[Senate Hearing 115-319]
[From the U.S. Government Publishing Office]
S. Hrg. 115-319
THE LONG-TERM VALUE TO U.S. TAXPAYERS OF LOW-COST FEDERAL
INFRASTRUCTURE LOANS
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HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
JULY 11, 2018
__________
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
JOHN BARRASSO, Wyoming, Chairman
JAMES M. INHOFE, Oklahoma THOMAS R. CARPER, Delaware,
SHELLEY MOORE CAPITO, West Virginia Ranking Member
JOHN BOOZMAN, Arkansas BENJAMIN L. CARDIN, Maryland
ROGER WICKER, Mississippi BERNARD SANDERS, Vermont
DEB FISCHER, Nebraska SHELDON WHITEHOUSE, Rhode Island
JERRY MORAN, Kansas JEFF MERKLEY, Oregon
MIKE ROUNDS, South Dakota KIRSTEN GILLIBRAND, New York
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
DAN SULLIVAN, Alaska EDWARD J. MARKEY, Massachusetts
RICHARD SHELBY, Alabama TAMMY DUCKWORTH, Illinois
CHRIS VAN HOLLEN, Maryland
Richard M. Russell, Majority Staff Director
Mary Frances Repko, Minority Staff Director
C O N T E N T S
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Page
JULY 11, 2018
OPENING STATEMENTS
Barrasso, Hon. John, U.S. Senator from the State of Wyoming...... 1
Carper, Hon. Thomas R., U.S. Senator from the State of Delaware.. 2
WITNESSES
Holtz-Eakin, Doug, President, American Action Forum.............. 5
Prepared statement........................................... 7
Sarmiento, Vicente, Director, Orange County Water District....... 14
Prepared statement........................................... 16
Motyl, Brian, Assistant Director of Finance, DelDOT.............. 31
Prepared statement........................................... 34
ADDITIONAL MATERIAL
Statement of the Council of Infrastructure Financing Authorities,
July 11, 2018.................................................. 59
THE LONG-TERM VALUE TO U.S. TAXPAYERS OF LOW-COST FEDERAL
INFRASTRUCTURE LOANS
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WEDNESDAY, JULY 11, 2018
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The Committee met, pursuant to notice, at 10:07 a.m. in
room 406, Dirksen Senate Office Building, Hon. John Barrasso
(Chairman of the Committee) presiding.
Present: Senators Barrasso, Carper, Inhofe, Boozman,
Wicker, Fischer, Rounds, Ernst, Sullivan, Cardin, Gillibrand,
Booker, Markey, Duckworth, and Van Hollen.
OPENING STATEMENT OF HON. JOHN BARRASSO,
U.S. SENATOR FROM THE STATE OF WYOMING
Senator Barrasso. Good morning. I call this hearing to
order.
Today the Committee will examine the benefits of Federal
infrastructure leveraging programs to American taxpayer
dollars.
This is the seventh hearing our Committee has held this
year on improving our Nation's highways, bridges, and water
projects. These hearings have shown infrastructure is critical
to our Nation's prosperity.
As America's population and economy have grown, our
infrastructure has not kept pace. Maintenance shortfalls and
project backlogs have left many key elements of our
infrastructure in transportation in need of major repair and
replacement in transportation, as well as water. As a result,
major infrastructure improvements are needed across the country
to build, to maintain, and to replace these vital systems.
Timely decisions and timely construction are keys to
success. The sooner a project is built, the sooner it can have
a positive impact on the lives of the people in those
communities and those affected.
Loan and loan guaranty programs often allow expensive
projects to be delivered in a timely fashion and at a reduced
cost. These programs are the Transportation Infrastructure
Finance and Innovation Act, referred to as TIFIA; the Water
Infrastructure Finance and Innovation Act, called WIFIA; and
the new Securing Required Funding for Water Infrastructure Now
Act, the SRF WIN Act.
TIFIA loans have been used very successfully for the
construction of critical transportation infrastructure, and we
expect to see similar success through WIFIA and SRF WIN. These
programs enable State and local project sponsors to borrow
money at lower long-term cost and to complete construction
years sooner than if funding were secured through other means.
As we have heard in past hearings, leveraging Federal
funding to maximize investment is a tool that the Trump
administration strongly supports. Two of these leveraging
programs are key components of America's Water Infrastructure
Act, the bipartisan legislation that we passed unanimously
through this Committee last month.
Based on our water infrastructure bill, the Congressional
Budget Office, or the CBO, has estimated that the WIFIA program
and the SRF WIN program would receive appropriations of $400
million over 2 years. That expenditure would then be leveraged
by State borrowing to generate $12 billion in new water
infrastructure spending.
Converting $400 million in Federal resources into $12
billion in new infrastructure spending is exactly the kind of
leveraging that President Trump has been calling for.
This is particularly true for the SRF WIN program, which is
designed to help rural States. Such leveraging seems good for
Federal taxpayers as well as States, alike. Congressional rules
dictate that all bills be scored by the CBO to assess the
amount of taxpayer dollars that are going to be spent, but also
by the Joint Committee on Taxation--the JCT--to judge if any
Federal revenue will be lost.
When States use tax-free bonds for infrastructure projects,
JCT assumes that the Federal Treasury will lose tax revenue
when States borrow, so under their theory the $12 billion in
increased State infrastructure spending is presumed to cost the
Federal Treasury $2.6 billion.
The Committee has addressed this scoring issue by cutting
back the size of the SRF WIN program. These changes will be
reflected in the version of the American Water Infrastructure
Act that will soon be brought to the Senate floor.
Now, I believe that leveraging programs such as WIFIA and
TIFIA and SRF WIN are good for Federal taxpayers since they
enable States to address more of their infrastructure backlog.
If States aren't able to finance their infrastructure needs,
then Federal taxpayers will inevitably be on the hook to
directly fund more projects in the future.
So, today, former CBO Director and American Action Forum
President Doug Holtz-Eakin is going to share his observations
on how leveraging programs can generate economic growth and
demonstrate benefits to the taxpayer far beyond any loss of
Federal revenue. We will also hear about successful projects
using these programs in Delaware and in Santa Ana, California.
Before we introduce our witnesses today, I would like to
turn to Ranking Member Carper for his remarks.
OPENING STATEMENT OF HON. THOMAS R. CARPER,
U.S. SENATOR FROM THE STATE OF DELAWARE
Senator Carper. Thanks, Mr. Chairman.
Great to be with all of our colleagues and to see some
familiar faces, and to actually see a couple of new ones, too.
Thank you all for coming, for joining us today.
Mr. Chairman, thanks for the holding the hearing. We are
here, as you said, to discuss several innovative low-cost
Federal loan programs and the value that they provide for the
development of our transportation infrastructure, as well as
for the people who use that infrastructure and for the American
people.
Congress created the Transportation Infrastructure Finance
and Innovation Act, known as TIFIA, back in 1998. I was a
Governor then, and I recall the National Governors Association
working with the Administration on this initiative. But we did
it in order to fill a gap in our infrastructure investments.
Public funding is critical for the majority of
transportation projects; however, at times, lack of sufficient
funding makes it difficult for agencies to build high cost
projects, despite the many benefits that these projects might
yield.
In 1998 Congress found that ``a Federal credit program for
projects of national significance can complement existing
funding resources by filling market gaps.'' That is what we
were thinking about 20 years ago.
There is a project underway in Maryland, transportation
project, that flows right of Delaware. Some of you know there
is a road called Route 301 that flows off of--if you take 50
East out of here and pick up on the other side of the
Chesapeake Bay, pick up 301. It is really a beautiful drive.
Senator Cardin. What State is that in?
Senator Carper. That is in your State, in the State of
Maryland, which is well represented here today. And when you
get to Delaware, a beautiful four-lane highway becomes a two-
lane road, you slow down, and it goes through a more developed
area. For years, for decades, we wanted to do something about
it, but what we do, we pick up 301, we turned it into a four-
lane limited access highway.
And the 301 project in Delaware I think is a really good
example of a project where traditional funding mechanisms just
were not sufficient. The improvement to Route 301 in my State
had been needed for a long time, but the project cost was more
than 3 times higher than the total Federal funding Delaware
receives in a single year, so building it with public funding
alone just was not feasible.
The TIFIA loan that we have obtained enabled the US 301
project to move forward, improving safety and regional
mobility, and providing the State with a convenient alternative
to the commercial traffic bottleneck on I-95. Actually, it is a
bottleneck that goes through Middletown and a bunch of other
areas, Odessa, before you get to I-95. But the project is
expected to generate about 15,000 jobs, and it will contribute
to the long-term economic vitality of our region, and I think
it will be good for our neighboring State, Maryland.
Building on the success of the TIFIA program for
transportation in 2014, Congress made low-cost financing
available for a lot of infrastructure as well, by authorizing
the Water Infrastructure Finance Innovation Act, or WIFIA.
Through WIFIA the Environmental Protection Agency can now
provide credit assistance in the form of secured or direct
loans, or loan guarantees, for a wide range of drinking water
or wastewater projects.
EPA is now reviewing letters of interest for WIFIA loans
and has begun providing loans to help complete water
infrastructure projects. These projects have the potential to
increase the availability of drinkable water, to replenish
groundwater, improve water quality, reduce pollutants, and
improve the resilience of water facilities.
The U.S. Army Corps of Engineers was also authorized to
provide similar assistance for water resource projects, such as
flood control or hurricane and storm damage reduction; however,
Congress has not yet appropriated funds, nor has the Trump
administration requested funds, for the Army Corps to use this
authority.
Innovative finance programs such as WIFIA and TIFIA offer
loan terms that make them a good value for borrowers, such as
low fixed interest rate, longer payment schedule, and an option
to defer payment. Of course, the loan programs are not a
replacement for public funding, nor should they be. The TIFIA
program has now been authorized for 20 years, during which time
just 67 loans have been made.
The 301 project I have been talking about in Delaware was
our State's very first TIFIA loan. Many projects are not well
suited for loans because they lack a revenue stream to enable
the repayment of that loan.
As we consider calls to expand these innovative finance
programs, we should keep in mind that in 2015 we reduced the
size of the TIFIA program because it was not being used. There
is still significant unused credit assistance available in the
TIFIA program. As a result, expanding the program will not
necessarily increase the level of infrastructure investments.
Last week the Federal Transit Administration changed their
policy to consider USDOT loans such as TIFIA as Federal funding
rather than as the local match. However, the TIFIA statute is
quite clear that these loans count toward the non-Federal share
of a project when they are repaid with local funds. This policy
change could lead to many prospective projects not applying for
TIFIA programs at all, which could exacerbate the problem of
unused loan authority.
Congress and the Administration should be working together
to make it easier for State and local agencies to access these
loans and invest in our infrastructure, not more difficult. Our
goal should be to provide a portfolio of options for
infrastructure investment, including direct Federal grants and
loans, so that State and local project sponsors may identify
the best techniques to improve their community's water, their
mobility, and their quality of life.
We look forward to hearing from our witnesses today to
figure out how we can best achieve that goal and again we thank
you all for joining us.
Mr. Chairman, thank you for holding this hearing.
Senator Barrasso. Thank you very much, Senator Carper.
We will now hear from our witnesses. We have Doug Holtz-
Eakin, who is the President of the American Action Forum; we
have Vicente Sarmiento, the Executive Director of the Riverside
County Transportation Commission; and Brian Motyl, who is the
Assistant Director of Finance at Delaware Department of
Transportation.
I would like to remind the witnesses that your full
testimony will be made part of the official hearing today, so
please keep your statements to 5 minutes so that we may have
time for questions. I look forward to hearing the testimony of
each of you, beginning with Mr. Holtz-Eakin.
STATEMENT OF DOUG HOLTZ-EAKIN,
PRESIDENT, AMERICAN ACTION FORUM
Mr. Holtz-Eakin. Thank you, Chairman Barrasso, Ranking
Member Carper, and members of the Committee, for the privilege
of being here today. I will be brief, and I look forward to
answering your questions.
The design of infrastructure finance programs centers on
their unique feature, which is that infrastructure, once it is
provided to one individual, is available to all, and this
collective benefit aspect of it is an important thing to think
about when designing the financing of infrastructure projects.
Those benefits can take a variety of forms; they can take
the form of better productivity. So, if we have a better road
network, we can see improved business productivity, higher
wages, increased standard of living. They can also take the
form of non-marketed benefits. If we have a better road
network, I can get from home to work faster, so I can leave
later and see my family more; I can get home more quickly after
doing the same amount of work in my office, so my measure of
productivity is the same, but my life is better. So those kinds
of benefits figure into the returns of infrastructure projects.
They also typically do not accrue to just one jurisdiction;
there are spillovers and benefits. As you just mentioned,
between Delaware and Maryland, in wastewater, streams flow
across different jurisdictions so there is a natural Federal
role in making sure that adequate infrastructure is provided
that recognizes the benefits to all, including the spillovers
to other jurisdictions.
So the programs we are discussing today, WIFIA and SRF WIN,
have exactly those characteristics, and I think that is
important to be noted. They rely heavily on project selection
by the State and local authorities who are most familiar with
the benefits that will accrue to their affected stakeholders,
and that project selection is an important part of thinking
about the economics of infrastructure. Is the return to money
in the public sector in an infrastructure project the same or
greater than using that capital in a private investment and
getting a market rate of return? That is the core economic
question. They are best positioned to answer that through a
variety of means.
Second thing they do is because stakeholders have money
invested in these projects, it ensures not just good project
selection, but efficient project operation. There is no
interest in wasting their own money, and thus, the Federal
taxpayers' money is well protected as well.
And then the third is the fact that the Federal Government
does actually have a stake in this that enhances the scale and
the scope of these projects, and it does provide the leveraging
aspect that the Chairman mentioned, that a large amount of
infrastructure can be supported through a relatively modest
Federal investment.
The thing I would note about all of that is that that very
framework for thinking about good infrastructure projects and
good infrastructure finance bears essentially zero relation to
the CBO score that you will get on your bill, or any other
bill. CBO scores are costs. They do not in fact attempt to
measure benefits; they do not reflect the productivity that
infrastructure can provide; they don't reflect the non-marketed
benefits that the population enjoys; they reflect only the
costs, and indeed, they reflect only the Federal budget costs.
So the right way to think about the score on a WIFIA or SRF
WIN program is it is a good measure of the budgetary resources
that will not be available for other priorities from the Senate
or the House because of the funding of WIFIA or SRF WIN. That
includes the subsidy costs that you have to cover and the Joint
Committee's estimate of taxes not collected as a result of the
program.
So there is nothing wrong with the scoring; it just answers
a very narrow question: What budgetary resources does this
program make unavailable to other priorities? It doesn't answer
the core question: Is this a good idea? And that is something
that the Congress and the Committee must consider when going
forward with these projects.
So, I am delighted to be here today, and I look forward to
answering your questions.
[The prepared statement of Mr. Holtz-Eakin follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Barrasso. Well, thank you so much for your
testimony.
Mr. Sarmiento, let me first apologize. I think I introduced
you from the wrong location. In fact, I understand you are the
Orange County Water District representative. If you could
clarify things as you open, but we are delighted that you are
here to share your experience with us today. Thank you for
being here.
STATEMENT OF VICENTE SARMIENTO,
DIRECTOR, ORANGE COUNTY WATER DISTRICT
Mr. Sarmiento. Thank you. Good morning, Chairman Barrasso
and Ranking Member Carper and members of the Committee. It is
my honor and privilege to be with you and address the Committee
on the need to support Federal financing of our Nation's public
water infrastructure projects.
My name is Vicente Sarmiento, and I am a Director with the
Orange County Water District, as well as a Councilmember from
the city of Santa Ana, California.
The Orange County Water District is an internationally
recognized leader in the water industry, and we are presently
celebrating our 85th anniversary. We are proud to provide clean
and safe drinking water to 2.5 million people that live and
work in Orange County, California, and our primary
responsibility is to be stewards of the Orange County
Groundwater Basin, which is a large underground aquifer that
provides 75 percent of the county's water.
One of our most important assets is to recharge that basin
with the Groundwater Replenishment System, or GWRS. It takes
treated wastewater that would otherwise be sent to the Pacific
Ocean and applies an advanced purification process that
produces high quality water that meets or exceeds Federal and
State drinking water standards. It is the world's largest
advanced purification project of its kind. Some have called it
toilet to tap. We like to refer to it as showers to flowers.
GWRS is a collaborative effort with the Orange County
Sanitation District. Presently we generate about 100 million
gallons a day of safe water for our folks in Orange County, and
that is for about 850,000 folks. With our final expansion, we
will be generating 130 million gallons a day for 1 million
residents in Orange County.
The GWRS final expansion will cost approximately $270
million and is estimated to create about 700 new jobs during
the design and construction phase. With this final expansion,
the Orange County Water District and Sanitation District will
be recycling 100 percent of recyclable water within their
service area.
To finance the final expansion, the Orange County Water
District applied for a WIFIA loan for 49 percent of its
project, or $135 million. Of the 47 applications submitted, we
were advised that our loan will be approved at the end of the
month, which makes us very happy.
The borrowing rate of the assistance is approximately 3
percent. Our AAA rated agency could have issued tax exempt
bonds at 3.8 percent, which is nearly a percent higher, but
that would have cost our ratepayers approximately $18 million
more had we gone to the private bond market.
In addition to the cost savings, the WIFIA loan program
allows for repayment flexibility, subordination of other
projected debt, and other opportunities to leverage the
assistance, such as the State Revolving Fund, or SRF, for the
remaining 51 percent.
It is fair to say that the WIFIA assistance is an essential
tool in our toolbox to use to finance critically important
water infrastructure projects. If not for the WIFIA loan, we
would have had to have sought funding from the SRF.
Unfortunately for us, the SRF is currently oversubscribed in
California. Incidentally, the Orange County Water District does
not want to see the SRF reduced, replaced, or dismantled at the
expense of the new WIFIA program. Both programs are very vital
to realizing important water projects.
As a director and councilmember that represents many
working families, I applaud your support of WIFIA, which
provides access to funding for smaller agencies in low income
communities.
In closing, the Orange County Water District was able to
realize its landmark project, the GWRS, with reduced cost to
our ratepayers and without significant delays because of the
WIFIA program.
Finally, I want to thank you for allowing me to appear
before you and your efforts to provide support for the water
infrastructure projects that know no political or geographic
boundaries, no socioeconomics of the end user, or any other
differences among us. Water is genuinely a resource that
benefits and is vital to us all.
I would be happy to answer any questions you or any of the
other Committee members have. Thank you.
[The prepared statement of Mr. Sarmiento follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Barrasso. Well, thank you. We are glad that you are
here to testify today and share your experience.
Senator Carper.
Senator Carper. I just want to say a word about Brian for a
moment.
Brian, why do you pronounce your name ``motel''?
Mr. Motyl. Just the way I was told.
[Laughter.]
Senator Carper. Have you ever told your parents that they
were mispronouncing your name?
Mr. Motyl. No, I have not.
Senator Carper. Where do you come from? You didn't grow up
in Delaware. Are you from New York? Where are you from?
Mr. Motyl. From New York. Upstate New York.
Senator Carper. And what brought you to Delaware? What
brought you--was it to work with the Department of Natural
Resources?
Mr. Motyl. High taxes in New York, bad schools, crime rate,
better Governor in Delaware.
Senator Barrasso. Who was the Governor at the time?
Mr. Motyl. Mr. Carper.
Senator Carper. I have no further questions.
[Laughter.]
Senator Carper. We are glad you are here. Thanks for all
your work at the Department of Natural Resources and at DelDOT.
God bless. Thanks. Welcome.
Senator Barrasso. Mr. Motyl, welcome. Please share your
testimony.
STATEMENT OF BRIAN MOTYL,
ASSISTANT DIRECTOR OF FINANCE, DELDOT
Mr. Motyl. Thank you very much for inviting me to talk
about this very valuable financing tool. As Senator Carper
said, for many years Delaware has been working on this US 301
project. It has been a priority. But unfortunately, with all
the available resources we have, we just couldn't make it
financially feasible to complete this much needed project.
Delaware has basically four sources of funds for capital
programs, and none of the four, even in combination, could
totally fund this project. Plus, we need to save our available
resources for ongoing infrastructure needs of the State.
Delaware receives a Federal highway allocation of
approximately $175 million annually, and the cost of this
project was over $635 million, so Federal funding alone would
not do the job. We do have normal senior revenue bonds, which
we do use for infrastructure financing; however, these bonds
are paid back through pledged revenues from DMV fees, motor
fuel tax, and toll revenues. So all the State residents are
paying back these bonds, so the theory on the bonds is we are
going to use the money for projects that everyone in the State
can benefit from. So, to use a revenue bond for the 301 project
really wasn't a good option, and from a cost perspective it
wouldn't have worked well, anyway.
We do have just regular State resources, which are defined
as revenues minus debt services, minus transportation operating
expenses. State resources average about $270 million a year, so
you could see that the $270 million is inadequate to cover all
of our normal infrastructure needs and then try and finance a
project of this size.
The other option we had--and we did take advantage of--was
a dedicated toll revenue bond for US 301, but the toll revenue
bond is a higher interest rate, and the debt service coverage
on that revenue bond did not allow us to fully finance the
program. Just to simplify that, the revenue generated from the
roadway would not be sufficient to pay the debt service, should
we use the dedicated 301 toll revenue bonds, so we did use that
in conjunction with the TIFIA loan to get the project done.
In December 2015 DelDOT was successful, and we did close
the TIFIA loan, and the project finally became a reality.
Overall, the program is great. There are a couple of areas
where it could be improved upon. For one, the time from the
submission of the letter of intent to apply to the date of the
loan closing was almost 3 years. The complete process was time
consuming, and substantial documentation was provided. However,
without the loan, the program could not have been done, so we
are grateful for the loan.
Preparation of the application was considerably involved
and time consuming. We spent many hours on conference calls
with TIFIA personnel discussing the project financial plan and
proposed loan terms. The loan negotiation and final
documentation was exceptionally good. All terms and conditions
were adequately detailed in loan documents, and the loan terms
were both positive for Delaware and for TIFIA, making the
project possible.
Some of the terms of the loan that are incredibly important
that need to be talked about is the below market interest rate,
which was over 1.3 times lower than our toll revenue bond
interest rate. The other good factor about TIFIA that saved us
a lot of money and made the project more financially feasible
was that interest accrues only on the draws, as the TIFIA money
is drawn. When we take out a revenue bond, we pay interest from
day 1 on the full amount of the loan, so that is a huge feature
that made the project more financially sound.
Another key feature was the 10-year principal deferral,
which was necessary to keep the debt service down at the
beginning phases of the project in the early years. We were
able to establish a toll stabilization fund, which is very
beneficial to both DelDOT and TIFIA, should there be an
economic downturn and revenues aren't quite sufficient to pay
debt service. There is also a revenue sharing provision, which
allows us to use some of the money to pay down the TIFIA loan.
As far as reimbursement of funds, the required submission
documentation is very easy to compile and not burdensome on the
agency at all. Reimbursements have been received promptly and
as scheduled, with no problems.
I am running out of time, so I will go right to the
summary.
Several financing scenarios were run over almost 40 years
as we attempted to find a fiscally sound financing plan for the
US 301 project. The project could not have moved forward
without the TIFIA loan. The Delaware Department of
Transportation is grateful for this valuable program and
maintains a great working relationship with our TIFIA partners.
The loan process was at times cumbersome, and the loan
terms and negotiating were time consuming; however, the
benefits of the TIFIA loan far outweigh the at times lengthy
required processes involved with the program.
Thank you.
[The prepared statement of Mr. Motyl follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Senator Barrasso. Well, thank you very much for the
testimony from all of you. I will start with a round of
questioning and will start with Mr. Holtz-Eakin.
The Congressional Budget Office found that the
authorization for WIFIA and the SRF WIN in America's Water
Infrastructure Act would generate about $12 billion in State
funded investment. In your experience, would $12 billion in new
State funding for needed infrastructure be positive or negative
for the economy, and how about for U.S. taxpayers? The bottom
line is is this going to be better or worse in the long run?
Mr. Holtz-Eakin. I would expect it to be better. If you
listen to the care with which these projects were vetted at the
local level, these are projects that you are funding which are
passing the threshold of things which add enough productivity
and benefits to the population that they are worth doing, so
$12 billion of that activity is a benefit to the population.
Senator Barrasso. And to the taxpayers and to the
communities in which they live?
Mr. Holtz-Eakin. Absolutely. If the economy is better off,
they are going to get more tax revenue. If people can receive
these benefits through the infrastructure projects, they are
not going to have to pay for them in other ways. Even
environmental and health benefits have economic ramifications
in that way.
Senator Barrasso. Mr. Motyl, according to the 2016 U.S.
Department of Transportation Report, TIFIA accelerates the
delivery of significant transportation projects by an average
of 13 years. What was Delaware's Department of Transportation's
experience with TIFIA as it relates to accelerated project
delivery, and then how does that help in terms of
decisionmaking and ultimately benefit the taxpayers in your
home State of Delaware?
Mr. Motyl. Well, I will tell you in our case we have been
working on the 301 project for over 40 years, and it just could
not be done with any of the available programs or resources, so
it accelerated the project in that there would be no project
without the TIFIA loan. So, it is a valuable tool for those
large projects that States just can't do on their own without
the help.
Senator Barrasso. Mr. Holtz-Eakin, we have heard what you
have said and what he had said in terms of how much benefit it
is to the communities and locales, but the Joint Committee on
Taxation determined that if States borrowed the $12 billion to
fund new infrastructure projects, then the Federal Government
would lose about $2.6 billion in tax revenue. The calculation
is based on looking solely at the loss of revenue from tax
exempt bonds.
If you were to look at all the economic impacts of $12
billion in State investment and infrastructure, which is why I
asked the first question, would you expect the benefits to the
taxpayers to far outweigh this revenue loss?
Mr. Holtz-Eakin. Yes, I would. As I mentioned in my
opening, I don't think there is anything wrong with what the
Joint Committee does or the CBO's score; it is simply a very
narrow question. It is focused solely on the Federal budget
costs; it does not look at the benefits to anyone in the
economy and to the population as a whole.
Senator Barrasso. Mr. Sarmiento, what aspects of the WIFIA
program made it attractive for the Orange County Water District
to use this tool?
Mr. Sarmiento. Well, I think the benefit that we have is to
be able to provide a project on an accelerated basis to our
ratepayers. Also, the fact that we could use that to leverage
some of the other moneys that are available to us.
Unfortunately, in California, because the SRF is
oversubscribed, it would have delayed project delivery for some
of our ratepayers. We have a backlog of projects that we need
to address, but this is certainly one source that was valuable
to us, and our experience has been very positive with it.
Senator Barrasso. So, without the tool, the detrimental
impacts would have been significant and felt by people living
in your communities?
Mr. Sarmiento. It would have, and we see that, when project
delivery is delayed, we have folks that will not remain in the
communities; sometimes they will leave; they won't invest in
projects that we need that are ancillary to the water project.
But we certainly see that we do need all levels of funding and
all different types of programs that are available to our
ratepayers.
Senator Barrasso. Thank you.
Mr. Motyl, could you talk about some of the aspects of the
TIFIA program that made it attractive for the Delaware
Department of Transportation to use the program, how important
it was to have TIFIA available for you to pursue?
Mr. Motyl. Yes. Probably the top four reasons would be the
principal deferral. We have 10-year principal deferral, which
keeps our debt service down during the early years of the
project as the roadway matures and traffic builds. Without the
principal deferral, the debt service would have been
unmanageable in the first couple years of the project, so that
is crucial.
The below market interest rate also very helpful.
The fact that interest accrues as the money is drawn allows
us to use our other funds first that we are paying on from day
1, and just pay interest on the TIFIA as we use it, which saves
us millions of dollars in interest expense.
And the ability to prepay the loan. If the roadway out-
performs, which we hope it will, we could prepay this loan and
get rid of our debt service a lot quicker.
Senator Barrasso. Well, thank you very much.
Before turning to Senator Carper, I am submitting for the
record and ask unanimous consent to enter into the record
letters of support signed by the American Public Works
Association and the Water Infrastructure Network, which is a
coalition including the U.S. Chamber, the American Society of
Civil Engineers, and numerous other leading infrastructure
groups, highlighting the benefits of TIFIA, WIFIA, and SRF WIN.
Without objection, they are submitted to the record.
[The referenced information was not received at time of
print.]
Senator Barrasso. Senator Carper.
Senator Carper. Thank you. I want to telegraph my pitch.
One of the things that Brian mentioned, we are very grateful in
Delaware for the program and the ability. This money actually
enables us to build this road. We wanted to build this road
forever.
You mentioned a couple things that could be done maybe to
make this program better, so I would just ask you to be
thinking about that. Telegraphing my pitch. Before I finish, I
am going to come back and ask each of you is there any way we
can make this program better, more effective, better for
taxpayers, maybe better for our local communities, so think
about that.
Brian, you mentioned toll revenue bond rate versus TIFIA
loan rate. I heard you say 1.3 percent. Not 1.3 percent; you
said 1.3 times. Would you just use actual rate numbers?
Mr. Motyl. Yes. It was 1.33 percent lower. The TIFIA rate
was, at the time----
Senator Carper. I am just trying to get at the toll rate
versus the TIFIA rate.
Mr. Motyl. This is the rate of the borrowing. The toll
revenue bond was 4.27 percent.
Senator Carper. Versus?
Mr. Motyl. The TIFIA loan was 2.94, so it was 1.33 lower.
If we were to borrow the whole loan amount at the 4.27, it
would have been over $26 million more, plus the other savings
with the interest accrual. So, it is many millions of dollars
we benefited from the TIFIA loan.
Senator Carper. And was deferral actually an attractive
aspect as well, that comes with the TIFIA loan?
Mr. Motyl. Absolutely, because the bondholders and the
TIFIA lender worry about the debt service coverage, and the
revenues at the beginning period, when the roadway is open,
provided very low coverage factor for the repayment of the debt
service. So, allowing us to defer the principal payment made
our debt service much smaller during the first 10 years of the
project, which made our coverage much higher, gave us a better
interest rate, and allowed us to have a really fiscally sound
program.
Senator Carper. All right, good.
My colleagues, I know the projects in each of our States
that you have a special interest in that you see maybe as you
travel around your State, every day that I go down State on
State Route 1, which goes from I-95 down passed the Dover Air
Force Base, I see this project coming to a conclusion. I am
going to actually clip the ribbon I think probably in November,
and it will be all done. But it is just really exciting to see
what is actually happening and to be able to know that we are
going to enjoy it very, very soon.
A follow up question, if I could, for Brian, deals with
transit policy change. Last week, the Federal Transit
Administration released a guidance document that seems to
suggest that Federal loans such as TIFIA should be considered
part of the Federal funding, rather than as local match. Since
DelDOT will repay the TIFIA loan, plus interest, through local
toll revenues, do you consider that loan to be Federal funding
or local funding? And in your opinion, if policy changed to
require transit projects to use TIFIA and Federal grants for no
more than, say, 50 percent of the total project cost, would
that make TIFIA less attractive to project sponsors?
Mr. Motyl. It absolutely would make it less attractive. A
lot of projects probably won't move forward if they can't use
TIFIA as the match. TIFIA, I don't see how it could possibly be
considered non-Federal. FHWA funding is grant funding; that is
money that the Federal Government gives us. That is Federal
funding. TIFIA is repaid by State dollars; it is all our money
that is paying it, so it is ultimately our money. It has to be
considered as a State resource. And by not doing that, I think
it is going to drastically hurt the amount of applications for
the transit program.
Senator Carper. All right, thank you.
Now for my pitch well telegraphed. One of the things my
colleagues hear me say a lot is everything I do I know I can do
better. I think it is true of all of us; probably true for all
Federal programs. How might we do this program better?
Doug, do you want to lead us off? Any improvements that you
can think of that we should make?
Mr. Holtz-Eakin. I don't have a laundry list of issues with
either TIFIA or WIFIA. I think these are programs that are
essentially pretty new, and probably the best thing you could
do is to build in some evaluation of their effectiveness into
their operation.
Senator Carper. All right, thank you.
Mr. Sarmiento.
Mr. Sarmiento. Well, again, I think that----
Senator Carper. Would you just tell us one more time that
really funny line you used?
Mr. Sarmiento. Right.
Senator Carper. Go ahead, one more time.
Mr. Sarmiento. One more time, OK. So, we took a long time
trying to message that this is clean, safe water, so people
kept calling it toilet to tap. But when we said showers to
flowers, for whatever reason, they started finally drinking and
taking a little risk.
[Laughter.]
Mr. Sarmiento. And they actually enjoyed it, and it tastes
better than some of our tap water.
Senator Carper. Some of my colleagues missed. I just
thought it was worth repeating.
[Laughter.]
Mr. Sarmiento. Well, when you come to Orange County, we
will make sure we have some bottled water for you. I think we
may even have some in our offices here in DC, so we will make
sure we deliver some.
Senator Carper. A reminder that branding is important.
Any other change you would recommend with respect----
Mr. Sarmiento. More than anything, I think, obviously, the
options of having the programs available is very important
because they work complementary to one another. But with the
SRF WIN, not requiring the application fee is something that
obviously benefits and reduces the obstacle maybe for some of
these smaller agencies, some of the smaller communities. And as
we know, and myself representing a community that has many
working families and low income families, those agencies that
do work under our larger agency as retailers and producers have
a difficult time, so to the extent any barriers could be
removed for them to access some of the credit lines is a good
thing.
Senator Carper. Thank you, sir.
Brian, just very briefly. You mentioned a couple things
that we might do to make it better. If you want to reiterate
those, that would be fine.
Mr. Motyl. Sure. The application process is very time
consuming. You work with TIFIA staff, you work with their
consultants, you work with their legal team. They are requiring
a lot of back and forth questions and all. But overall, you
know, it is worth doing the extra work to save that kind of
money, so that is minor, but I wanted to bring up everything.
Probably the biggest thing that could be fixed is the
reimbursement process. For example, if we are using FHWA funds,
we run a report Monday morning for the expenditures the prior
week, and FHWA reimburses us the full amount a week later.
With TIFIA, expenditures are getting reimbursed 30 to 60
days after the initial expenditure, so it can be a little
burdensome on the State. In Delaware's case, the General Fund
pays all of our bills, so they are on the hook for all that
money until we get the TIFIA money to repay them.
So the monthly reimbursement process and the time between
the approval hopefully could be streamlined so that we could
get our money a little quicker.
Senator Carper. Thanks.
Our thanks to each of you.
Thanks so much.
Senator Barrasso. Thank you, Senator Carper.
Senator Inhofe.
Senator Inhofe. Thank you, Mr. Chairman.
Mr. Sarmiento, in June 2018 the Association of Metropolitan
Water Agencies wrote an article on the benefits of the WIFIA
program, and I am going to quote from the article. It says that
``Perhaps, most importantly, WIFIA is designed to leverage
modest Federal appropriation into a significant pot of
available funds. To put it simply, WIFIA offers a tremendous
bang for the buck in today's tight budget time.''
Now, I fully agree with that and feel that that leveraging
is working. Of course, WIFIA is fairly new, but we have been
using TIFIA for quite a while, and it has been very successful.
My question would be--as you know, Senator Boozman's SRF
WIN Act is within the WIFIA program. That being said, do you
believe the programs like WIFIA and the SRF WIN Act offer a
long-term value to the taxpayers?
You have actually answered that, worded a little bit
differently, in your previous statement, but could you answer
that for the record?
Mr. Sarmiento. And I want to thank Senator Boozman for
working with my Senator, Feinstein, in California and co-
authorizing that, because, for us, SRF is a valuable tool that
we have as an opportunity to fund some of these vital programs.
The unfortunate part about it in California is that the program
is oversubscribed. So, to the extent that we have other options
and other alternatives and other tools in our toolbox, it is
always a good thing.
So, we certainly believe that having more opportunities,
having the ability to access, especially for some of our
smaller agencies and for those that don't have the capacity, we
are blessed in the Orange County Water District. We are a very
large agency, but we do have retailers and producers that work
with us that don't have as much capacity and have trouble
bundling projects together, so we certainly see the value with
that.
Senator Inhofe. Well, in fact, when I chaired this
Committee, and Senator Boxer was the ranking member, she talked
about the same thing you are talking about, except it was
TIFIA. You have to have access to make it into a large program.
That is good.
Now, some have raised the concerns that the SRF WIN Act
could cannibalize SRFs, as well as the WIFIA program, and I
have to admit I have this hard for me to believe, considering
we have multiple supporters of both the WIFIA and the SRFs, and
I am one of those. In fact, the SRF WIN Act has clear language
that the program will not be funded until the SRF and the WIFIA
program are funded at the 2018 levels. I can say, as an
original cosponsor of the Boozman legislation, that our
intention is to provide base funding for those programs in
addition to SRF WIN Act funding to attack the $600 billion
investment we need for water infrastructure.
The Orange County Water District is a WIFIA applicant, as
well as a supporter of the SRF WIN Act, so what are your
concerns about the accusations on cannibalizing the Act?
Mr. Sarmiento. Well, I think that obviously there is value
with the SRF program. There is obviously value with the WIFIA,
but WIFIA is intended for larger projects, so I think the SRF
WIN obviously addresses those smaller projects that some
agencies may not be eligible for SRF or WIFIA. So, I think it
is one more element that allows agencies of all levels and all
sizes, and again, because we are a larger agency, we can't
qualify for the WIFIA program, and as I said, the SRF is so
oversubscribed in California that we do need that augmented or
ancillary support for those smaller agencies.
Senator Inhofe. And you believe that helps.
All right; Mr. Holtz-Eakin, I was interested in your
explanation on scoring. It was fascinating that you ended that
up by saying is this a good idea. That was your question.
Well, let me be the only one who is responding. I think no
is a better response because of the way that it is calculated.
When you talk about the loss of revenue from the tax exempt
bonds as being the source of the negative scoring that has
taken place, is there a better idea? Have you thought about
this? You are the expert in this area.
Mr. Holtz-Eakin. So, to be clear, that question was is
doing the infrastructure project a good idea, and I think the
answer would be yes, even if you get the negative score, just
to be clear.
Senator Inhofe. OK. That is not how I interpreted the
methodology of the scoring.
Mr. Holtz-Eakin. There are an enormous number of things
that cost Federal money and they are worth doing, and this is
an example of one where you have a score that says it costs
money, but we have localities across the country who are
willing to put their own money; they are willing to have
private entities pay tolls and things like that to make these
projects go. Clearly, they are in the interests of the
population.
Senator Inhofe. OK, my time has expired, but I am going to
ask questions for the record, send you something so we can
pursue this a little further, because I think it would be
worthwhile. Thank you very much.
Thank you, Mr. Chairman.
Senator Barrasso. Thank you, Senator Inhofe.
Senator Cardin.
Senator Cardin. Thank you, Mr. Chairman.
I thank all of our witnesses.
Let me start by just underscoring the point of the Chairman
and the Ranking Member as to the need for greater
infrastructure investment here in America. Our infrastructure,
whether it is water infrastructure or transportation
infrastructure, is not where it needs to be; it is hurting our
economic growth, and it is certainly affecting quality of life.
So, I usually look forward to the summers because I commute
between Baltimore and Washington every day, and usually the
summer is a lot easier because the schools aren't in and people
are on vacation. The summer commute should take me a little
over an hour. This morning was about an hour and 45 minutes, so
even in the summertime our infrastructure is stressed.
I appreciate my colleague from Delaware talking about 301.
As we crossed the Bay Bridge and head north into Delaware, the
needs. If you were to head south, Senator Carper, and tried to
get into Virginia, you have to go across the Nice Bridge, Harry
Nice Bridge. I just checked Waze, and there is a tremendous
backup there right now, and this is 11 o'clock on a weekday.
That bridge needs to be replaced.
I just mention that because we have significant projects in
which TIFIA is helpful in trying to put together, because of
the size, that can be done, but there is still not enough
money.
And I do appreciate the scoring issues you are talking
about because one of the things President Trump tried to do is
leverage more of the Federal funds by asking the States and
local governments to come up with more of their funds. I am not
sure that is a good idea, and it will be interesting to see how
that gets scored by Joint Tax Committee, because that would
increase the States' use of tax exempt funding, which would
have a score, I assume. And I see a nod from Dr. Holtz-Eakin.
So, I guess my question to all three of you; I am one who
believes, as I think the majority of this Committee believes,
we should be having a more robust Federal infrastructure
program with Federal funds, that we should have a bigger
program, but what can we do to better leverage the funds that
we have?
Certainly, TIFIA and WIFIA were programs that do that, but
are there better ways to leverage the Federal share without
requiring larger local government shares, because we are all
the same taxpayers, whether it is Federal or State? But are
there better ways of leveraging to be able to keep interest
costs down or to get a greater leverage from the governmental
shares, whether they be Federal, State, or local?
Mr. Holtz-Eakin. So, in the end, this is Casablanca, you
round up the usual suspects. You have the Federal Government,
you have the State governments, you have the localities and
special districts, things like that; and if you want to keep
their shares down, you have to attract private capital. So, the
difficulty is, to attract private capital, you are going to
have to have some cash flows that you can give to them that
offer a rate of return that is commensurate to what they could
get elsewhere, and that becomes the core sticking point in
trying to have enormous private participation in infrastructure
projects. There just, in my view, aren't enough places where
you can or are willing to toll a bridge, pay a fee for
wastewater, whatever it may be, to generate the cash flows that
will attract that much private capital.
So, I believe, as much as you can get is a good thing, but
the core framework should be are these projects that are worth
it for the country. If they are, get as much private capital as
you can, but the rest will have to come from taxpayers, one way
or another. But they have benefits as well, so you should do
it.
Senator Cardin. I agree with your assessment. You need the
money. And yes, TIFIA has been able to reduce some interest
costs. TIFIA has been able to get more predictable funding,
which is an extremely important thing to get projects moving,
so that is a really positive program. Strongly support that.
But at the end of the day, if you are trying to attract more
capital, you have to have a revenue flow in order to deal with
it, whether it is taxpayer revenue flow or whether it is a
special revenue flow.
Any other ideas from our panelists as to how we can better
use the Federal participation today to increase the
infrastructure in this country?
Mr. Sarmiento. Well, Senator Cardin, I think I would agree
with you as well, the more low barrier ability to access
funding for these projects, since there is such a deferred
maintenance on those and deferred investment in our
infrastructure, is better, but ideally, that would be the best
scenario, to have grants and maybe funding available that is
easy to access. But given where we are, I think these low
interest loans and credit assistance to agencies is probably
the next best thing, and that is something that we need to
continue to protect, continue to improve on the approvals so we
accelerate some of that delivery on that investment. So, to the
extent that agencies like ours benefits from a more rapid, more
quick approval so we can deliver those services and deliver
those projects to our ratepayers is a benefit that is very,
very valuable to them.
Senator Cardin. Thank you.
Thank you, Mr. Chairman.
Senator Barrasso. Thank you, Senator Cardin.
Senator Fischer.
Senator Fischer. Thank you, Mr. Chairman.
Mr. Motyl, the FAST Act created the Build America Bureau,
which now manages TIFIA and other transportation financing
programs. The purpose of the Bureau is to be a one stop shop
for Federal transportation funding, such as TIFIA, grants, and
private activity bonds. Has the Bureau been effective in
managing these programs, do you think?
Mr. Motyl. Yes, they have. Our working relationship with
the Bureau is exceptional. I, luckily, don't have to deal with
them a lot right now because I don't have problems. Things are
happening as they are supposed to with the loan program, so I
don't deal with them a lot now. I did during loan process, but
I found that they are always knowledgeable and very helpful. I
have nothing negative to say about the Bureau.
Senator Fischer. OK. And when the Build America Bureau
receives a TIFIA application, it doesn't scale the review to
the project based on size. For example, a $20 million project
must meet all of the same requirements as a $400 million
project.
Should the Build America Bureau scale projects based on
size, do you think?
Mr. Motyl. I think they probably should. Any time you can
streamline the program would be beneficial. In our case, we
needed it to do the roadway, but if I am to go to TIFIA for a
low-cost loan, I may go elsewhere if it is really small, if I
have to go through a lot of application process, and it becomes
burdensome. I might get the funds elsewhere. Of course, there
is still that savings, but it is not going to be very
significant if it is a very small program. They could probably
speed up delivery and have more applications if they did.
Senator Fischer. I am from the State of Nebraska, and we
are viewed as a rural State. And though 10 percent of the loans
provided by TIFIA must go to rural projects, TIFIA loans are
still perceived as going mostly to urban areas. In fact, rural
is defined as areas outside an urban population with more than
150,000 people, and rural projects must cost at least $10
million.
Right now, there have been 84 projects in 22 States that
have utilized the TIFIA program. Texas and California alone
account for 26 of those projects. Six States account for about
two-thirds of all of TIFIA projects, and nine States account
for over 80 percent of all TIFIA projects.
What do you think can be done so that we can broaden the
use of TIFIA to benefit all States?
Mr. Motyl. I am not sure. I don't know why the other States
wouldn't be applying for and using the funding; it is going to
provide the lowest cost of financing in most cases. I don't
know why they would not apply.
Senator Fischer. Do you think we need to look at what is
all involved in the application process and maybe try to make
changes to that so it can be more broadly used? I mean, in my
State, it is difficult to find an urban area with 150,000
people and then say, outside of that area, well, that is going
to be the rural area, when the State itself, outside of a metro
area and the Lincoln area, is a rural area.
Mr. Motyl. Maybe it goes back to some of the necessary
terms. We used it for the 301 project because we had a
dedicated revenue source, but for small projects we don't have
a dedicated revenue source; all of our revenue is pledged to
our senior revenue bonds, so TIFIA won't work for a majority of
our projects, so we want to use it for those projects. So maybe
if the smaller loan amounts, they still need to be secured, but
maybe have a subordinate pledge of existing revenues or
something, because not all these small projects are going to
have the revenue stream that TIFIA requires for repayment.
Senator Fischer. Right.
Mr. Motyl. That might be a big issue why they are not
getting the applications.
Senator Fischer. Thank you very much.
Mr. Motyl. You are welcome.
Senator Fischer. Thank you, Mr. Chair.
Senator Barrasso. Thank you, Senator Fischer.
Senator Duckworth.
Senator Carper. Senator Duckworth, would you yield to me
for a minute? Am I mistaken or is the first full week you have
been back with us full-time since the birth of Miley?
Senator Duckworth. It is.
Senator Carper. We are glad you are back. It was nice to
see her on the floor this week.
Senator Duckworth. Thank you so much. Pretty bipartisan. It
is good to be back.
Thank you, Mr. Chairman.
I am so happy that we are discussing the importance of
safe, reliable infrastructure to hardworking families, small
businesses, and communities both in my home State of Illinois
and around the Nation. I want to thank the witnesses for
participating in today's hearing, and I do agree with my
colleagues that more must be done to ensure that State and
local governments have the tools that they need to move
infrastructure projects forward.
My first question is for Mr. Motyl. Would you agree that
while financing mechanisms are attractive for advancing large
infrastructure projects, what is important is robust funding
programs, because they are absolutely crucial to ensuring safe
and reliable transportation systems? I am trying to get at the
difference between the funding and financing.
Mr. Motyl. Right. Well, there has to be a good mix between
funding and financing. Our transportation trust fund is
probably similar to any other transportation trust fund in the
country. Our State resources is our revenues minus our debt
service minus operating, so if you are relying totally on debt
financing, you are taking away from the State resources; you
are taking away from the infrastructure of the State.
So, yes, long programs are nice and necessary, but all the
infrastructure needs can't be met with just loan programs
alone. You really need some grant funding and other mechanisms.
Senator Duckworth. Thank you. And mechanisms like TIFIA and
WIFIA were designed to help State and local governments pursue
major infrastructure projects that otherwise would be too
expensive to advance through traditional means. With an
impressive leverage of 42 to 1 for TIFIA and 102 to 1 for
WIFIA, it is easy to understand why Congress is really enamored
with these tools.
However, securing a loan, as you have said, isn't always
easy. They are limited to certain types of projects with high
cost thresholds, and they are limited to a portion of total
project cost.
Assuming that a project's underlying fundamentals are
financially sound, that is to say, the non-Federal sponsor
enjoys appropriate bond ratings, private instruments have been
identified, et cetera, would you agree--following up on your
answer to the first question--that TIFIA and WIFIA could
benefit other major infrastructure projects such as building or
modernizing airports, for example?
Mr. Motyl. Absolutely. As long as there is a dedicated
revenue stream, I don't know about airports, but I would assume
it would work the same way. It is going to provide a lower cost
to financing, so ultimately it would be a great way to finance
a project.
Senator Duckworth. Thank you. I am glad to hear you say
that.
I am actually going to be introducing legislation in the
coming weeks that would responsibly expand TIFIA eligibility
for major airport projects such as those that are already
underway in Chicago, Salt Lake City, Philadelphia, Miami, and
elsewhere.
Would the greater Delaware region benefit from a proposal
to expand these financing instruments to help modernize and
improve our aging airport infrastructure?
Mr. Motyl. That is totally out of my realm. I would assume
yes, but I can't really say anything.
Senator Duckworth. No, that is fine.
My next question is for Mr. Sarmiento. It is my
understanding that the Orange County Water District is
receiving WIFIA assistance for a water recycling project to
benefit your 2.4 million customers, and that is fantastic.
However, success stories like those we have heard about today
must not allow us to ignore the significant limitations of
WIFIA and TIFIA. They often fail to help rural communities
where infrastructure projects are unlikely to provide a rate of
return that lures private investments or the tax base is not
adequate to repay a substantial Federal loan.
Would you agree, then, that clean drinking water and safe
roads are just as important to small rural and disadvantaged
communities as they are to major metropolitan areas?
Mr. Sarmiento. Thank you for that question, Senator. Yes, I
do agree. I think because we are blessed as a large agency, I
think we could leverage the private bond market obviously at a
higher cost for our ratepayers. We do have some smaller
agencies that are part of our network of producers, so we
realize that they also have a difficult time being able to be
eligible for some of this funding.
So, to the extent rural communities, disadvantaged
communities, we see issues going on in Flint, Michigan,
Compton, California, West Virginia, all over the country that
have these issues, and sometimes accessing funding is difficult
because of their capacity and their ability to go ahead and
apply and leverage some of those private dollars. So, for us,
we are completely supportive of what this Committee and what
these bills are trying to do to make sure that all agencies are
able to deliver clean, safe drinking water, because we know
communities of color, low income communities are the ones who
especially suffer when there isn't funding like this available.
Senator Duckworth. Thank you for your answer.
I yield back, Mr. Chairman.
Senator Barrasso. Thank you.
Senator Boozman.
Senator Boozman. Thank you, Mr. Chairman, and thank you for
you and our Ranking Member for holding the hearing on such an
important subject.
Senator Booker and I have worked really hard to secure
broad bipartisan support and endorsements from over 30 of the
Nation's leading organizations representing construction,
engineering, municipalities, conservation, public works, labor
for the SRF WIN Act. Thanks to the hard work by the EPW
majority and minority staff, SRF WIN no longer scores.
Despite all this, SRF WIN does have some detractors. The
main argument I hear is that the legislation is a solution in
search of the problem, with which I am totally confused.
According to the EPA's most recent drinking water
infrastructure needs survey and assessment, released earlier
this year, $472.6 billion is needed to maintain and improve the
Nation's drinking water infrastructure over the next 20 years.
That is just the drinking water; that doesn't have anything to
do with wastewater infrastructure.
One of the other problems that I am seeing is that
municipalities, because they are struggling financially, tend
to push things down. You know, you deal with it, the EPA comes
in, eventually the DOJ because it has been pushed down, and all
of a sudden you are under a court order with a fine, and again,
subsequently massive rate increases. So, this is just an
attempt to again put some more tools in the toolbox.
Can you tell us again, Mr. Sarmiento, if you feel like that
this would be a good tool in the toolbox to help you in dealing
with the many problems that we have? And let me congratulate
you, also, on the fact that you all do a great job, and you
have a huge problem, a huge population with, like everyone
else, limited resources, but also in a climate that makes it
very, very difficult.
Mr. Sarmiento. Thank you, Senator. And you are right, I
think for us our challenge is hydrology is difficult to
predict, so we have, unfortunately, suffered the last four out
of five seasons with very, very dry seasons. We normally
average 14 inches of rain a year. Last year we received less
than 5 inches of rain, so it is a problem that just becomes
very difficult for us to address. Programs like this, programs
such as WIFIA, the SRF, the SRF WIN are vital to us because
they make it available for us to be able to choose from, again,
different resources for us to tap into.
We could finance our final expansion of our groundwater
replenishment system, but it would be going out to the private
sector and bringing things back at a much costlier rate to our
ratepayers. We would suffer delays. So, the fact that these
programs are available to us, we can deliver much quicker, we
can make sure that folks--because I think there are some
tangible benefits that we are talking about, but there are also
some intangible benefits that we don't discuss sometimes. Not
knowing whether or not we are going to have to go into a
drought crisis, we are going to have to start rationing, we are
going to have to deal with heavy, heavy conservation, makes
folks unsettled. It hurts our economic development in our town,
in our region just because people don't like uncertainty. And
when you see that, it makes it very difficult for us to be able
to attract folks, and there is a multiplier effect to the money
that is invested and the money that is made available for these
improvements.
So, we certainly applaud the efforts, Senator, that you are
doing, along with Senator Booker and this Committee, because it
does make that uncertainty a little bit less difficult for us
to overcome.
Senator Boozman. Very good.
Mr. Holtz-Eakin, affordability is a major concern in
Arkansas, with many families having trouble affording to pay
the utility bills every month. When a community invests in
their infrastructure, ratepayers generally see rate spikes.
Can you explain how leveraging programs like WIFIA and
TIFIA and SRF WIN help communities plan ahead to ensure their
ratepayers won't see massive rate spikes in the future?
Mr. Holtz-Eakin. As a way to augment the ability to do debt
finance investments, which is the core of these programs, it
allows you to smooth the rate increases over a longer period of
time. If you had to finance on a year by year basis big capital
construction projects, you would be getting enormous rate
spikes, and that is just not desirable.
Senator Boozman. And that goes along with what you just
said, Mr. Sarmiento, about having the predictability, the
reliability.
Thank you all very much. We appreciate you being here.
Senator Barrasso. Thanks.
Now we turn to the man celebrating his birthday today.
Senator Markey. Thank you, Mr. Chairman.
Senator Barrasso. Happy Birthday, Senator Markey.
Senator Markey. Thank you, Mr. Chairman.
Senator Carper. Senator Markey, I just note for the record
each of the witnesses modified their testimonies to begin their
testimonies by extolling you, saying how they wish each of
their Senators was as accomplished.
Senator Markey. And hopefully it will also be reflected in
their answers to my questions. The answer is yes, if I can just
give you a hint going forward. 7/11 is a good day, so I have
always felt fortunate.
Senator Barrasso. So, when they sing, ``Oh, thank heaven
for 7-Eleven,'' you think it is about you?
[Laughter.]
Senator Markey. My favorite chain.
Low-cost Federal loan programs are one important tool in
our infrastructure toolbox that can help us modernize our
Nation's roads and rail and water infrastructure.
In 2018 Massachusetts closed on a $162 million TIFIA loan
to implement positive train control technologies, which are
safety features that can trigger a train to stop or slow down
during an emergency, so that is a good use of a loan program,
and Massachusetts took advantage of it.
But earlier, Senator Duckworth mentioned that many of our
small and disadvantaged communities may not be able to use
these low-cost Federal loan programs because they cannot afford
to repay the loan, and that is why, yesterday, I introduced the
Clear Drinking Water Act, which would authorize more than $1
billion in Federal grants to help small and disadvantaged
communities replace contaminated water infrastructure to comply
with the Safe Drinking Water Act requirements. And I am proud
that 11 of my colleagues have joined me in cosponsoring this
bill as it has been introduced.
We must take swift action to eradicate the environmental
contaminants of the 20th century and invest in infrastructure
for the 21st century, and for every community in the country
that can afford to replace their old facilities, there is a
poorer community nearby that cannot.
Mr. Sarmiento, do you believe that Congress should provide
targeted Federal investments to small and disadvantaged
communities that do not have the means to use low-cost Federal
loan programs?
Mr. Sarmiento. Thank you, Senator, and let me begin by
saying Happy Birthday.
Senator Markey. Thank you, sir.
Mr. Sarmiento. I am also a fan of 7-Eleven.
Absolutely. And I want to thank you for thinking about
those communities, because I represent one of those communities
that is a disadvantaged community in a wealthy county, albeit
our average median income is very, very low relative to our
neighbors throughout the county. We do feel that there is a
huge benefit in making agencies in cities like ours eligible
for those low interest loans, because we do have some heavily
deferred maintenance on our infrastructure that we need to
address, so, to the extent that additional funds are available,
it certainly is a welcomed supply.
Senator Markey. So, for every Palo Alto there is an East
Palo Alto.
Mr. Sarmiento. Right.
Senator Markey. For every Boston there is a Chelsea. So, we
just have to deal with the complexity of it that not everyone
can comply with the requirements if they are required to pay it
back dollar for dollar. Just very, very difficult.
So, if we want to modernize America's infrastructure, we
have to be committed to making those investments. But the Trump
administration's infrastructure proposal, $200 billion of
Federal funding that would presumably come from budget cuts,
even possibly to older transportation and infrastructure
programs, fails to deliver on the President's promise to invest
$1.5 trillion in our Nation's infrastructure, and the reason
why is simple: $200 billion simply is not $1.5 trillion.
The Administration assumes that as a condition for
receiving Federal assistance, cash strapped States and local
governments will have to work with private investors to cover
the other $1.3 trillion by using credit programs such as the
Transportation Infrastructure Finance and Innovation Act. But
many infrastructure projects are not well suited to attract
private investment, and State and local governments are already
struggling to find the funds to simply fill in potholes and
maintain healthy drinking water.
Dr. Holtz-Eakin, in a blog post you wrote that ``It is a
tall order for the Administration's infrastructure plan to
generate $1.5 trillion of investment.'' Do you think the
Administration erred in assuming State and local governments,
in partnership with private investors, can generate $1.3
trillion in infrastructure investment?
Mr. Holtz-Eakin. I think it was extremely optimistic. I
mean, to get the private sector involved, you have to have some
cash flows on the table for them, and at least in my judgment,
it didn't look like there would be sufficient opportunities to
do that, to generate that kind of participation. I also don't
think that $1.5 trillion is the right way to think about any
problem. The question is is an infrastructure project valuable?
If it is, do it; and if it is not, stop, and you will either
get to a $1.5 trillion or you won't. I don't see the magic of
going for that number.
Senator Markey. Except that it is a magical number that
they have created, huh? The magic asterisk.
Mr. Holtz-Eakin. My profession has been spent with magical
numbers, and most of them are really magical.
[Laughter.]
Senator Markey. I remember when David Stockman, one of your
predecessors, he talked about a magic asterisk in the 1981
Reagan budget to make up for all of the funding they actually
couldn't account for; they just put a magic asterisk next to
it, and I think that is where they are with this $1.3 trillion.
I think this is the Committee that should be realistic,
that we should be practical. That is really what the history of
the Committee is, and that we should just try to come back and
put something together that has real numbers, realistic numbers
that we are working on so that we can really have the
infrastructure upgrade that we need.
So, I thank you all very much, and thank you, Mr. Chairman.
Senator Barrasso. Senator Wicker.
Senator Wicker. Doug, I have known you for 20 years. You
have been in and out of government; you have been on TV. How do
you pronounce your last name?
Mr. Holtz-Eakin. The correct pronunciation is Holts-Akin.
Senator Wicker. Holts-Akin. OK.
Mr. Holtz-Eakin. I long ago settled on Holts-Eakin because
it is just not worth it.
Senator Wicker. OK.
[Laughter.]
Senator Wicker. And Brian, help me with your last name.
Mr. Motyl. Motel. Motel.
Senator Wicker. Motel.
Mr. Motyl. But Senator Carper pointed out that was wrong.
Senator Wicker. Like the one at 7-Eleven there.
[Laughter.]
Senator Wicker. Well, Dr. Holtz-Eakin, you were very gentle
in saying it is optimistic, overly optimistic. In a nutshell,
what suggestion do you have for us, other than the one you
made, to find out what the needs are and figure out how much
the cost is, rather than start with 1.5? What would you do to
make the financing more realistic, more doable, more workable?
Mr. Holtz-Eakin. So, beginning narrowly, as I said in my
opening statement, I think the design of WIFIA, TIFIA, SRF WIN
is consistent with good infrastructure projects. You have
people on the ground vetting them; there is local stakeholder
financing, so they have a reason to both choose and operate
them effectively; there is a role for the Federal Government in
terms of a debt finance augmenting that; and that program will
be designed and will generate some projects, and it might not
get to $1.5 trillion, but they will be beneficial projects. So
that makes sense to me.
I think what you are seeing in the bigger picture, if you
step back, and the Committee is well aware of this, is this is
one way to use general revenues to finance infrastructure
projects, and that is a reflection of the fact that there is
not a stable financing mechanism that satisfies the Highway
Trust Fund's needs. So, you have a bigger problem, which is
what will be the way to commit to stable funding of
transportation infrastructure from the Federal Government? And
that question has been unresolved for quite a long time, and I
know why.
Senator Wicker. OK. But do you see Senator Boozman's point
and my point, coming from smaller States that have never used
TIFIA, never used WIFIA, because we don't have the revenue
stream, that we need this other little program to maybe help us
to bundle up some small funds and get eligible for this kind of
nifty financing?
Mr. Holtz-Eakin. I absolutely do. Remember, I am, first and
foremost, a trained economist, and the core economic question
is is the rate of return on this infrastructure project, albeit
it a small one in a rural locality, greater than the market
rate of return? And if the answer is yes, it should be done.
The public will be better off doing that.
There are things that get in the way of that:
inefficiencies in bond and other markets, overhead costs in
running Federal programs. To the extent that you can bypass
those things, you are doing a better job of financing
infrastructure.
Senator Wicker. Mr. Motyl, we don't have a robust revenue
stream in States like Mississippi and Arkansas, so do you have
any ideas regarding small communities' being able to leverage
private sector investment to fund transportation infrastructure
projects, since TIFIA doesn't work for us?
Mr. Motyl. I don't really have any experience on the
private sector partnerships. I will say that TIFIA worked for
us, and it is a tool that we have, but it is not fair that we
can use it and so many other States can't. There have to be
programs developed that everybody can take advantage of, and I
don't know what those programs are; maybe grant funding for the
lower income communities or whatever. But we can afford the
loan; we are happy to pay it, but a lot of people can't, so
there have to be programs for those other States.
Senator Wicker. Well, I think it is worth mentioning, also,
in response to Senator Markey's statement and question, that
there is proposed in the Trump program a carve out for rural
areas that just can't afford to do this.
Mr. Sarmiento, do you want to comment on this issue?
Mr. Sarmiento. Yes. I think because we are in a more urban
area, we realize that there is a need for other States and
other areas to be eligible for the same amount of funding and
be able to access it. I know that the SRF WIN is trying to
address maybe that gap that is there for those smaller agencies
and smaller cities. So, we certainly believe that, as we go
through this, the more options, the more tools in that toolbox
that you are trying to create for our Nation is an important
step forward.
Senator Wicker. Well, it is a tool that is in our bill
right now, and I appreciate the leadership and the Committee in
trying to keep it there.
Thank you, gentlemen.
Senator Barrasso. Thank you, Senator Wicker.
Senator Gillibrand.
Senator Gillibrand. Thank you, Mr. Chairman.
I would like to build on the concerns raised earlier in the
hearing by Senator Carper regarding the Federal Transit
Administration's guidance to count Federal loans, including
TIFIA loans, as Federal funding when evaluating a project for a
capital investment grant.
I am very dismayed that in a letter dated June 29th of this
year, the Acting Administrator of the FTA, Jane Williams, wrote
that ``FTA considers U.S. Department of Transportation loans in
the context of all Federal funding, and not separate from the
Federal funding sources.''
This ignores the distinction between grant funding and loan
financing, and does not take into account whether the loan is
actually repaid using non-Federal funds.
The FTA's interpretation is not consistent with the law,
which states that the proceeds of secured loan under the TIFIA
program may be used for any non-Federal share of project costs
required for a Federal highway or transit project if the loan
is repayable from non-Federal funds.
I am very concerned that this Administration is
intentionally trying to make it more difficult for States and
localities to use low interest Federal loans for major transit
projects, and instead, push more private financing for public
infrastructure projects.
And just as our colleagues pointed out, private financing
is not going to be available for non-economic projects, which
may well account for a great deal of the rural projects that
were mentioned by our colleagues from rural States.
Just don't take my word for it. Acting Administration
Williams' letter says, ``The FTA strongly encourages project
sponsors to consider innovative financing and funding
approaches, including value capture and private
contributions.''
Now, value capture obviously means there is an economic
stream that you take from it. A rural road in Mississippi is
not going to have enough of an economic stream. That is also
the same for upstate New York.
I think we can all agree that local project sponsors should
be utilizing an element of non-Federal funding so that we can
leverage our Federal resources with other funding sources.
However, limiting the ability of a project sponsor to utilize
the full suite of Federal grants and loan assistance to put
together a financing plan for major projects is not the answer.
This approach makes it more difficult to build major transit
projects and could end up making those projects more expensive.
First, Mr. Motyl, how do low interest Federal loans like
TIFIA differ from other financing that you would get if you had
to rely more heavily on other sources, including the private
market?
Mr. Motyl. Low interest loans like TIFIA have much greater
flexibility than other financing options. We do a lot of bond
financing; we have senior revenue bonds; we have dedicated toll
revenue bonds. The flexibility with the amortization schedule
on TIFIA gives you a lot of benefits; deferred principal
payment.
Senator Gillibrand. Are there any other benefits to local
taxpayers of utilizing Federal financing?
Mr. Motyl. Any savings to the Department is a savings to
the taxpayers.
Senator Gillibrand. Dr. Holtz-Eakin, you mentioned that a
benefit of Federal loan programs is that project sponsors have
an interest in not wasting money because they are repaying it.
Would you agree that Federal loan programs like TIFIA require
local project sponsors to have skin in the game?
Mr. Holtz-Eakin. Absolutely, yes.
Senator Gillibrand. And would you agree that there is a
distinction between Federal grant funding that does not require
repayment and credit assistance and loan financing that is
repaid with non-Federal funding?
Mr. Holtz-Eakin. Certainly seems so to me. I did not know
about this guidance until today, but I am going to take a look
at it.
Senator Gillibrand. I would be grateful if you could submit
a letter to the Committee of your thoughts on this guidance and
what the negative or unforeseen effects of it will be.
Mr. Holtz-Eakin. I would be happy to do that.
Senator Gillibrand. Thank you, Mr. Chairman.
Senator Barrasso. Thank you so much.
Senator Carper.
Senator Carper. I want to thank Senator Gillibrand for
following up on this issue. I think you raised an important
point, and I thank you for your comments.
In reference to the concerns that Senator Fischer raised
earlier about small projects, I would just like to note for the
record that small projects--I believe those are ones that are
under $75 million in project costs, but they do face easier
requirements. For example, only one investment grade rating is
needed, I believe, on these projects. So, requirements are not
exactly the same, regardless of the size.
However, I agree that there may be more to do to expand
access to TIFIA loans to all of our communities, and we have
been talking about those ideas here today.
A couple of my colleagues, Senator Markey and others, Dr.
Holtz-Eakin alluded to this as well, we have a huge demand and
a need for infrastructure investments, all kinds. Not just
roads, highways, bridges; not just airports, railroads; not
just ports, not just broadband deployment; all kinds of needs.
What we don't have is the will to pay for them.
Some of us believe that there is value in the three Ps,
public-private partnerships. I think that could be part of the
solution, but I think the last, I don't know, 30 years or so,
we have maybe 60 of them, something like that. That doesn't
really solve the problem, although it is helpful. TIFIA is
helpful, and you have given us some good ideas on how to make
it even more helpful.
Historically, we have used user fees to pay for
infrastructure projects, especially with respect to roads,
highways, bridges. The user fee that we use hasn't been changed
in about 25 years, it is worth about half of what it was when
it was adopted, so there are some of us who suggested we
consider restoring the purchasing power of the user fees. Not
everybody is crazy about doing that, although Senator Barrasso
and I were in a meeting with the President, you were sitting
right beside him, I was sitting right in front of him when he
stated very boldly his strong support for raising--even more
than some of us had suggested--the user fees, the ones that we
traditionally use.
In the meantime, people ask me how do we fund roads,
highways, bridges in the long term. I think in the long term we
move to a vehicle miles traveled approach. I think that is the
way to go. We have a pilot project underway now. There are a
number of States, especially on the East Coast, that are
involved in that. Delaware is one of them. My 2001 Chrysler
Town and Country minivan is one of several hundred vehicles
that are even used in that project. They wanted a relic to be
able to include with the really snazzy new cars and trucks to
be part of it.
Dr. Holtz-Eakin, would you just opine for us for a little
bit about vehicle miles traveled? My sense is that is where we
are going ultimately, because we are seeing more and more
battery powered vehicles, electric powered vehicles, more and
more fuel cell powered vehicles, and people like driving them.
They are easier to maintain, better environmentally.
Your thoughts about vehicle miles traveled?
Mr. Holtz-Eakin. I am a big supporter of that switch. In
the end, the damage to roadways comes from weight, axles, and
miles driven, and you can adjust for all three of those things
using a vehicle miles tax. It will, thus, be a more genuinely
targeted user fee that will create the right incentives for the
amount of driving that people do, the vehicles they select, and
also the funding to both build and maintain roadways. So, I
think that would be a big step in the right direction.
Senator Carper. All right, thank you.
Does either witness have any thoughts on this? You may or
may not. If you do, please, go ahead, but if not, that is OK.
Mr. Motyl. It is a great idea, and it makes sense. We will
see how the pilot goes, but there is a lot of potential there.
Senator Carper. All right, thank you.
I think we will just hold it there. This has been a good
hearing. We appreciate very much you all being here. Thanks so
much for just helping us pronounce your names correctly and for
helping us with some good advice on branding from California. I
wrote that down. Maybe I will find a way to use that in
Delaware. I will not give you the credit; I will just take it
myself.
Mr. Sarmiento. Thank you, Senator.
Senator Barrasso. He never did that as Governor, did he?
[Laughter.]
Senator Barrasso. Senator Boozman.
Senator Boozman. Well, we are not quite done, so we still
have the opportunity to mess up names, pronunciations or
whatever.
Let me just ask one final thing, Mr. Sarmiento. One of the
major criticisms with the WIFIA program is the lack of
opportunity for small and medium projects in non-metropolitan
rural areas, which is so important. Certainly, Senator
Barrasso, Senator Carper, again, we have a few cities of size,
but most of it is small and medium.
You are a guy that runs a huge district and does it very,
very well, but you are constantly aware, constantly in contact
with the small and medium. Do you think a program like SRF WIN,
that allows States to bundle their smaller projects into one
application so they may qualify for the WIFIA program, would be
helpful for the small and rural communities?
Mr. Sarmiento. Yes, Senator. Thank you. And by the way, I
never thought I would have the easy name to pronounce, so next
to these two gentlemen I think I am in good company.
But thank you for that question. I do think, as a
representative of a larger agency, I think that we believe that
there is a huge benefit to having the SRF WIN make itself
available for those smaller agencies and smaller communities
that don't have the capacity that may----
Senator Boozman. So bundling would be a----
Mr. Sarmiento. So the funding is critical because that is a
way for eligibility. Obviously, we know the threshold for WIFIA
is higher, so it does make sense to have easier accessible
ability for these low interest loans.
Senator Boozman. Well, thank all of you all for being here.
We appreciate your testimony; it was very helpful. Again, we
hear a lot up here about all of the situations of folks not
getting along and trying to get things done, but this is not a
Republican or Democrat issue; this is something that truly is
affecting big city infrastructure, medium, small, and it truly
is a crisis. So, we appreciate your efforts in helping us come
up with better solutions. Thank you.
Senator Barrasso. Thank you, Senator Boozman.
I want to thank all of you for being here today to testify.
The record is going to be open for another 2 weeks. Members
may submit written questions, and I hope you will be able to
respond quickly. I want to thank all of you for your time and
your testimony today.
The hearing is adjourned.
[Whereupon, at 11:35 a.m. the Committee was adjourned.]
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