the practice in 
Australia, the global leader in this area. Not only does Australia 
refrain from penalizing P3s on existing assets, its federal government 
has set aside $4 billion USD to reward states and territories that make 
such agreements. As long as the new revenues from the private partner 
``are allocated to new infrastructure investment,'' states receive a 15 
percent bonus from the national government.\8\
---------------------------------------------------------------------------
    \8\ Commonwealth of Australia. (2014). Budget 2014-15.
    http://budget.gov.au/2014-15/content/glossy/infrastructure/
download/Infrastructure.pdf.

    According to former U.S. Associate Attorney General John Schmidt, 
Australia expects to earn $200 billion from P3s on existing 
infrastructure. Here in the United States, untapped potential revenues 
appear to exceed half a trillion dollars.\9\ The valuation Indiana 
received for the Toll Road lease was so high, no state is likely to 
repeat our success to the same degree. But significant revenue 
potential remains and it would be senseless to leave the option out of 
the toolbox as we look to expand the resources available for U.S. 
infrastructure investment.
---------------------------------------------------------------------------
    \9\ Schmidt, J. (2015). A Sane Way to Upgrade Bridges, Ports and 
Transit. Wall Street Journal.

    With the persistent and growing shortfall in the Highway Trust 
Fund, Congress must consider alternative funding sources for our 
surface transportation infrastructure. One such alternative would be to 
reform and expand the existing programs that permit state tolling of 
new, expanded or reconstructed interstate facilities. Tolls, after all, 
are simply a direct ``user fee'' and are thus consistent with the 
principle of user-pays/user-benefits on which the Highway Trust Fund 
was founded. If the federal tolling programs were expanded or 
liberalized, more states would have the opportunity to explore and 
pursue P3 projects, with these user fees serving as the funding source.
                               conclusion
    Throughout this testimony I have focused on the ``how'' of 
infrastructure approval and funding instead of the ``why.'' I have 
assumed it unnecessary to describe the near unanimous consensus among 
economists and policy experts that smart investments in infrastructure 
are essential for our economy and our future. I felt certain that each 
of you understands the problems we face and the economic potential we 
can reap through large-scale infrastructure investments. If any issue 
is ripe for bipartisan cooperation in a Congress that needs more 
bipartisanship, this is that issue.

    The future engineers and infrastructure scholars at Purdue 
University are ready to get to work building the next generation of 
American infrastructure. But real progress must start with Congress 
through an agreement that fixes our broken permitting system and 
maximizes funding dollars by incentivizing effective public-
private partnerships.

                                 ______
                                 
    Prepared Statement of Baruch Feigenbaum, Assistant Director for 
                Transportation Policy, Reason Foundation
    Chairman Hatch, Ranking Member Wyden, and fellow Members:

    My name is Baruch Feigenbaum. I am the Assistant Director for 
Transportation Policy at Reason Foundation, a non-profit think tank 
with offices in Los Angeles and Washington DC. For almost four decades 
Reason's transportation experts have been advising federal, state and 
local policymakers on market-based approaches to transportation.
                    my credentials on today's topic
    I am a graduate of the Georgia Institute of Technology with degrees 
in Public Policy and Transportation Planning with a concentration in 
Engineering. My Master's Thesis studied Induced Demand in growing areas 
and potential solutions. With Reason, I have authored studies on 
mobility, highway quality, highway congestion, transit options, funding 
alternatives and innovative financing. I have worked with the states of 
Georgia and North Carolina as well as numerous counties to implement 
transportation policy and funding reform. I currently serve on two 
National Academy of Sciences Transportation Research Board Committees, 
Bus Transit Systems and Intelligent Transportation Systems. Further, I 
assist the committees on Transportation Revenue and Financing and 
Metropolitan Planning. My testimony today draws on these experiences.
                         overview of testimony
    While the federal government continues to delay action on 
meaningful transportation reform, states are leading the way. 
Understandably, raising taxes is unpopular; while several states have 
increased their gas tax, moved to a gas tax/sales tax combo or have 
begun testing Reason's preferred option of mileage based user fees, the 
majority have chosen to stretch their resources further with innovative 
financing. Given scant political support for funding increases at the 
federal level, Congress should examine what states are doing to stretch 
their resources.

    At the same time, innovative financing is not a panacea for our 
transportation problems. Financing is the act of obtaining full project 
funding up-front from investors, while funding is the actual revenue 
itself. While financing can stretch resources, states must have some 
underlying funding such as gas taxes, tolls, or mileage based user 
fees. States need to avoid a situation such as New Jersey's where the 
state became so overly leveraged through borrowing that 100% of its 
annual gas tax revenue must go to repay its debt, and still be 
insufficient, so the state would have to tap still other funding to 
repay the debt.

    There are numerous financing tools that states use. These can be 
divided into several categories:

    Federal credit assistance which includes TIFIA, Section 129 Loans 
        and State Infrastructure Banks;
    Bonding which includes Revenue Bonds, General Obligation Bonds, 
        Limited and Special Tax Bonds, Hybrid Bonds, Grant Anticipation 
        Notes, Private Activity Bonds, Tax Credit Bonds;
    Non-profit Financing; and
    Methods to Leverage Federal Aid including Matching Flexibility and 
        Advance Construction.

    However, most of the innovative financial activity has taken place 
through public-private partnerships (P3s) using TIFIA and Private 
Activity Bonds. A smaller source of innovative financing has been state 
infrastructure banks. The rest of my testimony focuses on these tools.
   recommendation no. 1: increase use of public-private partnerships
    A powerful tool that fewer than a dozen states are actively using 
so far is the long-term public private partnership in which the private 
sector designs, builds, 
finances, operates, and maintains a major highway or bridge--typically 
on the scale of $500 million to several billion dollars in cost. Over 
the past 12 years, the largest 16 P3 projects of this kind have 
involved a total investment of nearly $28 billion. Most of these 
projects involve some degree of state investment, on the order of 20-
25%, analogous to a down payment. The rest is privately financed by the 
winning concession team, using a mix of debt and equity.

    Infrastructure investment is growing in popularity in the private 
sector. Many entities such as insurance companies, investment banks, 
and pension funds invest through an infrastructure investment firm. 
Since it is not possible to invest equity into infrastructure owned and 
operated by governments, these companies seek to invest in 
infrastructure that has been privatized (or was always private such as 
utilities) or in P3s. Private infrastructure raised from investors set 
a record in 2014 of $48.3 billion, the latest year for which numbers 
are available.

    There are many advantages to this type of procurement. Because the 
same entity will be constructing and then operating the project over 
many decades, its incentive is to build it more durably so as to 
minimize its life-cycle cost, rather than minimizing only the initial 
construction cost. The P3 company also accepts many of the mega-project 
risks that are usually borne by taxpayers--construction cost overruns, 
late completion, inadequate maintenance, and in many cases traffic and 
revenue. Because these are examples of project finance, the total cost 
is raised up-front, and the bonds are paid off over many years as 
highway users benefit from the improved infrastructure. And proper 
maintenance is contractually guaranteed for these high-profile 
projects.

    A toll-concession P3 is the best deal for taxpayers as the toll can 
provide most of the revenue to repay the financing for the project. 
Availability payments, the other type of P3, also need a source of 
revenue (typically existing fuel tax revenue). However, both types of 
P3 projects transfer risk to the private sector, which is the biggest 
advantage of all P3s. In design-build projects, the private sector 
takes on the risks of late completion and construction cost overruns. 
But in a toll concession P3, the private sector not only takes on 
delivery and cost overrun risks, but also takes on traffic and revenue 
risk. In the Great Recession, when people were driving less, certain 
toll roads did not meet their traffic projections. For those procured 
as P3s, the private company--not taxpayers--shouldered the financial 
responsibility. However, for those procured through conventional 
methods, taxpayers were on the hook for the difference.

    P3 contractors also deliver projects more cost-effectively. The I-
70 Value for Money Report prepared for Colorado DOT's HPTE unit, looked 
at six projects comparing the actual project cost with the cost 
estimated by the procuring agency if the project were delivered 
internally. All five U.S. projects, I-595 in Florida, FasTracks in 
Denver, the Port of Miami Tunnel, the Goethals Bridge in New York and 
Presidio Parkway in San Francisco were delivered at lower cost, ranging 
from 12.5% to 20% savings. The report also examined the life-cycle 
costs of the LBJ Express Lanes which were 15% lower than for the public 
sector comparator.

    There are two financial tools which help make these projects 
possible. So that the private investors can compete on a level 
financial playing field, Congress authorized states to issue tax-exempt 
revenue bonds, whose interest rates are similar to revenue bonds for 
state-led projects. These are called Private Activity Bonds (PABs), 
having a statutory cap of $15 billion.

    The PABs program in recent years has been well-used. As of the end 
of 2014, about $5 billion of these bonds had been issued, and another 
$5 billion had been approved for issuance by DOT. That leaves only $5 
billion of the original $15 billion available for a growing pipeline of 
P3 projects. Congress is encouraged to double the cap to $30 billion, 
for a 6-year bill, increase the cap to $25 billion for a 4-year bill, 
and increase the cap to $20 billion for a 2-year bill.

    Congress also created the popular Transportation Infrastructure 
Finance and Innovation Act (TIFIA) credit support program, under which 
P3 projects can obtain subordinated loans to complete a financing 
package. Each dollar of Federal funds can provide up to $10 in TIFIA 
credit assistance.

    I recommend Congress make several reforms to the TIFIA program as 
well. First, in order to stretch resources further I recommend 
decreasing the maximum percentage of project costs that a TIFIA loan 
can cover from 49% to 33%. While the USDOT's TIFIA office has never 
approved a loan for more than 33%, there is no guarantee that this will 
continue in the future. Second, I suggest reforming the TIFIA process, 
so that all projects that meet the criteria receive funds. When 
Congress reformed TIFIA in 2012's MAP-21, it intended for the program 
to become a check-the-box process. Instead USDOT has been applying 
discretionary criteria to the TIFIA program. Congress should direct 
USDOT to approve all projects that meet TIFIA criteria, subject to the 
availability of TIFIA funds.
    recommendation no. 2: increase use of state infrastructure banks
    State infrastructure banks are revolving infrastructure investment 
funds for transportation that are established and administered by 
states. Similar to a private bank, an SIB can offer a range of loans 
and credit assistance to public and private sponsors of highway and 
transit programs. SIBs allow states to make more efficient use of 
transportation investments and leverage federal and state funds by 
attracting other public and private investment. SIBs can be used as 
collateral for the bond market or as reserve funding. However, under 
current legislation, states may not use any federal funding to 
capitalize SIBs.

    There are three different kinds of SIBs, using appropriated funds 
from TEA-21 and SAFETEA-LU: federally capitalized, state-capitalized 
and federally and state-capitalized. Thirty-two states plus Puerto Rico 
have federally capitalized SIBs. While SIB usage is widespread, similar 
to P3s, most of the loan activity, 87%, is concentrated in a few 
states. South Carolina is the leader with $3.3 billion in activity to 
13 large projects. Two states, Georgia and Kansas have state-only 
capitalized SIBs; while two, Florida and Ohio have combined federal/
state capitalized SIBs. However, the vast majority of state activity, 
$762 million, has taken place in Florida.

    Future legislation should allow states to capitalize up to 10% of 
certain parts of their highway and transit funding. This provision 
existed in both TEA-21 and SAFETEA-LU.

    Thank you for the opportunity to testify today on transportation 
finance. I would be happy to answer any and all questions, either 
orally or in writing.

                                 ______
                                 
        Questions Submitted for the Record to Baruch Feigenbaum
               Question Submitted by Hon. Orrin G. Hatch
    Question. It seems that all the witnesses at this hearing are 
supporters of public-private partnerships and certainly have shared 
compelling examples in their testimonies of their success around the 
Nation. However, not every partnership ends in success, and in a 
decision as important as this, it is necessary to consider both sides 
of the equation before making any decisions.

    Mr. Feigenbaum, in your testimony you cite New Jersey as one 
example that did not end as hoped. Could you tell us what New Jersey 
didn't do that a successful project should do in order to avoid similar 
consequences?

    Answer. New Jersey's problem was that it could not find a way to 
legally authorize a P3 project.

    First, the State does not have enabling legislation otherwise known 
as a bill that passes a State's General Assembly and is signed into law 
by the Governor. The most important component of enabling legislation 
is authorizing P3s, since State departments of transportation need 
specific language to enter into P3s. Well-written P3 legislation may 
also create a State office dedicated to P3s, standardize and promote 
best practices, and protect the public interest. Each of these steps 
makes taxpayers more comfortable with P3s and leads to wider use.

    Some States such as North Carolina and Texas have authorized a P3 
for a specific project. New Jersey explored this option, but since some 
lawmakers wanted P3s for a multitude of projects and other lawmakers 
did not want P3s for any project, that effort failed.

    New Jersey has very strong unions, and they, along with many 
legislators, are under the impression that P3s and unions do not work 
well together. This is not accurate. There are many States with strong 
unions that have robust P3 laws including California, Illinois, Ohio, 
and Pennsylvania. Pennsylvania is particularly noteworthy for its 
bridge replacement project. New Jersey legislators need to work across 
the aisle to create a P3 project that is acceptable to all.

                                 ______
                                 
                 Question Submitted by Hon. John Thune
    Question. In your testimony you touched on risks associated with 
the utilization of infrastructure financing, including the possibility 
of a public entity being overleveraged. I think financing can be an 
important tool when it comes to infrastructure investment, but I think 
it is important we also understand the risks. How do States ensure the 
long-term public interest is protected in public-private partnership 
arrangements?

    Answer. Becoming overleveraged can be a major problem but it is 
avoidable using a few common-sense practices. First, senior department 
of transportation/metropolitan planning organization staff need to 
explain to political leaders the difference between funding and 
financing. Funding is the actual revenue to complete the project. 
Financing is the means to secure that revenue. Financing is not a 
substitute for funding. All projects need funding either from the 
State, the private party, or most likely a combination.

    Since funding is critical and many States lack monetary resources, 
I prefer toll concession P3s compared to availability payment P3s. In 
toll concessions, the toll is the source of revenue. With the equity 
the private sector brings to the table, little or no additional State 
revenue is needed. An availability payment typically requires 
additional taxpayer revenue for the deal to work. While both transfer 
risk and lead to cost efficiencies, the toll concession typically 
requires less public money.

    State DOTs should have at least one high-ranking official whose job 
it is to protect taxpayers. This person could be the director of P3s or 
a specific consumer watchdog. Regardless, the person ensures that 
taxpayers are protected by examining all aspects of the deal such as 
the use of public funds, inclusion of specific conditions such as non-
compete clauses, type of P3 structure, length of contract, and 
operating conditions. States that have specific consumer watchdogs such 
as Virginia have more P3 projects and a higher public satisfaction with 
the P3 process.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. While this hearing is focused on alternative financing 
for highways such as through private activity bonds, I would like to 
highlight a related issue for water infrastructure. The EPA and GAO 
estimate the current water infrastructure funding gap to be as high as 
$1 trillion. According to a report by the American Society of Civil 
Engineers, not addressing this need could cost businesses $147 billion, 
households $59 billion, and result in the loss of nearly 700,000 jobs 
by 2020. Clearly, we have an infrastructure crisis with water in 
proportion to what we face with our Nation's highways, but people take 
it for granted because the pipes are underground and when they turn on 
the tap, water comes out--out of sight, out of mind. Thousands of 
residents in New Jersey are serviced by at least three private, 
investor-owned water companies. Because these companies operate over 
multiple jurisdictions, and often multiple States, they, private 
companies, offer economies of scale that bring efficiencies such as 
mass purchasing power and technology and expertise. During the last 
highway funding bill, I joined Senator Crapo in successfully including 
a proposal to lift the volume cap on private activity bonds for water 
infrastructure. Unfortunately, the provision was not retained during 
conference negotiations with the House.

    Mr. Feigenbaum, I have two questions for you.

    Does it make sense for the residents in one locality in New Jersey 
serviced by an investor-owned utility to not benefit from low-cost 
financing provided by tax-
exempt bonds while residents of neighboring towns and cities serviced 
by municipal systems do?

    Do you support removing barriers to tax-exempt financing, like 
lifting the volume cap--as is already done for other types of 
infrastructures such as airports, high-speed rail, wharves, and solid 
waste disposal industries--for truly public purpose projects like water 
infrastructure?

    Answer. Much of our water infrastructure is deficient; improving 
our water system is a major problem that receives little publicity 
because pipes are hidden underground. Our sewer infrastructure may be 
in worse shape than our roadway infrastructure. Due to this pressing 
need, I am a big supporter of providing the same tax benefits to 
private activity loans as municipal bonds. Therefore, it makes no sense 
for residents of one New Jersey locality but not another locality to 
benefit from low-cost financing.

    I am also a big supporter of removing the volume cap for tax-exempt 
financing. Before 2005, tax-exempt private activity bonds for surface 
transportation infrastructure were not available, even though tax-
exempt bonds were permitted for maritime and aviation purposes. As a 
compromise between those who wanted to allow unlimited private activity 
bond use and those who wanted to prevent all usage, The Safe, 
Accountable, Flexible, Efficient Transportation Equity Act: A Legacy 
for Users (SAFETEA-LU), set a cap at $15 billion. U.S. projects are 
expected to hit that cap by 2018.

    While some questioned whether private activity bonds were sound 
investment tools, 10 years of usage have shown that private activity 
bonds are a cost-effective, safe-for-taxpayers method of financing 
infrastructure. Since infrastructure needs to be added and modernized, 
there is no logical reason why any project that is a sound investment 
should not receive the benefits of tax-exempt financing. I will 
continue to push for an increase in the private activity bond cap, and 
I am hopeful that the cap will be significantly increased, if not 
eliminated altogether.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a committee hearing 
examining financing options for the Highway Trust Fund:

    I'd like to welcome everyone to today's hearing on alternatives and 
additions to federal and local infrastructure financing.

    Last week, we held a hearing on infrastructure funding, 
specifically focusing on the status of the highway trust fund and the 
looming deadline for renewal at the end of July. Today, we'll discuss a 
separate, but important, topic, which is how states are using 
innovative financing to facilitate construction of infrastructure 
projects.

    At the outset, I want to make sure it is clear that, while they are 
important, these financing alternatives and ideas are not meant to 
address the immediate shortfall in the Highway Trust Fund. As long as 
our federal highway program is based upon reimbursements to states made 
on a formula basis, there is no workable substitute for federal 
funding.

    Instead, today's discussion will be about additional tools that 
states can use to better determine and respond to their own 
infrastructure needs.

    I think we also need be clear on what financing is and what it is 
not.

    Because of the large capital costs associated with infrastructure, 
financing alternatives can give states more flexibility in producing 
the capital they need to build projects faster. However, we should also 
remember that financing carries with it the expectation of repayment 
and future return.

    During last week's hearing, Dr. Kile from the Congressional Budget 
Office noted that ``[r]egardless of its source, financing is only a 
mechanism for making future tax or user fee revenues available to pay 
for projects sooner. It is not a new source of revenues.''

    That is important to remember: pulling taxes and other revenues 
from the future into the present does not create new resources. It is 
also important to remember that there are various ways to use 
alternative financing mechanisms to shift risk, but financing tools 
alone do not get rid of risks.

    Having said that, as Mr. Narefsky, who is on our panel today, notes 
in his written testimony: ``There is bi-partisan support for public-
private partnerships at both Federal and State levels.'' This is 
certainly true, and I think the distinguished panel of witnesses we 
have here today demonstrates that interest.

    However, while there is bipartisan consensus on examining 
alternative ways of financing for infrastructure projects, many 
obstacles facing infrastructure projects remain, including significant 
obstacles imposed by the federal government.

    For example, as Governor Daniels notes in his written testimony 
today, it takes an average of seven years for the Federal Highway 
Administration to complete an Environmental Impact Statement on a 
single proposed highway project. By comparison, the Hoover Dam, often 
cited as an exemplar of robust infrastructure policy, was built and 
completed in only 4 years.

    We need to do better. I hope today we can have a robust discussion 
on what we can do at the federal level to make these processes more 
efficient.

    Working with states on innovative infrastructure financing allows 
for decisions to be made closer to the people whom the projects are 
intended to benefit. I have an example from my own state of Utah.

    In 2008, the Utah Department of Transportation, or UDOT, was in the 
process of designing and constructing the first phases of the Southern 
Corridor near St. George.

    The Southern Corridor is a brand new highway that provides regional 
transportation among multiple communities, plus a new access point for 
those communities to Interstate 15, and improved access to a new, 
larger airport constructed in St. George to accommodate the growing 
community.

    During the design of the Southern Corridor, a private developer 
expressed a desire for an interchange to access his property. This 
interchange was not in the original plans. However, the developer was 
willing to pay for the construction of the additional interchange 
himself.

    Using a State Infrastructure Bank, UDOT partnered with both the 
city of St. George and the private developer in order to finance the 
interchange. Under the arrangement required by the State Infrastructure 
Bank, UDOT entered into a loan agreement with the city of St. George in 
the amount of $3.7 million to construct a bridge for the interchange. 
Afterward, the developer repaid the cost of the loan to St. George and 
chipped in another nearly $2 million of his own capital to build the 
ramps and street network required for the new interchange.

    I'm recounting these transactions, not because they represent high 
political drama or intrigue, but because they demonstrate how 
innovative financing arrangements with the private sector can be useful 
in improving our infrastructure by making new opportunities possible 
and relieving the burden on taxpayers.

    For me, the larger questions for today's hearing are not whether we 
should encourage public-private partnerships and innovative financing, 
but how we can ensure that the taxpayers are the ultimate beneficiaries 
of these deals, and not just the bearers of risk. It's clear that, done 
right, these types of financing mechanisms can help us cut through red 
tape and promote local control of infrastructure development.

    I hope that we can have a good discussion of these issues and work 
toward improving a system that clearly could benefit from increased 
efficiency.

    With that, I yield to Senator Wyden for his opening remarks.

                                 ______
                                 
     Prepared Statement of David Narefsky, Partner and Co-Leader, 
             Infrastructure Practice Group, Mayer Brown LLP
    Dear Chairman Hatch and Members of the Senate Finance Committee:

    It is an honor for me to be here today to discuss the increased use 
of innovative public-private partnerships to finance, construct and 
operate major transportation infrastructure projects. My name is David 
Narefsky. I am an attorney and partner at Mayer Brown, an international 
law firm headquartered in Chicago. I am co-
leader in the Firm's Global Infrastructure Practice Group and regularly 
advise both state and local governments and private clients in the 
development and financing of major transportation infrastructure 
projects.

    State and local governments across the country are responding 
proactively to what is widely recognized as a crisis in the state of 
our nation's infrastructure by partnering with the private sector to 
finance, develop and operate major transportation projects. In the last 
decade or so, we have seen an increasing use of the public-private 
partnership model, building on approaches developed and refined in 
Canada, Europe, Asia and Australia and utilizing the innovative 
financing and regulatory incentives authorized by the Federal 
Government. As a result, public-private partnerships have played a 
major role in the successful development most large-scale 
transportation infrastructure projects completed or under construction 
in the past decade. Many of these projects are highlighted on the map 
which is attached to these remarks.
                            lessons learned
    Reflecting on the experience of state and local government efforts 
over the last decade to partner with the private sector in the 
development of our transportation infrastructure, I would highlight the 
following as key ``lessons learned'':

    There is bi-partisan support for public-private partnerships at 
        both Federal and State levels. Federal financing incentives and 
        regulatory flexibility has been encouraged by each of the 
        Clinton, Bush and Obama Administrations. Both Republican and 
        Democratic Governors and Mayors have been strong advocates for 
        public-public partnerships supporting transportation 
        infrastructure.

    Protecting the public interest is paramount: Successful public-
        private partnerships require the private partner to comply with 
        detailed and comprehensive operating standards, with non-
        compliance resulting in significant monetary penalties and/or 
        default and loss of the right to continue to operate the 
        project.

    A reliable legal framework is a necessary precondition to getting 
        things done: Private parties investing in a jurisdiction and 
        its infrastructure need to know that the identified sources of 
        revenue will be available throughout the term of the 
        agreement--and that when project procurement is initiated it 
        will get to the finish line.

    Federal financing incentives, in particular tax-exempt private 
        activity bond and low-cost TIFIA financing, have been critical 
        to successful implementation of transportation public-private 
        partnerships.

    The successful models developed for transportation public-private 
        partnerships are increasingly being applied to other 
        infrastructure assets, including water supply and public 
        buildings such as courthouses and university facilities.

    While there are many types of public-private partnerships, it is 
        critical to know when a public-private partnership is the right 
        structure for the project and to know what type of public-
        private partnership should be implemented on a project. Not all 
        projects are well-suited for public-private partnership 
        contracting. Certain types of projects are more suited than 
        others for public-private partnerships because of the ability 
        to reduce cost, introduce innovation, and accelerate delivery 
        through a public-private partnership. Knowing which projects 
        those are and then implementing the right public-private 
        partnership model for those projects is critical.

    Important government policy objectives can be incorporated in 
        public-private partnership transactions: These objectives can 
        include labor protections, including requirements for project 
        labor agreements, labor neutrality and card check procedures, 
        wage and benefit requirements and required offers of employment 
        to existing employees; disadvantaged, minority, female, 
        disabled and veterans' contracting requirements. In addition, 
        they can include limitations on toll increases and other fees 
        imposed by private sector partners.

    Having a public champion is critical: Jurisdictions that have been 
        successful in developing public-private partnerships have had a 
        public champion who clearly articulated policy rationale for 
        the project, moved forward with bold initiatives to develop new 
        projects, and developed a vision in the face of uncertainty and 
        at times opposition.

    Successful public-private partnerships result in significantly 
        reduced construction cost as well as lower and more predictable 
        ``life cycle'' operation and maintenance costs over the useful 
        life of the asset.

    Credibility is important: Successful jurisdictions have 
        credibility with their constituents that they are making the 
        best decisions on projects to implement and the availability of 
        revenue sources; credibility with private sector partners that 
        they will accomplish what they set out to do; and credibility 
        with investors and financing parties that will meet their 
        obligations.
              ground-breaking public-private transactions
    In the United States, the market for long-term leases of existing 
infrastructure assets--sometimes referred to as ``brown field 
transactions''--was catalyzed by two transactions that closed in 2005 
and 2006--the Chicago Skyway and the Indiana Toll Road. In the Skyway 
transaction, the City of Chicago received an upfront payment of $1.8 
billion, which it used to retire high interest rate debt, establish 
reserve accounts that significantly strengthened the City's financial 
position and funded quality of life ``safety net'' programs for 
residents most in need. In addition, the winning bidder was obligated 
to implement significant capital improvements, including long overdue 
electronic tolling and to comply with comprehensive operating 
standards.

    In the Indiana Toll Road transaction, the State received an upfront 
payment of $3.8 billion, which it used, after paying down debt, to 
fully fund its ``Major Moves'' multi-year transportation program, as 
well to provide $150 million to each of Indiana's 92 counties for local 
road improvements. In addition, the winning bidder committed to deliver 
and additional $500 million in improvements to the Toll Road--including 
electronic tolling technology, upgraded toll plazas and new lanes to 
reduce congestion--and to comply with comprehensive operating 
standards.

    You may have heard recently about the private investors in the 
Indiana Toll Road going through a bankruptcy proceeding. The public-
private partnership transaction documents worked as intended through 
this bankruptcy, protecting the interests of the State and the 
traveling public by ensuring the continued smooth operation of the 
road.

    The success of transactions like the Chicago Skyway and Indiana 
Toll Road led the Commonwealth of Puerto Rico to establish a Public-
Private Partnerships Authority. The Authority's mission is to partner 
with the private sector to make infrastructure projects viable when the 
funds needed for development were not available in the Commonwealth's 
Treasury and thereby increase the reliability of services, reduce 
congestion, provide routine maintenance, improve safety and 
environmental performance and generally enhance the value of Puerto 
Rico's infrastructure assets.

    In 2013, the Public-Private Partnerships Authority and Aerostar 
Airport Holdings successfully reached financial closing of a long-term 
lease for the Luis Munoz Marin International Airport in San Juan. The 
San Juan Airport became the first major airport in the U.S. run by a 
private operator under the Privatization Pilot Program established by 
Congress in 1996 and administered by the Federal Aviation 
Administration. Highlights of this transaction include a 35-year 
contract with over $2.6 billion in value to Puerto Rico through a $615 
million up-front payment, fixed annual payments and long-term revenue 
sharing expected to total at least $500 million, and with the 
operational risk and responsibility for $1.4 billion in airport capital 
expenditures shifted to a private entity held to strict operating 
requirements. The transaction enabled Puerto Rico to pay off 
significant infrastructure-related debt and also included protections 
for existing employees of the airport.

    The San Juan Airport transaction closed approximately 2\1/2\ years 
ago and is widely viewed as a major success: by the traveling public 
that is benefiting from improved passenger amenities, by the airlines 
who are benefiting from lower and more predicable rates as well as from 
implementation of deferred and overdue airport capital improvements, 
and by the Commonwealth which is realizing increased passenger traffic 
notwithstanding the island's current economic downturn.

    As noted above, San Juan is now the first U.S. airport operated by 
a private party under the Federal Aviation Administration's 
Privatization Pilot Program. This program requires the private party to 
operate an entire airport--both airside and landside facilities--and to 
obtain operating certifications from the FAA and the Transportation 
Security Administration. Two major U.S. airports are currently 
exploring use of public-private partnerships to achieve major capital 
improvements without transfer of full operating responsibility to a 
private consortium and proceeding outside of the Privatization Pilot 
Program.

    In New York City, the Port Authority of New York and New Jersey has 
just selected LaGuardia Gateway Partners to finance and implement the 
badly needed and long overdue construction of a new Central Terminal, 
expected to cost between $3.5 billion and $4 billion. This consortium 
will also operate and maintain the new Central Terminal under a long 
term agreement with the Port Authority. Highlighting the long overdue 
nature of the Central Terminal Project, Vice President Biden recently 
referred LaGuardia to as ``an airport from a third world country.''

    Denver recently launched the procurement for its Great Hall 
Project, with the intention of benefiting from private sector 
imagination and financial expertise to relocate TSA checkpoints and 
related security facilities from the Airport's main passenger terminal 
and repurpose this space to provide ``best in class'' passenger 
amenities, including public meeting spaces and enhanced food and retail 
concessions.
       public-private partnerships to develop new transportation 
                             infrastructure
    The public-private partnership model described above is no means 
limited to long-term leases of existing transportation infrastructure. 
In fact, public-private partnerships are increasingly and more commonly 
used by state and local governments to access private sector expertise 
in the construction, financing and operation/maintenance of major new 
or upgraded infrastructure assets (sometimes referred to as 
``greenfield transactions''). To illustrate this trend, I have 
highlighted below several of the most innovative public-private 
partnerships recently implemented in the U.S. In each of these 
transactions, the objectives of the government sponsor have been 
similar: accelerated project delivery for critically needed new 
infrastructure assets, reduced construction and life-cycle costs and 
significant risk-shifting to the private sector.

    Texas has been a market leader in the use of public-private 
partnerships (referred to in that State as comprehensive development 
agreements) in the construction, financing and operation of new highway 
and bridge infrastructure. Projects in Texas have ranged from design-
build projects, with the State providing all necessary financing and 
retaining all revenues to full toll concessions, with the private 
sector retaining all toll revenues and, in some instances, making an 
up-front payment to the State for the right to collect such revenues. 
Among the innovative projects currently being implemented by the Texas 
Department of Transportation (TxDOT) are:

    SH 288 Toll Lanes Transaction: Development of new toll express 
lanes in the Houston area where a private developer is paying TxDOT for 
the right to develop toll lanes and receive revenues from those toll 
lanes. TxDOT is receiving the benefit of an expansion of an existing 
state highway, along with several connecting roads and a new Interstate 
interchange with the cost and risk shifted to the private sector.

    SH 183 Managed Lanes Transaction: Development of new toll express 
lane facilities in the Dallas-Fort Worth area. In this case, the 
private developer is constructing the road, financing a portion of the 
construction costs, and operating and maintaining the facility for 25 
years after construction. The Texas Department of Transportation is 
retaining the tolls from the project. The project procurement was 
structured so that the bidding parties competed to develop the largest-
sized project for a total of $850 million that TxDOT had available for 
the project. The winning bidder agreed to construct not only the base 
scope of the project but all four additional optional components 
offered by TxDOT.

    Denver FasTracks Eagle P3 Project. On June 2010, the Denver 
Regional Transportation District awarded the $2 billion Eagle Project 
P3 concession to the Denver Transit Partners consortium, which achieved 
financial close on August 2010. The private sector partner will design, 
build, finance, operate and maintain two commuter rail corridors, and 
an associated maintenance facility under a 34-year availability 
payment. One of the new rail corridors will connect Denver 
International Airport with Denver Union Station. The Eagle Project is a 
core component of RTD's $6.75 billion voter approved FasTracks transit 
expansion program, and the only successful project under the Federal 
Transportation Administration Penta-P Program. This is the first 
design-build-finance-operate-maintain project for mass transit in the 
United States, and it is providing significant benefits to RTD:

    Unprecedented risk transfer to the private sector;
    Accelerated project delivery from participation in FTA's Penta-P 
        program;
    Significantly reduced total project cost versus internal 
        estimates;
    Attractive funding through the use of Private Activity Bonds, tax-
        exempt bonds, and Federal New Starts Funding;

    The Eagle P3 Project was the first US public-private partnership 
structured with government sponsor retaining all project revenues and 
making annual payments to its private partner, with these payments 
subject to annual appropriation by the transit agency. These payments 
are subject to reduction if the project is not constructed by certain 
time periods or is not constructed or operated and maintained in 
accordance with the detailed and comprehensive certain standards in the 
public-private agreement. Eagle P3 also represents the first use tax-
exempt Private Activity Bonds for a mass transit project.

    Seagirt Maritime Port Terminal. In 2009, the Maryland Port 
Administration and Ports America Chesapeake, LLC entered into a 50-
year, $1.3 billion agreement to expand and operate the Seagirt Marine 
Terminal in Baltimore. Ports America agreed to make at least $500 
million in capital investments to enlarge the Seagirt Terminal, 
positioning Baltimore as one of only twoU.S. East Coast ports with a 50 
foot draft to handle the new Super-Post-Panamax cargo ships and help 
maintain its global competitive position when the Panama Canal 
expansion is completed. In addition, the State of Maryland received an 
upfront payment of $140 million that was reinvested in the State's 
transportation infrastructure, including along the Interstate 95 
Corridor and the Chesapeake Bay Bridge. Maryland will also receive both 
fixed annual payments and variable revenue share payments that will be 
used to support on-going transportation infrastructure improvements. 
The project is projected to generate significant economic growth, over 
5,000 new and high-paying jobs, and incremental tax revenues of $16 
million per year.

    East End Crossing. In a transaction that closed in 2013, the 
private developer, WVB East End Partners, will be responsible for the 
financing, construction and operation of a new toll bridge over the 
Ohio River connecting Southern Indiana and metropolitan Louisville, 
Kentucky. The transaction, which was undertaken by the Indiana Finance 
Authority, is structured as an availability payment transaction. Under 
this approach, the state receives revenues from the toll bridge and 
utilizes those and other revenues to make payments to the private 
developer during construction and during a 35-year operations-and-
maintenance period. The private developer does not take toll revenue 
risk and instead offers a fixed price for these annual payments from 
Indiana during the term and finances the transaction based on the 
promise of the government to make the payments during the term of the 
agreement. However, Indiana has the ability to reduce its payments if 
the project is not made ``available'' either because it was not 
constructed by certain time periods or was not constructed or operated 
and maintained up to certain standards in the contract. As a result of 
this structure and the competitive procurement between four different 
contracting teams, the price received by Indiana for this project was 
approximately 20% less than construction estimates.

    Rapid Bridge Replacement Project. Taking advantage of public-
private partnership legislation signed into law in 2012, the 
Pennsylvania Department of Transportation undertook a new initiative to 
address the State's significant and growing inventory of structurally 
deficient bridges. This initiative resulted in the recently awarded 28-
year agreement to Plenary Walsh Keystone Partners to replace 558 of 
these bridges in just three years, with construction to be completed by 
the end of 2017. In addition to significant acceleration of 
construction schedule, it is expected that the average cost for design, 
construction and maintenance per bridge will be approximately 20% lower 
than Pennsylvania's estimate of the cost if the work had been performed 
under standard contracting processes for bridge design, construction 
and maintenance. As with East End Crossing and Denver FasTracks, the 
private developer will not take revenue risk and instead will receive 
fixed annual payments during the term of the agreement and finances the 
transaction based on the promise of the government to make the payments 
during the term of the agreement.

    Again, I thank the committee for the opportunity to discuss the 
increased use of innovative public-private partnerships to finance, 
construct and operate major transportation infrastructure projects.

David Narefsky
Partner

[email protected]
71 S. Wacker Dr.
Chicago, IL 60606

T: 1-312-701-7303
F: 1-312-706-9136



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
          
                                 ______
                                 
          Questions Submitted for the Record to David Narefsky
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Mr. Narefsky, I noticed in President Obama's fiscal year 
2016 budget that the President's proposal for America Fast Forward 
Bonds resulted in an outlay of over $58 billion. Outlays are defined as 
spending under the Congressional Budget Act. Therefore, the President's 
America Fast Forward Bonds' proposal would increase spending by more 
than $58 billion. And it would increase revenues by over $53 billion. 
Aren't these bonds mainly the same thing as Build America Bonds with a 
new name?

    Answer. The President's proposal for America Fast Forward Bonds is 
similar in many ways to previously authorized Build America Bonds, with 
eligible projects being surface transportation facilities eligible 
under title 23 or chapter 53 of title 49: highways, bridges, and 
tunnels; transit and intercity passenger bus or rail; and intermodal 
freight transfer facilities and private freight facilities conferring a 
public benefit. America Fast Forward Bonds would be taxable bonds and 
would provide a 28-percent subsidy to State and local issuers from the 
Treasury Department on the interest rate of the bonds. These taxable 
bonds are intended to appeal to a wider variety of investors beyond 
traditional tax-exempt investors, including public pension funds, 
corporate pensions, sovereign wealth funds, insurance companies, and 
taxpayers in lower income brackets. I would also note that a competing 
America Fast Forward bond proposal has also been proposed that uses a 
different subsidy structure. Instead of receiving an interest payment 
or a direct subsidy, bond holders would get an annual tax credit that 
can be applied to all forms of their taxable income, including Federal 
benefit and wage withholdings. Much like the Obama administration's 
proposal, this tax credit proposal is designed to open up the market 
for infrastructure debt to a much larger group of investors.

    Question. Mr. Narefsky, in April of 2015, the Treasury Department 
Office of Economic Policy issued a report titled ``Expanding the Market 
for Infrastructure Public-Private Partnerships.'' This report notes 
that one reason that public-private partnerships are more prominent in 
Canada and other parts of the world is that the U.S. municipal debt 
market is already an attractive option for investment. The report 
states, ``The challenge is for PPPs to demonstrate overall cost savings 
and efficiencies that outweigh the lower-cost financing advantage of 
traditional procurement.''

    Is there a way to take advantage of the existing municipal bond 
market to lower the rate of return that a public-private partnership 
needs to generate in order to be successful, for example by having 
governments and non-profits, which are able to issue tax-exempt debt, 
enter into contracts with private-sector partners? Is this an 
arrangement that could work for large-scale infrastructure projects?

    Answer. The answer to this question is ``absolutely.'' And in fact 
there is currently in place a Federal financing initiative that has 
been quite successful in lowering the required rate of return for 
public-private partnerships: The Surface Transportation Private 
Activity Bond (PABs) Program authorized in 2005. This program provides 
for $15 billion in nationwide authorization for the issuance of tax-
exempt bonds to lower the cost of capital for large-scale 
transportation infrastructure projects. These projects include the 
Eagle P3 FasTracks commuter rail project in Denver, the East End 
Crossing Bridge Project in metropolitan Louisville and the Goethals 
Replacement Bridge Project in metropolitan New York. Congress should 
consider increasing the amount of this bond authorization as well as 
expanding authorized purposes beyond surface transportation to include 
``social infrastructure'' projects such as courthouse and higher 
education facilities. Furthermore, the Move America Bonds proposal 
introduced by Senators Wyden and Hoeven would build off of the Surface 
Transportation PABs Program and expand opportunities to use tax-exempt 
financing to support infrastructure public-private partnerships.

                                 ______
                                 
            Question Submitted by Hon. Robert P. Casey, Jr.
    Question. Over the past decade, Amtrak funding levels have averaged 
approximately $1.3 billion per year. While funding in real terms is 
still slightly higher than the FY 2005 levels, it has not kept pace 
with inflation. The reality is that Amtrak and intercity passenger 
rail, like every other national rail network in the world, needs so 
much more than this baseline amount from Congress. Do you think 
initiatives like Move America Bonds could help Amtrak in the short-
term?

    Answer. Yes. The Move America Bonds proposal introduced by Senators 
Wyden and Hoeven would build off of the 2005 Surface Transportation 
PABs Program and expand opportunities to use tax-exempt financing to 
support infrastructure public-private partnerships, and these 
partnerships could specifically include improvements to our national 
rail network. Moreover, initiatives like Move America Bonds could be 
combined with existing rail infrastructure financing incentives such as 
the existing Railroad Rehabilitation and Improvement Financing (RRIF) 
program to accelerate improvements to our national rail network.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. While this hearing is focused on alternative financing 
for highways such as through private activity bonds, I would like to 
highlight a related issue for water infrastructure. The EPA and GAO 
estimate the current water infrastructure funding gap to be as high as 
$1 trillion. According to a report by the American Society of Civil 
Engineers, not addressing this need could cost businesses $147 billion, 
households $59 billion, and result in the loss of nearly 700,000 jobs 
by 2020. Clearly, we have an infrastructure crisis with water in 
proportion to what we face with our Nation's highways, but people take 
it for granted because the pipes are underground and when they turn on 
the tap, water comes out--out of sight, out of mind. Thousands of 
residents in New Jersey are serviced by at least three private, 
investor-owned water companies. Because these companies operate over 
multiple jurisdictions, and often multiple States, they, private 
companies, offer economies of scale that bring efficiencies such as 
mass purchasing power and technology and expertise. During the last 
highway funding bill, I joined Senator Crapo in successfully including 
a proposal to lift the volume cap on private activity bonds for water 
infrastructure. Unfortunately, the provision was not retained during 
conference negotiations with the House.

    Mr. Narefsky, I have two questions for you.

    Does it make sense for the residents in one locality in New Jersey 
serviced by an investor-owned utility to not benefit from low-cost 
financing provided by tax-
exempt bonds while residents of neighboring towns and cities serviced 
by municipal systems do?

    Answer. As a general matter, this would not seem to make good 
public policy sense. And there should be ways to allow for the 
residents in the locality serviced by the investor-owned utility to 
benefit from low-cost financing while still making sure that these 
benefits flow to the residents and not only to the shareholders of the 
investor-owned utility.

    Question. Do you support removing barriers to tax-exempt financing, 
like lifting the volume cap--as is already done for other types of 
infrastructures such as airports, high-speed rail, wharves, and solid 
waste disposal industries--for truly public purpose projects like water 
infrastructure?

    Answer. Yes. As noted, America's water infrastructure needs are 
increasing significantly and receiving increased attention. As such, 
removing the currently applicable volume cap for water infrastructure 
projects is justified, especially when considering that private 
activity bonds for water infrastructure bonds separately require some 
form of rate-setting regulatory oversight. Consistent with this 
recognition of the importance of supporting investment in water 
infrastructure, another barrier to the most effective use of tax-exempt 
financing for water infrastructure was recently removed: specifically, 
the prohibition on combining tax-exempt bonds with loans or other 
financial support under the Water Infrastructure and Investment Act or 
WIFIA Program.

                                 ______
                                 
                 Question Submitted by Hon. John Thune
    Question. In your testimony you mentioned a number of P3 projects. 
In your opinion, what is the single biggest obstacle that inhibits the 
use of P3s? Conversely, what is the single most important aspect of 
making a P3 successful?

    Answer. The most important aspect of making a P3 successful is 
effective executive leadership from the State or local government that 
is implementing the project. As examples, I would point to the 
leadership provided by former Indiana Governor Mitch Daniels (projects 
such as the Indiana Toll Road and East End Crossing Bridge Project) and 
Colorado Governor and former Denver Mayor John Hickenlooper (projects 
such as Denver Union Station, Eagle P3 FasTracks Commuter Rail, and 
U.S. 36 Managed Lanes Highway Improvements).

    The single biggest obstacle that inhibits the use of P3s is failure 
to clearly articulate and advance public-sector objectives and obtain 
buy-in and support from affected stakeholders--legislative, 
neighborhood, and civic organizations, as well as the design, 
engineering, and contractor industries, etc.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    A lot of Americans wonder if Congress can organize a two-car 
parade. When you look at 33 consecutive short-term patches for 
infrastructure funding, it sure seems like Congress can't pave the 
parade route either.

    This is the second time in 8 days the Finance Committee has come 
together to take a hard look at the nation's infrastructure crisis. By 
now, there's a good consensus with respect to the dire condition of our 
roads, highways, bridges, railways and ports. You cannot have a big-
league economy with little-league infrastructure. Yet our 
transportation networks are crumbling, the price-tag of maintenance 
down the road is growing, and America's infrastructure is falling far 
behind our competitors'.

    Last week our hearing focused on the drastic shortfall in 
transportation infrastructure funding, which leaves the highway trust 
fund running on fumes every few months. Finding a pathway to a long-
term source of revenue for the trust fund is absolutely essential so 
that projects can get underway and construction workers stay on the 
job. To solve this crisis, the Highway Trust Fund has got to be solvent 
and healthy. But that's only one part of the solution.

    The U.S. needs more than a trillion dollars of new investment just 
to get our infrastructure up to a level of good repair. Even with a 
steady stream of revenue, there's still a big gap between the work that 
needs to be done and the resources to make it happen. That's why it's 
so critical that Congress find some fresh ideas to get projects off the 
ground, including financing tools with proven records of success. 
That's what today's hearing will focus on--getting private dollars off 
the sidelines and into the game on infrastructure.

    Six years ago, when the Senate was looking for a way to spark 
investment in infrastructure, it turned to a proposal I and a 
bipartisan group of colleagues had been supporting for a long time 
called Build America Bonds. At the time, people thought it was a nice 
little idea that would generate $4 or $5 billion in private investment. 
That turned out to be a big underestimation. In less than 2 years, 
Build America Bonds sparked more than $180 billion worth of investment.

    Oregon took advantage of the program to build a new interchange in 
Eugene, improve the highways around Clackamas County and Bend, and a 
whole host of other projects across the state. States across the 
country saw their own projects get off the ground. So there shouldn't 
be any question as to whether there's an appetite for effective 
financing tools for infrastructure.

    Last month, Senator Hoeven of North Dakota and I introduced a bill 
called the Move America Act to provide an effective new approach to 
financing. Picking up on several of the best features of Build America 
Bonds, our new proposal, according to the Joint Tax Committee, will 
turn an $8 billion taxpayer investment into $226 billion worth of 
infrastructure projects.

    Our proposal will cut red tape that's been a bureaucratic nightmare 
for states, localities, and the private sector in the past. And unlike 
Build America Bonds, this proposal is permanent. Let's not put an 
expiration date on a good idea.

    I believe the Move America Act, and the smart approach to financing 
that it represents, are going to be a key part of the long-term plan 
that solves our transportation infrastructure crisis. There is a lot of 
work to be done, and it can't begin as long as Congress is falling back 
on short-term funding patches. On this issue, Congress has punted more 
times than the Oakland Raiders. So in my view, it's time to do better.

    I hope this hearing will help bring the committee closer to a 
comprehensive solution to this crisis and drive home the message that 
Congress has to adopt some fresh ideas like Move America.

                                 ______
                                 

                             Communications

                              ----------                              


               AMERICAN SOCIETY OF CIVIL ENGINEERS (ASCE)

_______________________________________________________________________

                           Washington Office

                      101 Constitution Ave., N.W.

                             Suite 375 East

                         Washington, D.C. 20001

                         Phone: (202) 789-7850

                          Fax: (202) 789-7859

                              www.asce.org

                        Statement for the Record

                                   On

           ``Unlocking the Private Sector: State Innovations

              in Financing Transportation Infrastructure''

                          United States Senate

                          Committee on Finance

                             June 25, 2015

Introduction

The American Society of Civil Engineers (ASCE) \1\ appreciates the 
opportunity to submit our views on private investment in transportation 
infrastructure to the U.S. Senate Finance Committee. There is an urgent 
and timely discussion taking place about the future of federal 
transportation funding and the need to secure long-term, sustainable 
funding to support the federal Highway Trust Fund (HTF). Given 
yesterday's positive action by the U.S. Senate Environment and Public 
Works (EPW) Committee, there exists now heightened urgency on the 
Finance Committee to accommodate funding levels that can provide 6 
years of growth for the federal highway and transit program.
---------------------------------------------------------------------------
    \1\ ASCE was founded in 1852 and is the country's oldest national 
civil engineering organization. It represents more than 146,000 civil 
engineers individually in private practice, government, industry, and 
academia who are dedicated to the advancement of the science and 
profession of civil engineering. ASCE is a non-profit educational and 
professional society organized under Part 1.501(c)(3) of the Internal 
Revenue Code. www.asce.org.

Private sector financing of transportation projects does not help 
address the current HTF funding challenge. However, coupled with a 
strong federal, state and local funding program, innovative financing 
mechanisms can help fill transportation infrastructure gaps by 
leveraging tax revenues and user fees. Funding cannot be separated from 
the financing discussion because the availability of private sector 
capital, or ability of governments to repay transportation-related 
---------------------------------------------------------------------------
debts, is tied to public acceptance to pay more in tolls fees or taxes.

Bridging the Gap: A Public and Private Sector Challenge

ASCE's 2013 Report Card for America's Infrastructure \2\ graded the 
nation's infrastructure a ``D+'' based on 16 categories and found that 
the nation needs to invest approximately $3.6 trillion by 2020 to 
maintain the national infrastructure in good condition. The $3.6 
trillion figure is the total needs funding amount across all 
infrastructure sectors, with federal, state and local transportation 
shortfall being $1.7 trillion. The following are the grades and the 
investment needs by 2020 for the surface transportation area:
---------------------------------------------------------------------------
    \2\ www.infrastructurereportcard.org.

    Bridges received a grade of C+;
    Transit received a D; and
    Roads received a grade of D.

The current spending of $91 billion per year, from all levels of 
government, for highway capital improvements is well below the 
estimated $170 billion needed annually to improve conditions. The 
Federal Transit Administration (FTA) estimates a maintenance backlog of 
nearly $78 billion needed to bring all transit systems up to a state of 
good repair.

To meet these transportation needs, it will take:

    Increased leadership in infrastructure renewal;
    Strategic plans to guide investment towards increased system 
        performance; and
    A robust program of both public and private sector investment.

The Nexus Between Funding and Financing

ASCE encourages the full utilization and expansion of innovative 
financing methods like revenue bonds, tax exempt financing, federal 
credit assistance programs, public-private partnerships (P3s), and 
state infrastructure banks, among other tools. Innovative financing 
tools can greatly accelerate infrastructure development and can have a 
powerful economic stimulus effect compared to conventional methods. 
However, innovative financing tools should not be viewed as an 
alternative to funding, but rather financing is often dependent upon 
securing public support for increased revenues.

A full menu of financing options should be available to federal, state 
and local policymakers and asset owners as they seek to identify the 
best way forward to build and modernize America's surface 
transportation infrastructure. However, it should be noted that while 
infrastructure investors such as private-equity firms, sovereign wealth 
funds, and public pensions have indicated a renewed interest in 
investing more in U.S. infrastructure, the investment that they make 
should not be mistaken as a charity donation: Investors are looking for 
a rate of return on that capital which will require some sort of 
general public or transportation user payment.

There exists a clear yet underappreciated connection between our 
nation's ability to generate significant funding for transportation 
improvements and an investors' interest in financing transportation 
projects. Repayment options on debt for surface transportation projects 
often include general taxes, gasoline taxes, sales taxes, 
transportation fees, toll receipts, and federal grant funding to name a 
few. The following chart \3\ from a 2009 Transportation Research Board 
(TRB) National Cooperative Highway Research Program (NCHRP) report on 
debt financing provides a ranking of the most utilized sources of state 
revenue for debt repayment when it comes to surface transportation:
---------------------------------------------------------------------------
    \3\ http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_syn_395.pdf.

    
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
             

In addition to repayment on debt, P3s often utilize transportation user 
fees as their primary payment mechanism to provide investors a 
guaranteed rate-of-return. There are differing payment models that have 
been developed for P3s as it relates to collecting toll revenue, and 
some are more risky to the private investor than others. But regardless 
of the method of collection, absent a strong appetite by both 
policymakers to secure these revenues and the public to pay any tolls, 
taxes or fees, the P3 model in the U.S. will remain severely 
---------------------------------------------------------------------------
constrained.

The attractiveness, availability and experience of state and local 
governments when it comes to utilizing low-interest, tax-exempt 
municipal bonds certainly has some effect on depressing the domestic P3 
market, but as Fitch \4\ noted in 2014, ``Identifying and allocating 
revenue for repayment of project debt is the biggest obstacle to the 
renewal of aging infrastructure in many developed economies.'' Fitch 
studied developed economies outside of the U.S. and consistent 
throughout was not the lack of attractive financing options available, 
but rather the lack of political will to raise revenues to build and 
maintain existing infrastructure. ``The problem requires an often-
difficult political decision on who should pay for facilities that only 
a fraction of the population will use and that will also be used by 
future generations,'' stated Fitch in their report summary.
---------------------------------------------------------------------------
    \4\ https://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/
Revenue,-not-Financing,?pr_id=939115.

In order to help increase private investment, the federal government 
should make every effort to assist public asset owners to engage in P3s 
and also facilitate engagement with private investors who are 
oftentimes in search of clear, accurate asset and project data to help 
inform their infrastructure investment strategies. Programs like 
Transportation Infrastructure Finance and Innovation Act (TIFIA), 
bonds, and other innovative solutions like President Obama's proposed 
Qualified Public Infrastructure Bonds (QPIBS) are attractive 
instruments to both the public and private sector that can help fill 
---------------------------------------------------------------------------
the nation's infrastructure investment gap.

Need for Robust, Long-Term Funding

A key challenge before the Committee is to ensure future HTF solvency. 
Since the creation of the Interstate Highway System in 1956, the HTF 
has been supported by revenue collected from road users. This ``pay-as-
you-go'' system has served the nation well over the past half a 
century, allowing states to plan, construct, and improve the surface 
transportation network. Additionally, the reliable stream of user-
supplied revenue has been critical to the legislative process, because 
it has enabled Congress to guarantee the availability of multi-year 
funding to states.

The federal gas tax was last changed over 20 years ago in 1993, and 
since that time a revenue shortfall has developed in the HTF that 
increases each year. Currently, the HTF is allocating more than the 
revenues it receives, with the trust fund allocating $15 billion more 
than raised in 2014 alone. The Congressional Budget Office recently 
projected that the 6-year cumulative gap in the HTF will grow to 
approximately $90 billion by 2020.

Despite this freeze in use fee revenue rates, every year demands on the 
system grow and the purchasing power of those 1993-dollars degrades 
further. As a result, current levels of highway and transit investment 
cannot be maintained solely with HTF resources. Over the last 6 years, 
Congress has had to dedicate approximately $60 billion from general 
fund revenues to shore-up the HTF. When the choices are either to cut 
funding, raid the general fund, or raise additional revenue, there 
exist no more easy options. It's time for Congress to lead the way on a 
solution to fix the HTF.

ASCE supports a reliable, long-term, sustained user fee approach to 
building, maintaining and improving the nation's highways and transit 
systems and believes that all funding options should be considered by 
Congress. We recently endorsed House legislation that would raise the 
federal fuels tax by 15 cents per gallon over the course of a 3 year 
period. In recent years the Simpson-Bowles Commission \5\ and the 
National Surface Transportation Infrastructure Financing Commission,\6\ 
among others, have come to the conclusion that additional user-based 
revenue is needed, with each suggesting an increase in the federal 
motor fuels tax rate. While the motor fuels tax remains the best long-
term solution to solving the HTF shortfall in a fiscally responsible, 
deficit neutral way, a full range of options must be considered within 
the context of reauthorization, either within or outside of any broader 
tax reform package.
---------------------------------------------------------------------------
    \5\ http://momentoftruthproject.org/report/recommendations.
    \6\ http://financecommission.dot.gov/.

Of utmost importance is the need to maintain the current fuels tax 
rate's purchasing strength as it is not currently indexed to economic 
indicators such as the Consumer Price Index (CPI). An indexing of this 
sort is applied to many other government revenues and would allow the 
gas tax to remain strong despite the rising costs of steel, other 
building materials and labor rates. If adjusted to the projected CPI 
over the next 10 years, the current fuels tax would raise \7\ an 
additional $27.5 billion, which is enough to plug the HTF shortfall for 
about 2 years. ASCE recommends raising the motor fuels tax by 25 cents 
per gallon and indexing for inflation to help meet our nation's near-
term surface transportation needs.
---------------------------------------------------------------------------
    \7\ http://renacci.house.gov/index.cfm/2015/4/bipartisan-group-of-
lawmakers-introduce-long-term-solution-to-address-highway-trust-fund.

---------------------------------------------------------------------------
Conclusion

Innovative financing does not produce revenue and should not be viewed 
as an alternative to increasing user fees, taxes or other revenue. 
While recognizing that innovative financing is not a replacement for 
new funding, ASCE fully supports innovative financing programs and 
urges incentives and federal policies to make these programs available 
and utilized in all states. Additionally, the federal government should 
make every effort to develop new programs. These types of programs 
could include QPIBS, lifting the cap on Private Activity Bonds (PABs), 
reintroducing Build America Bonds, creating Transportation and Regional 
Infrastructure Project bonds, establishing a National Infrastructure 
Bank, expanding Transportation Infrastructure Finance and Innovation 
Act, (TIFIA), and further supporting State Infrastructure Banks, among 
other instruments.

Surface transportation infrastructure is the critical engine supporting 
the nation's economy, national security, and public safety. To compete 
in the global economy, improve our quality of life and raise our 
standard of living, we must successfully rebuild America's surface 
transportation infrastructure for the 21st century utilizing both 
public and private sector resources. To achieve that goal, Congress 
must approve a long-term, sustainable HTF revenue solution before the 
law expires on July 31, 2015, and federal, state and local governments 
must continue do more to attract and properly leverage private sector 
infrastructure investment.

                                 ______
                                 

                             Public Citizen

215 Pennsylvania Avenue, SE  Washington, D.C. 20003  (202) 546-4996  
                            www.citizen.org

June 23, 2015

United States Senate
Committee on Finance
Attn. Editorial and Document Section
Rm. SD-219
Dirksen Senate Office Building
Washington, DC 20510-6200

Re: Funding for infrastructure investments

Dear Chairman Hatch and Honorable Committee Members,

On behalf of Public Citizen's more than 400,000 members and supporters, 
we appreciate the opportunity to submit this statement for the record 
outlining our recommendations for securing long-term funding for 
transportation and infrastructure funding.

Public Citizen strongly urges the committee to consider funding options 
that both maximize the benefit for taxpayers and that are sustainable 
over the long term. For these reasons, we recommend that you avoid 
short-term fixes such a repatriation tax holiday for multinational 
corporations' profits stashed overseas and concentrate instead on long-
term funding sources that would also create an incentive to reduce 
harmful emissions from vehicles such as increasing the gas tax or 
implementing a tax on carbon.

It's clear that America has an infrastructure crisis: bridges are 
crumbling, roads are in desperate need of repair and mass transit 
options are too few and far between. The American Society of Civil 
Engineers 2014 ``Report Card for America's Infrastructure'' estimates 
that $3.6 trillion in investments are needed to modernize and repair 
U.S. infrastructure.

The short-term funding for the Highway Trust Fund will run out again 
this summer, and it is encouraging that this committee is searching for 
long-term funding solutions instead of continuing to move from patch to 
patch as has been done in the recent past. However, as you weigh your 
options, it is important to not choose solutions that would be a losing 
proposition for American taxpayers.

One such losing proposition is a repatriation ``holiday'' for taxes 
owed on profits listed as being earned by foreign subsidiaries of 
American corporations. Because of the current system of deferral, where 
taxes may be indefinitely put off until profits are repatriated or 
``brought back'' to the U.S. in the form of dividends or other 
shareholder payments, multinational corporations are able to play games 
with their accounting books and transfer profits between entities, 
usually to companies located in low or no tax jurisdictions (or ``tax 
havens.'')

This type of corporate tax haven abuse costs the federal government $90 
billion in lost revenue every year. In total, more than $2 trillion in 
profits are booked offshore. It's true that without changes to our tax 
code, those monies will continue to be stashed in offshore accounts. 
But, it is not a good solution to allow corporations to voluntarily 
repatriate those profits at much lower tax rates than would have 
otherwise been due, using a tactic that is known as a ``repatriation 
holiday.'' This experiment was tried and failed in 2004, and as a 
country we must learn our lesson and not repeat the same mistake.

A 2011 Senate report analyzing the tax repatriation holiday in 2004 
found that much of the profits that multinational corporations were 
supposedly holding offshore were actually sitting in U.S. bank accounts 
and other assets, undercutting the concept of ``bringing the money 
back.'' And, the repatriated taxes came from a small number of 
corporations that used the money to pay dividends instead of 
reinvesting in the economy and at the same time ended up cutting 
workforces.

    Proposals like the one offered by U.S. Senators Barbara Boxer (D-
CA) and Rand Paul (R-KY) would allow companies to choose to repatriate 
offshore taxes at the bargain-basement rate of only 6.5 percent, 
slightly more than 1 percent higher than the rate used in the 2004 tax 
holiday. The Joint Committee on Taxation scored the Boxer-Paul bill as 
costing $118 billion over 10 years. In addition to losing money in the 
long run, as a funding option, a repatriation holiday would only be a 
one-time-source of money that would do nothing to fix the long-term 
funding shortfall for infrastructure investments. Additionally, 
allowing another repatriation holiday would reward corporations that 
have for years avoided paying taxes by using accounting gimmicks to 
shift profits to the books of related foreign corporations.

Mandatory ``deemed repatriation'' proposals, such as the 14 percent 
rate put forward by President Barack Obama in his FY 2016 budget 
proposal, are still not a good deal for taxpayers. This is because 
corporations are given a break on the tax rate, forcing the U.S. to 
give up the other 21 percent of taxes that could have been assessed if 
loopholes like deferral were ended and companies were forced to pay the 
full 35 percent statutory rate on offshore profits (after receiving a 
credit for foreign taxes paid.) Research by the Institute for Policy 
Studies and the Center for Effective Government in their April 2015 
``Burning our Bridges'' report examines the myriad of infrastructure 
investments that could be made if loopholes were closed and offshore 
profits were taxed at the full statutory rate.

Though the President's budget proposal was encouraging in that it 
proposed to require a minimum tax on offshore profits of 19 percent 
moving forward, meaning it could be used for a long-term funding 
source, given the difference between that rate and the normal statutory 
rate, it would continue the incentive for companies to play accounting 
games and shift profits to overseas subsidiaries.

A better alternative would be to instead fund transportation and other 
infrastructure investments with long-term funding pots that are not 
only sustainable, but that are tied to the use of highways and would 
incentivize positive behavioral shifts to reduce emissions that 
contribute to climate change. Examples include increasing the gas-tax 
and instituting a carbon tax.

The gas tax has not been raised for more than two decades and because 
of inflation, the value of the 18.4 cent tax continues to fall. The gas 
tax provides a disincentive for fuel use, and it makes sense to raise 
the tax since it has not been changed since 1993. It should also be 
tied to inflation in order to ensure its value holds steady.

Another great option for long-term funding for infrastructure 
investments (among other things) would be to implement a tax on carbon 
dioxide pollution, with a refund given to U.S. consumers on a per 
capita basis as a way to balance out the regressive nature of the tax. 
Since transportation produces around a third of our nation's C02 
pollution, which causes climate change, it makes sense to tie a portion 
of the proceeds from a carbon tax to fund improvements to highways and 
mass transit.

Either way, both the gas tax and a carbon tax would be directly tied to 
the use of our highways and provide long-term solution to funding 
infrastructure investments, as opposed to a one-time option like a 
corporate tax repatriation holiday.

The American people should not have to settle for a repatriation 
holiday's discounted tax revenue at the expense of further 
incentivizing activities by multinational corporations that 
disadvantage responsible small business owners and ordinary taxpayers. 
Instead, the incentive we should be creating is to reduce carbon 
pollution and limit the harmful impacts of climate change.

Thank you again for the opportunity to submit our thoughts on this 
important topic.

Sincerely,

Lisa Gilbert                        Susan Harley
Director                            Deputy Director
Public Citizen's Congress Watch 
division                            Public Citizen's Congress Watch 
                                    division

Tyson Slocum
Director
Public Citizen's Energy program

                                   [all]