[Senate Hearing 117-540]
[From the U.S. Government Publishing Office]
S. Hrg. 117-540
FUNDING AND FINANCING OPTIONS TO
BOLSTER AMERICAN INFRASTRUCTURE
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
MAY 18, 2021
__________
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
50-297 PDF WASHINGTON : 2023
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
WITNESSES
Kile, Joseph, Ph.D., Director of Microeconomic Analysis,
Congressional Budget Office, Washington, DC.................... 6
Sheehan, Victoria F., president, American Association of State
Highway and Transportation Officials, Washington, DC........... 8
Buch, Heather, subcommittee chair, Transportation Steering
Committee, National Association of Counties, Washington, DC.... 10
Bloomfield, Shirley, chief executive officer, NTCA--The Rural
Broadband Association, Arlington, VA........................... 11
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bloomfield, Shirley:
Testimony.................................................... 11
Prepared statement........................................... 53
Responses to questions from committee members................ 59
Buch, Heather:
Testimony.................................................... 10
Prepared statement........................................... 60
Responses to questions from committee members................ 65
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 66
Kile, Joseph, Ph.D.:
Testimony.................................................... 6
Prepared statement........................................... 67
Responses to questions from committee members................ 83
Sheehan, Victoria F.:
Testimony.................................................... 8
Prepared statement........................................... 86
Responses to questions from committee members................ 93
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 94
Communications
American Council of Life Insurers................................ 97
American Public Gas Association (APGA)........................... 99
American Securities Association (ASA)............................ 101
American Truck Dealers........................................... 102
Center for Fiscal Equity......................................... 109
Global Infrastructure Investor Association....................... 115
Government Finance Officers Association.......................... 117
INCOMPAS......................................................... 119
Municipal Bonds for America...................................... 120
NAFA Fleet Management Association................................ 124
National Association of Health and Educational Facilities Finance
Authorities.................................................... 126
National Association of Manufacturers............................ 128
Owner-Operator Independent Drivers Association................... 130
The Real Estate Roundtable et al................................. 131
Reinsurance Association of America............................... 139
Securities Industry and Financial Markets Association............ 144
FUNDING AND FINANCING OPTIONS TO BOLSTER AMERICAN INFRASTRUCTURE
TUESDAY, MAY 18, 2021
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10 a.m., via
Webex, in the Dirksen Senate Office Building, Hon. Ron Wyden
(chairman of the committee) presiding..........................
Present: Senators Stabenow, Cantwell, Carper, Brown, Bennet,
Casey, Warner, Whitehouse, Hassan, Cortez Masto, Warren, Crapo,
Grassley, Cornyn, Thune, Portman, Cassidy, Lankford, Daines,
Young, and Sasse...............................................
Also present: Democratic staff: Robert Andres, Professional Staff
Member; Joshua Sheinkman, Staff Director; and Tiffany Smith,
Chief Tax Counsel. Republican staff: Jen Deci, Senior Counsel;
and Gregg Richard, Staff Director..............................
OPENING STATEMENT OF HON. RON WYDEN, A U.S.
SENATOR FROM OREGON, CHAIRMAN, COMMITTEE ON
FINANCE
The Chairman. The Senate Finance Committee will come to order.
This is going to be a busy week. Today we are going to look at
options for financing infrastructure, and then later in the
week we will be examining the lessons we have learned from the
pandemic. I look forward to working with all colleagues and
pursuing these issues in a bipartisan way......................
With respect to infrastructure, I think it would be fair to say
that right now in Washington, DC, it would be hard to get
members of Congress to agree on the proper way to butter toast.
But I think everybody understands the importance of upgrading
infrastructure. That is because it is widely understood, you
cannot have big league economic growth in America with little
league infrastructure..........................................
The sorry state of our infrastructure right now is a danger to
individuals. For example, you cannot cross the Mississippi
River on a bridge that is cracked in half. It is also a recipe
for national decline, and the United States continues to fall
behind China and other countries on broadband, on roads, on
highways, on ports, on rail, airports, housing, and in other
areas..........................................................
Obviously--and this is why we are holding the hearing--the tough
question with respect to infrastructure is how you go about
paying for it. In my judgment, there is an obvious answer if
you say that it is essential to pay for infrastructure in a
fair way.......................................................
It is long past time for mega-corporations to pay a fair share
for building and repairing roads and bridges. They drive trucks
across America's roads and highways. They send products to
market through our airports and our waterways. They rely on our
power grids and communications systems. And it seems to me to
be just basic fairness that they ought to pitch in for the
infrastructure that makes our country an economic superpower...
Now the hard evidence shows that the mega-corporations--and this
is based on the fact that the Finance Democratic staff has been
out crunching the numbers--have never contributed less to
Federal revenues in modern American history than they are doing
now............................................................
Data from the independent Congressional Budget Office shows that
in the aftermath of the Trump tax law, corporate income tax
revenue is down nearly 40 percent from the 21st-century
average. Many of the mega-corporations, the largest
corporations, are paying nothing. That is it--zero.............
News reports out just this week said that mega-corporations flush
with cash are also gearing up for a new round of stock buybacks
that overwhelmingly benefit the wealthy shareholders. It is not
any kind of cash crunch that has kept major corporations from
pitching in here...............................................
Asking the largest of the mega-corporations in America to pitch
in a fair share is not going to sacrifice America's ability to
compete in tough global markets. ``Competitive'' does not mean
that the biggest corporations should pay zero tax. Paying for
infrastructure and creating high-wage, high-skill jobs are not
mutually exclusive.............................................
Now, there is lots of talk about how it has to be user fees that
pay for infrastructure. I will say the suggestion is, somehow
middle-class workers are supposed to pay what mega-corporations
will not. Middle-class budgets are already very hard-pressed,
and if you do not think Americans keep track of the cost of
driving, you have not been watching the TV news much of the
last week......................................................
The fact is, the infrastructure bill has been growing for decades
due to Congress's negligence and the failure of mega-
corporations to pitch in fairly. And when you say it is going
to be fair, it means allowing someone like myself, honored to
represent Oregon in the Senate, telling a rancher in eastern
Oregon or a home health aide on the coast, that they are not
going to carry the whole burden; they are not going to make up
the shortfall..................................................
Working people driving long distances are willing to pay their
fair share. They tell that to us in our community meetings. I
just came off 13 of them in Oregon. They have been doing so
every time they pull up to the pump. What they do not want to
do is support immunizing mega-corporations from paying anything
at all.........................................................
Prior to 2017, there was bipartisan interest in bringing back
cash trapped overseas as the best way to fund a major
infrastructure bill. A number of us on a bipartisan basis said
that to then-
President Trump. Study after study showed that corporations had
trillions of dollars parked around the world...................
Senators had repatriation bills ready to go. There was bipartisan
interest in that idea on the Senate Finance Committee. In 2017,
however, Donald Trump and Republicans went in a different
direction and plowed that cash into even bigger corporate tax
subsidies as part of the Trump tax law. That was a major lost
opportunity, and the infrastructure tab has only grown in the
years since then...............................................
So now, first and foremost, we ought to be looking at smart
financing tools to help draw private dollars off the sidelines
and into infrastructure. It worked a decade ago with Build
America Bonds. And just in the interest of brevity, let me tell
colleagues, when I proposed for the first time these Build
America Bonds, it was completely bipartisan....................
Senator Wicker was a leading cosponsor of it. Senator Thune was a
leading cosponsor. Senator Collins was a leading cosponsor.
Senator Klobuchar was deeply involved. And in the Finance
Committee, the last night of the Recovery Act, I was asked what
might happen. I said, ``Let me low-ball it. It's only going to
last a year and a half.'' Government had never bonded before. I
said we might sell $3 billion to $5 billion worth of Build
America Bonds..................................................
America, in a year and a half, sold $182 billion worth of Build
America Bonds, an example of a public/private partnership
coming together. This is an approach that Congress has to
return to, because it works....................................
I want to thank our witnesses for joining the committee. What we
are going to do now is, we are going to hear from Senator
Crapo. We understand how urgent this is. That is why the
committee is having this hearing. Senator Crapo and I thought
it was so important to air all of the options. We will hear
from Senator Crapo, and then we will have Senator Shaheen do an
introduction...................................................
Senator Crapo?...................................................
[The prepared statement of Chairman Wyden appears in the
appendix.].....................................................
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you very much, Mr. Chairman. Thank you for
holding this timely hearing on funding and financing options
for our Nation's infrastructure................................
Infrastructure investment has traditionally been bipartisan and
accomplished through regular order. I am encouraged by the
productive meeting that I had last week with President Biden
and some of my Republican colleagues in the Senate about the
need to modernize and expand our transportation system and
broadband in a bipartisan manner...............................
The framework Republican Senators discussed with President Biden
included roads and bridges, transit, rail, airports, drinking
water and wastewater, and port and inland waterways, as well as
water storage and broadband infrastructure.....................
Consideration of offsetting the cost of infrastructure with a
corporate tax rate increase, or increases in international
taxes, especially coming out of the largest negative shock to
the economy on record, is counterproductive and a nonstarter on
my side of the aisle...........................................
With the FAST Act extension expiring at the end of September,
reauthorization of our surface transportation programs should
be the basis of any infrastructure conversations...............
As our witnesses will discuss, Congress must provide long-term
stability and certainty for these programs so that
transportation agencies, cities, counties, and States across
the country can make responsible long-term transportation
planning decisions.............................................
For the last few transportation authorizations, Congress has made
the decision to spend more than the receipts going into the
highway trust fund. In order to advance a comprehensive, long-
term reauthorization bill, it is important that we do so in a
fiscally responsible manner. There is no silver bullet for how
to pay for transportation infrastructure, but historically it
has been paid for by user fees, which makes sense..............
For many years, the users of transportation infrastructure paid
fees for that use through the gas and diesel taxes, which were
deposited into a highway trust fund and then distributed to pay
for our Nation's roads, bridges, and transit systems...........
There have been many changes to the transportation landscape
since Congress last raised the gas tax in 1993, such as
increased fuel efficiency and a significant increase in
electric vehicles, or EVs, on the road.........................
With this evolution, Congress needs to ensure that all users of
the transportation infrastructure are paying into the highway
trust fund. To make up the projected $195-billion 10-year
shortfall of the highway trust fund, Congress needs to think
creatively of ways to ensure that EVs are paying their fair
share..........................................................
If we are able to identify a top-line spending number and go
through a bipartisan FAST Act reauthorization process, I am
ready to work with my colleagues on the other side of the aisle
to do the hard work of addressing the solvency of the highway
trust fund. With that, the United States will have the funding
we need to maintain and modernize our transportation system to
meet the rapidly evolving landscape of today and in the future.
To maximize use of taxpayer dollars, we should consider proposals
to attract private capital for infrastructure projects,
repurpose unused Federal funds, and improve and expand upon
existing infrastructure loan programs..........................
I agree with the comments that our chairman just made about the
Build America Bonds. They can be a significant way of
incentivizing private capital into our infrastructure. We
should consider how public/private partnerships can fit into
our comprehensive infrastructure funding, and our financing....
The Transportation Infrastructure Finance and Innovation Act, or
TIFIA as we call it, the Railroad Rehabilitation and
Improvement Financing Act, and the Water Infrastructure
Financing and Innovation Act are good examples of financing
tools that can leverage Federal resources, and we should
consider ways those programs should be improved and expanded...
Private Activity Bonds for transportation projects have proven so
attractive that the program is oversubscribed. And with the
$15-billion cap having been met, and additional applications
outstanding, we should address it. We need to consider how PABs
and other bond programs can be used to help States and
localities improve and move their infrastructure projects
forward........................................................
There are hundreds of billions of dollars in unspent funds from
COVID relief packages. Those funds should be put to work and
repurposed to fund infrastructure projects.....................
Mr. Chairman, the word ``infrastructure'' itself has become
somewhat of a fluid term lately. As this hearing demonstrates,
there is bipartisan support for finding long-term funding and
financing solutions for transportation infrastructure, as well
as increasing access to broadband connections, particularly in
rural America..................................................
Americans rely heavily upon broadband technology for business,
government, education, and personal activities. Efforts have
been underway for some time to address a digital divide in
broadband deployment between rural and urban or suburban areas
to ensure communities, regardless of size, can access
technological advancements. The pandemic magnified the
importance of expansive and reliable broadband technology, as
so many Americans found themselves working and learning from
home...........................................................
Mr. Chairman, thank you again for holding this hearing. Let's get
to work in a bipartisan way to maintain, modernize, and expand
America's infrastructure. I thank our witnesses today for their
willingness to participate in this hearing.....................
[The prepared statement of Senator Crapo appears in the
appendix.].....................................................
The Chairman. Thank you very much, Senator Crapo. And I would
just like to note for our colleagues, we are only 19 minutes
into this morning's hearing, and we have already had an
outbreak of major bipartisanship around Build America Bonds.
And I want to thank Senator Crapo for his thoughtfulness.......
Now I also want to render an apology to Senator Hassan, because
Senator Hassan, so that the record is clear, is now going to
introduce one of her thoughtful guests, who is Ms. Sheehan.....
So, you New Hampshirites all stick together, apparently even with
respect to your name. Senator Hassan, we welcome you. Please
make the introductory comments you desire......................
Senator Hassan. Well, thank you so much, Senator Wyden. Thank you
for being such an effective chair of our committee, and,
Ranking Member Crapo, thank you as well for your work and for
holding today's hearing on how we can invest in American
infrastructure.................................................
And I would like to welcome a Granite Stater who is an expert on
this topic of today's hearing. And she is Victoria Sheehan from
Nashua, NH, and she has served as the Commissioner of the New
Hampshire Department of Transportation since 2015..............
I have seen firsthand her commitment to providing safe and
efficient transportation systems throughout our State. When I
was Governor, I appointed Commissioner Sheehan and partnered
with her to move forward a number of infrastructure improvement
projects.......................................................
Commissioner Sheehan has since been reappointed to her post by
Governor Sununu. Commissioner Sheehan has also taken her
expertise to the American Association of State Highway and
Transportation Officials, where she currently serves as
president. And she is only the second woman in the
Association's history to serve in this role....................
An engineer by training, Commissioner Sheehan has extensive
experience in transportation management, and she will bring an
important perspective to today's hearing.......................
Commissioner, thank you for being here today and for all of your
work to help keep Granite Staters safe, and keep our economy
moving. I am looking forward to hearing from you today.........
Thank you, Mr. Chairman..........................................
The Chairman. The first witness will be Dr. Joseph Kile, Director
of Microeconomic Analysis at the Congressional Budget Office...
As we all heard, Senator Hassan has sought to have Ms. Victoria
Sheehan, who is president of the American Association of State
Highway and Transportation Officials, and Commissioner of the
New Hampshire Department of Transportation, here. We are glad
that Senator Hassan has arranged for Ms. Sheehan to be here....
Our third witness will be Ms. Heather Buch, subcommittee chair
for the National Association of Counties' Transportation
Steering Committee. She is a County Commissioner for Lane
County, OR. I know Ms. Buch well. Nobody works harder. She
gives public service a good name every single day, and we are
so glad that she is here from Lane County......................
Our final witness will be Ms. Shirley Bloomfield. She is chief
executive officer of the Rural Broadband Association...........
We will make your formal remarks a part of the hearing record in
their entirety, and why don't we begin first with Dr. Joseph
Kile of CBO....................................................
STATEMENT OF JOSEPH KILE, Ph.D., DIRECTOR OF
MICROECONOMIC ANALYSIS, CONGRESSIONAL BUDGET
OFFICE, WASHINGTON, DC
Dr. Kile. Thank you, Chairman Wyden, and good morning to you and
to Ranking Member Crapo. Thank you very much for inviting me to
today's hearing................................................
I am going to touch briefly on three points this morning: first,
the status of the highway trust fund; second, options to
generate revenue for the trust fund; and third, options for
subsidizing increased borrowing by State and local governments.
For more than a decade, the government has been spending more
each year from the highway trust fund than the revenues
collected for it. Those revenues come mostly from taxes on
gasoline and diesel fuel, as well as various taxes on heavy
trucks.........................................................
CBO estimates that the balances in both the highway and the
transit account will be exhausted in the first half of the
coming fiscal year. The total shortfall over the next 10 years
is projected to be $195 billion in CBO's baseline estimates....
If the trust fund's balances were to be exhausted, the Federal
Government would not be able to make payments to States on a
timely basis. As a result, States would face challenges in
planning for transportation projects because of uncertainty
about the amount or timing of payments from the Treasury.......
Turning to options for generating revenue, one approach would be
to require users of the highway system to bear more of those
costs. When people drive, they impose costs they do not fully
pay for--and those include wear and tear on bridges and roads,
delays from traffic congestion, and the harmful effects of
exhaust emissions..............................................
A combination of taxes on fuel and mileage that make its users
pay for more of those costs would make use of the system more
efficient. If you wanted to increase revenues by charging users
in the system, you would have various options..................
One option would be to increase existing taxes on gasoline and
diesel fuel. Those taxes have been unchanged since 1993.
Increasing them by 15 cents a gallon and indexing them for
inflation would raise about $26 billion in revenue for the
trust fund in the first year, and that amount would gradually
increase over time.............................................
Another option would be to impose new taxes on users of the
system. For instance, the government could impose a tax on
vehicle miles traveled. Some States already have VMT taxes. And
CBO found that each 1 cent per mile of Federal tax would raise
$2.6 billion per year if it was levied on all commercial
trucks.........................................................
Still another option would be to impose an annual tax or fee on
owners of electric vehicles. Currently EVs comprise only a
small share of vehicles on the road, and such a tax would raise
about $0.2 billion per year initially..........................
It is important to note that implementing a new tax would require
resolving several practical steps to assess and collect the
tax, and implementing new taxes would probably cost more for
the government than increasing existing ones...................
Some approaches would raise concerns about privacy, especially if
applied to personal vehicles. An alternative to imposing the
cost of increased spending on users would be to distribute them
more broadly...................................................
Since 2008, the Federal Government has transferred over $150
billion from the general fund at the Treasury to the highway
trust fund. You could adopt that approach again. And compared
with some options such as increasing the gas tax, funding
highways through broad-based taxes would have the advantage of
imposing a smaller burden on low-income households as a share
of their income................................................
As an alternative to increasing funding for highways or other
infrastructure, the Federal Government could increase subsidies
that reduce the cost of borrowing by State and local
governments. The Federal Government subsidizes about $20
billion of such borrowing for highways each year, most of that
through tax-exempt bonds. Of course, such financing is not a
new source of revenue, but a way of making future State and
local revenue available to pay for projects sooner.............
I will briefly mention two options for subsidizing borrowing. The
Federal Government could authorize tax credit bonds which would
allow lenders to take a credit against their taxes owed, rather
than deducting new trust earnings from their income. The cost
to the Federal Government for such bonds would depend on the
credit subsidy, and that is a decision that you would be faced
with in making such authorizations.............................
The Federal Government could also increase the cap on Private
Activity Bonds for highways. Two PABs that have been issued
account for about 90 percent of the $15 billion total allowed
for that purpose under current law. The cost to the Federal
Government of such bonds is similar to municipal bonds, but
they can be used for a broader range of purposes...............
I will stop there, and I would be delighted to answer any
questions that you might have. Thank you very much.............
[The prepared statement of Dr. Kile appears in the appendix.]....
The Chairman. Thank you, Dr. Kile................................
We will next hear from Ms. Sheehan...............................
STATEMENT OF VICTORIA F. SHEEHAN, PRESIDENT,
AMERICAN ASSOCIATION OF STATE HIGHWAY AND
TRANSPORTATION OFFICIALS, WASHINGTON, DC
Ms. Sheehan. Well, good morning, Chairman Wyden, Ranking Member
Crapo, and members of the committee. Thank you for the
opportunity to appear today and speak to the critical need to
provide stable and predictable funding for the Federal
transportation program, as well as financing tools for State
and local governments to utilize. Thank you also, Senator
Hassan, for your words of welcome..............................
My name is Victoria Sheehan, and I serve as the Commissioner of
the New Hampshire Department of Transportation, and as
president of AASHTO, the American Association of State Highway
and Transportation Officials. It is my honor to testify on
behalf of the Granite State and AASHTO, which represents the
State departments of transportation for all 50 States,
Washington, DC, and Puerto Rico................................
First, allow me to express on behalf of all the State DOTs our
gratitude for the leadership of this committee on several
important issues. These include the repeal of the $7.6-billion
recission of highway contract authority in 2019, the extension
of surface transportation programs for fiscal year 2021 while
shoring up the highway trust fund, as well as the $10 billion
in COVID-19 relief provided last December......................
We also thank you for your firm commitment to getting the Federal
surface transportation bill done on time, as well as possibly
providing infrastructure funding as part of an economic
stimulus and recovery package..................................
This morning I would like to begin by discussing why timely
reauthorization of the Federal surface transportation program
is so important. New Hampshire, as a small rural State, relies
heavily on Federal funds to make infrastructure improvements.
Any delay, or even worse a series of short-term extensions,
would wreak havoc across the country and would impact not just
State DOTs but our partners, which are local governments and
the construction industry......................................
Projects of all types and sizes would be at risk, including
roadway safety improvements, repair work, as well as capacity
improvements and active transportation investments.............
AASHTO members know only too well that the timely reauthorization
relies on securing the funding to pay for these programs. We
stand ready to work with this committee and others in Congress
to find a solution that addresses the growing infrastructure
investment needs across the country............................
Since 2008, Congress has had to transfer over $150 billion from
the general fund of the Treasury to the highway trust fund in
order to maintain funding levels. While AASHTO is very grateful
that Congress and this committee were unwilling to reduce
surface transportation investments, we recognize that general
fund transfers do not provide the long-term solution needed to
stabilize these important programs.............................
In order to simply maintain the current highway trust fund
spending levels, adjusted for inflation after the current
extension of the FAST Act, it is estimated that Congress will
need to identify $74.8 billion in additional revenues for a 5-
year bill through 2026, while at the same time, the purchasing
power of the highway trust fund revenue has declined
substantially, losing over half of its value in the last 28
years. For the value of the dollars we are provided, the State
DOTs continue to support a role for the Federal financing tools
that allow needed projects to be advanced sooner...............
I want to recognize the work of you, Mr. Chairman, and others on
this committee to develop and pursue additional financing tools
to help meet transportation needs. As an example, in 2014 the
New Hampshire legislature approved a 4.2-cent increase in the
State gas tax, primarily intended to complete the
reconstruction of Interstate 93 from the Massachusetts State
line to Manchester, the largest city in New Hampshire..........
However, at the same time, New Hampshire DOT pursued a
Transportation Infrastructure Finance Innovation Act, or TIFIA,
loan, backed by that State gas tax increase. The TIFIA loan was
structured so that New Hampshire is paying interest only for
the first 10 years of the 20-year loan, allowing us to pledge
the additional new revenue to rural paving and bridge work.....
The result was the completion of a regionally significant
project, savings of over $20 million in financing, as well as
improved pavement and bridge conditions across New Hampshire
due to our ability to pave the 1,400 additional lane miles of
roadway and replace 23 structurally deficient bridges..........
Financing tools can play an important and specific role, and many
States already rely on various forms of financing, ranging from
traditional tax-exempt bonds, tax credit bonds, State
infrastructure banks, and private equity, among other financing
options........................................................
Lastly, I want to say that State DOTs are extremely encouraged
that both Congress and the Biden administration are discussing
potential infrastructure investment. An infrastructure package
coupled with a robustly funded surface transportation bill
provides a unique window of opportunity to make much-needed
investments in our Nation's transportation systems.............
Whichever revenue tools you utilize to fund these programs,
AASHTO looks forward to assisting you and the rest of your
Senate colleagues in finding and implementing a viable set of
revenue solutions..............................................
Thank you again for the honor of being here today, and the
opportunity to testify. I am happy to answer your questions....
[The prepared statement of Ms. Sheehan appears in the appendix.].
The Chairman. Thank you, Ms. Sheehan, and we very much appreciate
your representing the Association of State Highway and
Transportation Officials.......................................
Our next witness will be Heather Buch. And I am always
explaining, Ms. Buch, the fact that folks from Oregon are up
early for these sessions. You had your corn flakes at the crack
of dawn. So, thank you for all the good work that you do for
Lane County, and let's have your testimony, please.............
STATEMENT OF HEATHER BUCH, SUBCOMMITTEE CHAIR,
TRANSPORTATION STEERING COMMITTEE, NATIONAL
ASSOCIATION OF COUNTIES, WASHINGTON, DC
Ms. Buch. Thank you, Chair Wyden, Ranking Member Crapo, and
distinguished members of the committee. Thank you for having me
here today.....................................................
My name is Heather Buch. I serve as a County Commissioner for
Lane County, OR. I am also representing the National
Association of Counties........................................
Owning and operating 44 percent of public roads and 38 percent of
the national bridge inventory--more than any other level of
government--America's 3,069 counties, parishes, and boroughs
are the leaders in the Nation's transportation infrastructure
network. We also directly support 78 percent of public transit
systems, and 34 percent of public airports that keep Americans
connected in every corner of our country.......................
I am here today to underscore the significance of the county role
in transportation and infrastructure, and to discuss how we can
best work together to meet the challenges of today and the
demands of the future..........................................
I would like to begin with a point on which I believe we all
agree: our Nation's infrastructure is in need of investment,
and now is the time to act. Counties appreciate the continued
bipartisanship around infrastructure and urge Congress to seize
this exceptional moment to deliver historic investments that
will enhance the quality of life for Americans across the
country and help improve our global competitiveness from the
bottom up......................................................
A snapshot of infrastructure backlogs that include $17.3 billion
just for local bridges located off our Nation's highways and
$19.4 billion of deferred maintenance on U.S. Federal lands,
reveals the great and immediate need for investment. The chair
and ranking member know well the considerable role Federal
forest revenues play in supporting roads and bridges across the
western United States..........................................
We urge final passage of Senate bill 435 reauthorizing the Secure
Rural Schools program for 2 years. While counties play a
significant role in the national network, we understand that
improving our Nation's infrastructure relies on a strong
Federal/State/local partnership................................
Annually, counties invest $134 billion in the maintenance and
operation of public works and construction infrastructure. This
includes essential community institutions such as schools,
hospitals, jails, courthouses, parks, broadband deployment, and
water and sewage systems.......................................
In fact, local governments are the main funders of
infrastructure. In 2015, we spent $1.6 trillion directly on
infrastructure, more than both our State and Federal partners.
We are doing our part at the local level. However, 45 States,
including Oregon, limit the ability of counties to raise local
revenues in various ways, making the intergovernmental
partnership vital to meeting our public-sector
responsibilities...............................................
Given our unique position to support America's infrastructure,
counties call on our Federal partners to implement additional
financing tools and dedicated funding streams that will allow
us to continue to provide excellent public service.............
Municipal bonds and other Federal financing tools are key
resources for county infrastructure projects. We appreciate the
work of the membership in this committee to reintroduce the
American Infrastructure Bond Act. To build on that progress,
American counties offer the following recommendations..........
Continue to protect the tax-exempt status of municipal bonds.
These bonds remain the primary method used by States and local
governments to fund public infrastructure projects. Any changes
to their tax-exempt status would drive up costs for both
counties and taxpayers.........................................
Restore the tax exemption for advance refunding bonds. This would
lower borrowing costs, optimize our stewardship of taxpayer
resources, and drastically improve the ability of State and
local governments to invest in critical projects...............
Fully restore the State and local tax deduction. The SALT
deduction is an essential aspect of preserving our Nation's
system of federalism. Repealing the cap ensures that when
counties make these local decisions to deliver our essential
public services, our citizens are not double-taxed.............
Provide a permanent fix for the highway trust fund. To plan and
execute small and large-scale transportation projects that are
critical to moving countless amounts of people and goods across
our Nation, a permanent fix that will return long-term solvency
to the fund is needed..........................................
Direct Federal funds to locally owned infrastructure. Counties
firmly believe that increased or expanded financial
opportunities can't come in lieu of dedicated Federal funding
streams for locally owned and operated transportation..........
As the form of government closest to the people, counties know
how to put Federal dollars to work where they are needed the
most. Counties appreciate your attention and stand ready to
work with you..................................................
Thank you, and I am happy to answer any of your questions........
[The prepared statement of Ms. Buch appears in the appendix.]....
The Chairman. Thank you, Ms. Buch, and again for participating so
early. Just for the record, our committee created the Secure
Rural Schools program, and Senator Crapo and I both are very
supportive. So, we will be working with all of you in the
counties in a bipartisan way...................................
Our final witness will be Ms. Shirley Bloomfield, chief executive
officer of the Rural Broadband Association.....................
STATEMENT OF SHIRLEY BLOOMFIELD, CHIEF EXECUTIVE
OFFICER, NTCA--THE RURAL BROADBAND ASSOCIATION,
ARLINGTON, VA
Ms. Bloomfield. Good morning, Chairman Wyden, Ranking Member
Crapo, and members of the committee. I thank you for the
opportunity to testify before you about funding and financing
infrastructure, particularly how it relates to broadband.......
I am Shirley Bloomfield, the CEO of NTCA, the Rural Broadband
Association. We represent about 850 community-based providers
who are providing high-speed broadband and other advanced
services across the most sparsely populated parts of our
country........................................................
The rural broadband industry and our Nation as a whole have a
great story of success to date in delivering these services,
and that certainly has never been more important than it has
been over the past 15 months. But we still have so much work to
do in both deploying as well as operating networks.............
We still have far too many Americans who are lacking
connectivity. And this is where public policy can play a really
important role in helping to build and sustain broadband in
rural markets that are otherwise not able to justify these
kinds of investments...........................................
The high cost of providing service into rural areas is an
imposing obstacle, and you have to deploy, and you have to
maintain, and you have to make it affordable. So there are
other barriers as well that come into play.....................
We have supply chain concerns that are very time-consuming, and
expensive permitting issues. So as this committee and as
Congress consider plans to bridge the current digital divide, I
would like to offer some specific recommendations with respect
to broadband infrastructure and how it might be considered.....
First, we should be building networks that are built to last.
Given the user demands that have grown exponentially over time,
a smart infrastructure plan should aim for the best return on
those long-term investments that will meet the future needs of
consumers and keep pace with the bandwidth-intensive
applications that Americans desire. Putting resources towards
infrastructure that must be substantially rebuilt in just a few
years frankly is a waste, and it will leave rural Americans
behind.........................................................
Second, we have to coordinate the many broadband programs that
are out there and direct funding for new networks to under-
served areas to limit overbuilding of existing Federal network
investments, and make sure that any new broadband program
actually coordinates with existing broadband programs that we
have at the FCC, at USDA, NTIA, and numerous State programs....
Additionally, rather than just creating new programs from
scratch, we have some existing programs, such as the High-Cost
Universal Service Fund, that have a real proven track record of
success in promoting accountability, and they should also be
looked at to receive additional support, to be able to build on
their success in extending and sustaining broadband............
Third, it cannot be lost that networks must be maintained after
they are built. Congress should consider funding for this
purpose, which will keep rates affordable for consumers.
Distance and density make it very difficult, if not impossible,
to justify a business case for infrastructure investment to
start. No provider, whether you are a cooperative, a commercial
entity, regardless of your size, can deliver high-speed, high-
capacity broadband to rural America without the ability to
justify and then recover the initial ongoing cost of sustaining
that infrastructure investment in these high-cost areas. If
there is insufficient support in the first place to enable the
business case for ongoing operation of affordable broadband in
rural areas, initiatives like tax incentives alone simply may
do little to move that needle. You do not need tax relief in an
area where you are already not making money....................
Fourth, we need really clear standards for providers looking to
leverage Federal resources to meet the real-world needs of
consumers. And we should avoid using rural America as a test
lab to see if technologies work, or whether they do not. Those
receiving support should be required to show that they clearly
can meet the program standards, and then use those resources to
deliver better, more affordable broadband that will satisfy
consumer demand over the life of the network in question.
Otherwise, consumers are the losers here.......................
Fifth, we must encourage policymakers to look local when it comes
to identifying broadband solutions in rural America, and to
leverage the expertise and the experience of smaller community-
based providers, regardless of their corporate form, in
overcoming these challenges....................................
I look at our members. NTCA service providers are based in their
communities. They have deep, longstanding relationships with
their local governments and their anchor institutions. And the
best results can often be achieved when operators with
significant experience in building networks and delivering
communication services work together with their stakeholders in
the community to identify and respond to their specific needs..
Finally, barriers to broadband deployment must be addressed to
sustain. We have to be looking at things like how do we
minimize some of these barriers--environmental reviews, Federal
lands, historical obligations--and also looking at supply chain
issues. And I cannot stress this enough. But at a time when our
Nation's supply chain is stretched so thin, providers are
experiencing longer and longer times for deliveries of supplies
to actually build these networks. There are so many
opportunities for this committee to weigh in and to ensure that
we are able to shore up that supply chain......................
In conclusion, my sincere appreciation for the ability to come
testify and share some thoughts about how critical broadband is
to all Americans, regardless of where you live. And I look
forward to your questions......................................
The Chairman. Thank you very much, Ms. Bloomfield................
[The prepared statement of Ms. Bloomfield appears in the
appendix.].....................................................
The Chairman. We have many Senators to ask questions, and we are
going to try to stick to the 5-minute rule. Let me note that
Senator Crapo and I have already announced our support for the
renewable effort of Build America Bonds. What I can tell
colleagues is, we have five current Senators who were original
sponsors of the Build America Bonds effort, and now both
Senator Crapo and I would like to see it included in the effort
to fund infrastructure.........................................
So what I want to start with is getting into the principles of
this user fee issue. Because to me, when you think about
infrastructure, Congress has to contemplate the cost of the use
and the amount of money on the table...........................
So, Dr. Kile, you have been looking at these issues. If Congress
imposed a $100-per-year fee on electric vehicle owners, would
it make a meaningful dent in the highway trust fund shortfall,
in CBO's opinion?..............................................
Dr. Kile. Senator, currently electric vehicles account for about
1 percent or so of the vehicle fleet on the road. They account
for about 2 percent of sales...................................
So if a $100 fee, or tax, were to be imposed, that would raise
about $200 million, two-tenths of a billion dollars per year in
the first years. That is about 1.6 percent of the shortfall in
the coming years. That would probably change over time as
electric vehicles became more prevalent on the road, but in the
near-term, that would only have a small effect on the
shortfall......................................................
The Chairman. All right. Now driving a mile in a four-door
electric sedan obviously does not do the same harm to the
highways as driving a mile in a fully loaded 18-wheeler. And
the State highway officials and the Department of
Transportation have shown that harm done to our Nation's roads
by heavy trucks is essentially much more than that done by
passenger vehicles. There have actually been some estimates
that a heavy truck does nearly 10,000 times more damage than an
electric sedan.................................................
So, Dr. Kile, the Congressional Budget Office and the Joint
Committee on Taxation have examined options for additional
truck taxes, including a 5-cent-per-mile mileage tax. Can you
give us a sense of what the potential revenue would be that
would be raised in this kind of approach, according to the work
done by the Congressional Budget Office?.......................
Dr. Kile. Of course. We recently did an assessment of the
possibility of vehicle-miles-traveled taxes on commercial
trucks. In looking at that, we did note, as you have just
noted, that heavy trucks cause much more pavement damage than
passenger vehicles. Passenger vehicles contribute significantly
to congestion in urban areas. But in terms of pavement damage,
it is mostly heavy trucks......................................
So we looked at the possibility of a VMT tax and how much revenue
that would raise. And we found that each 1 cent of the tax
would raise about $2.6 billion. So a 5-cent tax would raise $13
billion per year...............................................
In thinking about that, it is important to understand that new
institutions need to be put in place to collect that, and those
are not there now..............................................
The Chairman. I appreciate the answers, Dr. Kile. For colleagues,
the math here is pretty clear from CBO. CBO says that a
reasonable truck VMT could raise $8 billion to $12 billion per
year. And if you add a $100-per-year fee on electric vehicle
owners, CBO says that that would raise roughly $200 million per
year...........................................................
So that is the math. And we are obviously going to have a debate
about lots of issues, but that is what CBO has told us on the
math...........................................................
Now, Ms. Buch, we are so glad you are here to give us a sense of
your on-the-ground perspectives. And I think you heard us talk
about the ability of local governments to use Build America
Bonds. That is something that has been used all across Oregon
on bridges, and Lane County had a great interest in that.
Oregon issued nearly a billion dollars' worth of Build America
Bonds for roads and bridges and schools........................
If paired with robust Federal funding, is that the kind of
financing tool that would be helpful to Lane County in
accelerating the financing of your infrastructure needs?.......
Ms. Buch. In Lane County, as you mentioned, we were able to
utilize the Build Back Better Bonds for significant upgrades to
our community college and a large bridge construction project.
Today, our county has new infrastructure challenges that could
be similarly met with such a Federal tool and a combination of
financing......................................................
We have ideas of being able to ensure that we capture the
greenhouse gases at our landfill and being able to potentially
sell those back to our public transit district. Counties will
use every tool in the toolbox that we are able to see, and we
support any effort on that behalf..............................
The Chairman. Thank you for your good work and for being up early
to educate the Senate on what things are like on the ground. I
am over my time................................................
Senator Crapo?...................................................
Senator Crapo. Thank you very much, Mr. Chairman.................
My first question is for you, Ms. Sheehan. I was very interested
and impressed with what New Hampshire has done. In your
testimony, you highlighted that the New Hampshire Department of
Transportation has used Federal loans--I think you were
referring to a TIFIA loan that you were giving the example on--
to help finance infrastructure projects in the State...........
Could you just go over again the reasons you utilized that
approach, and what the ultimate leverage was you received, and
the benefits you received from doing that?.....................
Ms. Sheehan. Well, thank you, Senator, for the question. We are
very proud of the work that we were able to accomplish with the
TIFIA loan in New Hampshire. In 2014, as I mentioned in my
opening testimony, the New Hampshire legislature approved a
State gas tax increase--we actually refer to it as the ``road
toll'' in New Hampshire, to infer that it is a user fee........
And the intent was to complete primarily one project, the
widening of I-93 from Salem to Manchester, NH. With the TIFIA
loan, we were able to stretch the value of that gas tax
increase. The way the loan was structured, we pledged the
revenue to rural bridge and paving work, in addition to the
completion of 93. That is because in the first 10 years we are
paying interest only, so we were able to take all that
additional revenue and invest it across the State..............
We also qualified for the rural rate, so the loan interest rate
was 1.09 percent, and so there was also a significant savings
in terms of the financing costs as compared to traditional
bonding........................................................
Senator Crapo. Well, thank you. Could you just clarify to me what
kind of leverage you got? In other words, what I am trying to
get at is, for the amount of money that you were able to put up
in terms of the loan, how much in addition to that were you
able to leverage it into? You indicated there were a number of
existing or additional projects, but what was that in dollars,
roughly, or in a ratio of dollars?.............................
Ms. Sheehan. So we were able to reconstruct 1,400 miles of
roadway and approximately 23 structurally deficient bridges. So
that was a significant cost avoidance for the State, because we
were able to invest in the near-term, as opposed to having to
continue to Band-Aid that infrastructure.......................
So directly, there was savings of approximately $40 million, in
terms of the ability to advance things sooner. And then, as I
mentioned, the financing savings provided further value........
Senator Crapo. All right; thank you..............................
And, Dr. Kile, in the testimony and discussion so far, we have
heard a lot of discussion about, I think I would call it
increasing access to private capital for infrastructure........
We have heard discussion of tax credit bonds, Private Activity
Bonds, Build America Bonds, infrastructure banks, and so forth.
Each of those could be--and we have other funds. We have TIFIA,
we have WIFIA, we have the RRIF and other funds or programs,
and they focus on things like roads and bridges and rail and
water infrastructure...........................................
Could you tell me and maybe just discuss some of these different
approaches to accessing private capital? Are they effectively
able to be utilized to leverage spending as has been shown in
the case of New Hampshire? And do you have any kind of data on
how effective that might be, what kind of revenue we might
expect from certain Federal investments into these types of
bonding programs?..............................................
Dr. Kile. Sure; I'll be happy to do that. And I will use TIFIA as
an example. Over a recent 5-year period, I think there were 19
projects that used TIFIA funding. With TIFIA, the Federal
Government makes direct loans to an organization that is
undertaking a transportation infrastructure project. That
entity needs to either get private financing or borrowing
through Private Activity Bonds that also complement the Federal
money in that..................................................
So I think TIFIA loans accounted for about a quarter of the
financing in those 19 projects that I mentioned earlier........
Senator Crapo. Maybe ``return'' is the wrong word, but a 3-to-1
leverage in terms of the money that is put in versus the money
that is getting applied, or incentivized to be applied to
infrastructure?................................................
Dr. Kile. In those examples, about a quarter of the funding would
have come from the TIFIA loan program. Some of the funding
comes from Private Activity Bonds, which are also tax-favored
bonds..........................................................
Senator Crapo. All right. And very quickly, do we have anything
like that working for broadband right now?.....................
Dr. Kile. I am not aware of any such programs that are
specifically on broadband. Perhaps one of the other colleagues
on the panel knows more about that than I do...................
Senator Crapo. I am out of time. But, Ms. Bloomfield, maybe I
will give you that question afterward for you to respond in
writing. Thank you.............................................
Thank you, Mr. Chairman..........................................
The Chairman. Thank you, Senator Crapo...........................
Senator Stabenow is next.........................................
Senator Stabenow. Well, thank you very much, Mr. Chairman and
Ranking Member. First, I want to just briefly comment on
proposals that some colleagues are making about Federal fees
for EVs to fund the highway trust fund.........................
I sincerely wish we had enough electric vehicles on the road
today to make this a big issue. And in fact, EVs are about 2
percent of vehicles. So today we hope there will be more down
the road, but as Dr. Kile made clear, a fee on EVs right now
would be equivalent to what people pay in gas tax; it would
fill about 1.6 percent of the highway trust fund revenue
shortfall over the next 5 years................................
So I support going down the road that we should explore a range
of options to fund the highway trust fund, including something
on electric vehicles at some point where it is actually an
issue, but it is certainly not a solution for funding in the
next 5 years at least..........................................
But in that context, I would agree with Chairman Wyden that our
first priority for funding should be to make sure large
corporate users of our roads and highways are paying their fair
share. And I can assure you that people in Michigan do not
think paying zero is fair. And so, that is where I hope we will
focus..........................................................
Now I would like to turn to Ms. Buch for a question. Prior to
2017, as you have indicated, State and local governments had
access to a financing option called advanced refunding for
municipal bonds used to fund a whole range of infrastructure
projects. And the details of advanced refunding are
complicated, as you know, but the bottom line is that it
allowed communities to finance an infrastructure project at the
lowest cost....................................................
So, Ms. Buch, in your testimony you noted that the Government
Finance Officers Association found that in the decade prior to
repeal, there were over 12,000 advanced refundings, saving
communities over $18 billion. And I know this has been
supported by Michigan's State Treasurer as well, urging that
this tool be put back in the toolbox...........................
So that is why Senator Wicker and I teamed up, as you know, to
introduce the Local Infrastructure Act, which will reinstate
advance refunding. We have over 20 bipartisan cosponsors. I
really hope this is going to be put in the next infrastructure
bill. But I wonder if you could just speak more to the kinds of
projects that municipal bonds are used to finance, and explain
why you think restoring the advance refunding would be, quote,
``one of the most effective actions to provide State and local
governments.''.................................................
Ms. Buch. Senator, thank you so much for the question. We have a
variety of bonds. We are a medium-sized county, and we have
used them over the years for a variety of needs................
We would be interested in knowing what is available and what we
can do on our level for bonding. It is really important for us
when we are speaking about utilizing one of these bonding tools
that we are able to pay them back within the 20-, 30-, 40-year
time in which they would be out and they are at rates that are
low enough--and that we know that we would be able to refinance
them should rates change. That is really important.............
For example, we tried recently to go out for a bonding with our
taxpayers for a county courthouse to the tune of about $250
million. The State was going to pay for half of that. But it
did not pass, and we need to be able to show our partner in the
future, if we go out again, that this has economic development
and stimulus associated with it. I think the pairing of those
two would make it more enticing to our taxpayers...............
Senator Stabenow. Thank you very much............................
Let me turn now to talk about broadband for a second. I think we
all agree now that that is certainly what anyone would call
``infrastructure.'' And as chair of the Senate Agriculture
Committee, I have been laser-focused on working with colleagues
to really deliver on robust investments to deal with the
digital divide. And certainly, that became extremely apparent
during COVID...................................................
Ms. Bloomfield, in your testimony you mentioned that Federal
funds to address gaps in high-speed Internet access must be
done in a manner that is sustainable, which is important given
the Federal Government's role, because we have three different
agencies involved, as you know, in broadband deployment........
So in the 2018 farm bill, we authorized a number of USDA programs
to scale up broadband in rural America, but we also added
requirements for coordination with USDA, FCC, NTIA, to improve
the targeting..................................................
So what would you recommend as we build out these efforts,
building on what we did in the farm bill and other efforts to
ensure that that effective partnership really exists?..........
Ms. Bloomfield. So thank you, Senator. And first of all, let me
applaud the leadership you all showed on the Ag Committee. The
work that you did creating the ReConnect Program has really
meant dollars on the ground. People are getting broadband for
the first time, thanks to that program.........................
So I would say a couple of things. First, use the same metrics.
Use the same maps. Right now, you in Congress recently had
legislation, and then funded legislation recently, to actually
complete a national mapping program. The FCC is hard at work.
Let's make sure we use the same maps so we can stay coordinated
on all of that.................................................
RUS and the FCC have a long history of staying coordinated with
each other, a longstanding relationship. USDA really funds the
capital of these broadband networks in these rural markets. The
FCC has really supported the ongoing operations and
affordability..................................................
But I think there is some work that could be done to make sure
that at the operational level, as we talk about grants, how do
we make sure that grants are not going into overlapping
jurisdictions? So again, I applaud the initiative. It is
critically important, and I think we've got some great work
ahead, thanks to your leadership...............................
The Chairman. I would not disagree with a thing Senator Stabenow
said, or Ms. Bloomfield said. We are just going to have to move
on.............................................................
So let's go next to Senator Grassley.............................
Senator Grassley. Well, we will go on from--thank you, Senator--
we are going to go on from where Senator Stabenow left off----.
The Chairman. Good...............................................
Senator Grassley [continuing]. Because I am interested in the
infrastructure. So before I ask my questions, I would just note
that the infrastructure has always been an area where Congress
has worked in a bipartisan way. We have always proved that this
Senate can move such bills, with the passage of the water
infrastructure bill within the last couple of weeks. The
Republicans and Democrats are not far apart on the
infrastructure-related items...................................
I am encouraged that bipartisan talks continue with the
President. As former chairman and ranking member of this
committee, I understand that it is hard to find consensus of
how to pay for infrastructure. But, Mr. Chairman, we have met
that challenge before, and I think we are going to do it again
this time......................................................
I appreciate all the witnesses participating today. So my first
question is, if we have learned anything over the past year of
the pandemic, it is the vital importance of broadband and being
able to stay connected for our businesses, health, education,
and well-being. The State of Iowa estimates that it will
require over $800 million in new investment to make affordable
high-speed broadband available to all Iowans. These are the
hardest to connect, mainly rural farms and homes...............
In recent testimony before the Commerce Committee, several
witnesses, including former FCC Commissioner O'Rielly, stated
that to meet the unmet needs of those who are truly unserved,
we need to be laser-focused on concentrating on those without
service and should meet that goal before expanding the focus to
those who already have some service............................
I know that there is concern that if we were to expand this
focus, it would divert money and attention from those without
service. So obviously my question is to you, Ms. Bloomfield. Do
you agree that we need the laser focus on connecting those
unserved? And if you want to expand in any way on this issue, I
would appreciate it. Could you continue to explain how
coordination of Federal programs can be improved, as well as my
first question?................................................
Ms. Bloomfield. Absolutely, Senator. So you have the distinction
of having the most community-based broadband providers in the
country in the State of Iowa. So I could not agree with you
more that we have to be laser-focused on those Americans who
are still waiting for connectivity. And again, if we have not
learned anything over the past year, then shame on us..........
Those folks need connectivity. And when we think about
prioritizing, absolutely the prioritization has to be to those
who are still waiting for that connectivity. That is where the
first traunch of dollars should go.............................
Then there are a number of--you know, networks are living,
breathing entities. They need to be upgraded. They need to be
maintained. That is when we can then pivot to thinking about
how we continue to improve all of the networks that already
exist--for example, the ones that are provided by your 100
independent carriers out in the State of Iowa..................
That is why mapping is going to be so important, because we do
not really know the full story of where those unserved or
under-served Americans are. So I think that is one thing.......
The other point that I would make to your comment is, we have a
once-in-a-generation opportunity on the investment side on
infrastructure to do this right, to aim higher, to do better.
So when we talk about connecting those unconnected Americans,
we should not be putting in infrastructure that in 2 or 3 years
we are going to be back to you talking about how we fund
upgrading that infrastructure..................................
We have learned so much about how Americans use broadband over
the course of the last year. We need to make sure that we are
looking at symmetrical services, 100/100, the ability for folks
to upload as fast as they are downloading. We are seeing that
in application. We are seeing demand for broadband bandwidth go
up by about 25 percent a year. That is only going to explode,
and that is going to create innovation, and that is going to
help the American economy......................................
So there are a lot of different places that we need to be looking
at, but you are absolutely right. Let's get those folks who are
not on the networks, let's get them connected, and then let's
focus forward..................................................
Senator Grassley. I yield back, Mr. Chairman. Thank you very
much...........................................................
The Chairman. Thank you very much, Senator Grassley..............
Next is the chairman of the Environment and Public Works
Committee, Senator Carper......................................
Senator Carper. Thanks, Mr. Chairman, so much for your holding
this hearing today. I want to thank you and Senator Crapo for
doing that. I want to thank each of our witnesses: Dr. Kile,
Ms. Sheehan, nice to see you again--you were just before the
committee 2 months ago, as I recall--Heather Buch and Shirley
Bloomfield.....................................................
A lot of you heard, I am not a huge hockey fan, but I have a lot
of respect for Wayne Gretzky, who is maybe the greatest hockey
player who ever played. He was asked in his prime, ``Why are
you such a good hockey player, Mr. Gretzky?'' And he said, ``I
go where the puck will be, not where the puck is.'' That is
what he said. ``I go where the puck will be, not where the puck
is.''..........................................................
A couple of weeks ago we had a hearing in our Committee on the
Environment and Public Works, and we had a hearing on vehicle
miles traveled, a notion which really, I think, has its roots
in Oregon, as the chairman knows--a road user charge. And we
had witnesses from around the country who came and talked about
whether or not that is where the puck will be and if that is
where we need to be pointed....................................
Senator Stabenow, if she is still on the line, knows what is
going on in the auto industry in terms of moving off of gas-
and diesel-powered vehicles onto electric and onto hydrogen. It
has been a very slow uptick until of late. Twenty years ago,
colleagues, I went out and bought a Chrysler Town and Country
minivan with my son Christopher. Today it has 550,000 miles on
it. He and I went out about 2 months ago, when he was home from
California, we went out about 2 months ago and drove cars
again. We drove all-electric vehicles..........................
The electric vehicles--the Chevrolet Volt was the car of the year
about 10 years ago; it got 38 miles on a charge. We drove all
kinds of vehicles just a month or two ago that get over 300
miles on a charge. And I ordered one just 2 days ago that gets
326 miles on a charge..........................................
But we are going to see just an incredible uptick. People love to
drive these vehicles. They are fun. They are fast. And they do
not send any pollution into the air. Their upkeep is low. That
is where we are going..........................................
And it is not going to happen overnight, but it is going to
happen with increased velocity going forward. When I was new in
the Senate, I sat right in front of a guy named Ted Kennedy,
whom my colleagues remember well. And I remember having lunch
with him when I was new in the Senate, and I asked him, I said,
``Why do all these Republicans want you, Ted Kennedy, big
liberal Democrat, why do they want you to co-sponsor their big
bills?'' And he said, ``I am always willing to compromise on
policy, but never willing to compromise on principle.'' That is
what he said: always willing to compromise on policy, never
willing to compromise on principle.............................
The chairman has already mentioned principles. Some of you have
mentioned principles. I will just ask our witnesses--I am going
to say a principle that I think that we can agree on, and I
just want our witnesses to say really ``yes'' or ``no.''.......
One of the principles would be that we need to make substantial
investments in infrastructure, and particularly in
transportation infrastructure. Is there anybody among our
witness panel who would say ``no''? Speak now or forever hold
your peace.....................................................
I don't hear anybody. Okay, another principle would be, things
that are worth having are worth paying for. Is there anybody
among our witnesses who would disagree with that, say, ``no''?.
Hearing nothing, forever hold your peace. Another one would be,
those who use our roads, highways, bridges have some obligation
to help pay for them. Is there anyone who would say ``no'' to
that?..........................................................
All right, here's another one. Our witness from the counties--
sometimes we think to be responsible, whether it is
transportation or it is water, which we work on a lot, it
should all be on the Federal Government. I think maybe a
principle should be that this is a shared responsibility. We
heard that from our NAC folks just this morning................
Is there anybody who thinks that this should not be a shared
responsibility?................................................
Okay. And I would like to say there are no silver bullets when it
comes to funding surface transportation. There are a lot of
silver BBs, and some are bigger than others. I was interested
to find that--George Voinovich and I teamed up during the
Bowles-
Simpson days, more than a decade ago, and we suggested
restoring the purchasing power of the gas and diesel tax.......
I will be honest, friends, I think where we are going as a
country in the next dozen or so years, I think we are moving to
something akin to VMT. It is not going to be the only thing,
but it is something that makes a lot of sense..................
What we need to do is create a bridge to the future, a bridge to
the future. I am going to ask each of our witnesses to take a
minute apiece and say what should that bridge to the future be?
Very, very crisply and succinctly, starting with Dr. Kile.
Thank you, Dr. Kile; very crisp and succinct. What should a
bridge to the future be?.......................................
Dr. Kile. So, Senator, I hate to not give you a direct answer to
that question, but my job is to give you options and help you
evaluate them..................................................
Senator Carper. Okay; on the record, for the record please. Thank
you............................................................
Ms. Sheehan, good to see you again. Again, the bridge. We are
looking for a bridge to help build bridges, but the bridge to
the future?....................................................
Ms. Sheehan. So in 2019, the AASHTO board of directors took up a
resolution concerning the future sustainability of the highway
trust fund, as well as what the near-term solutions might be...
We really narrowed in on four options: a motor fuel tax increase
or indexing; freight-based user fees; per-barrel oil fee; as
well as continuing to advance a mileage-based user fee
solution, or a
vehicle-miles-traveled fee.....................................
Senator Carper. Thanks so much...................................
Ms. Buch, the bridge to the future? What would that bridge
include?.......................................................
Ms. Buch. Returning solvency to the fund by increasing Federal
fuel taxes, implementing a vehicle-miles-traveled program, and
other alternatives would provide sustainable revenue. And that
is imperative for our Nation's highway and transit systems.....
Senator Carper. Thank you, ma'am. Finally, Ms. Bloomfield, what
would the bridge look like, the bridge to the future?..........
Ms. Bloomfield. It is going to be a digital bridge. The 21st-
century superhighway is broadband connectivity. We found that
out when we could not go to our offices, we could not go to our
schools. The ability to stay connected, do commerce, do
education, do tele-medicine, all through digital--so I am going
to give you the digital bridge.................................
The Chairman. Thank you, Senator Carper, Chairman Carper.........
Senator Cornyn?..................................................
Senator Cornyn. Well, thank you, Mr. Chairman and Ranking Member
Crapo, for having the hearing on the absolutely taboo subject
of paying for infrastructure. It is a conversation we have
needed to have for a while.....................................
And for myself, let me just say that a repeal of the 2017 Tax
Cuts and Jobs Act is a nonstarter, as is the general tax
increase on the American people in the gas tax. So we need, in
my view, something a little different. And I will have a
suggestion, or at least an idea that we can explore............
But, Dr. Kile, the Department of Transportation has not conducted
a national cost allocation study in almost 2 decades. So we do
not actually have a clear picture of how much wear and tear is
being done to our highways, or who is doing most of that
damage.........................................................
As someone who is clearly an expert in good budgeting, does it
concern you that we are sitting here trying to figure out how
much to pay for infrastructure without actually knowing how
much it should cost, or who should be chipping in to cover the
maintenance of our roads and bridges?..........................
Dr. Kile. It does create challenges, Senator. Obviously, the most
recent cost allocation study is about 20 years old. And if that
were to be updated, I think that would be quite helpful to
everyone.......................................................
Senator Cornyn. Ms. Sheehan, the witnesses today have spoken at
length about fixing the highway trust fund, and I am all in for
that. While not likely feasible in this context--and I do not
want to take that off the table--but can you speak to the
potential benefits and challenges of eliminating various
revenue generators like the tire tax, the heavy vehicle use
tax, and others, and replacing them with a single cost-adjusted
user fee like miles traveled?..................................
Ms. Sheehan. As we transition to any new solution, the cost of
collection is something that we want to look at closely. And
until we know more about the solutions that are being proposed
and are able to adequately estimate what those costs are, it is
challenging for us as State transportation officials to have an
opinion on whether one solution is more advantageous than
another. But we at AASHTO stand ready to continue to support
this committee and Congress as you look at all the alternatives
so we can understand what the cost implications might be of
implementing these solutions...................................
Senator Cornyn. Dr. Kile, in 2019 the Joint Tax Committee
provided a score for a vehicle-miles-traveled user fee on Class
7 and 8 trucks. These are the heaviest commercial trucks, with
some exemptions for farm, State, and local government trucks...
They assumed a rate of about 25 cents a mile, and it generated on
average about $33 billion a year. The total they projected from
2019 to 2024 was $101.3 billion. Just as an idea that the
committee ought to consider, do you see that as a viable means,
if the policy was accepted, of raising the money that now we
need--that is missing in the highway trust fund?...............
Dr. Kile. So a VMT tax does have the potential to raise
significant revenue, as in the example that you cited. A
challenge would be that the types of mechanisms for collecting
and enforcing the tax are not yet in place. And those would
need to be developed. And the cost of doing so could be
substantial....................................................
Senator Cornyn. Yes, I am sure the administration of that would
be a challenge; any sort of new approach. But right now, we
have a big hole in the highway trust fund, and we have to come
up with some money from somewhere. And I would just propose,
respectfully, we call this what it has always been under the
highway trust fund, which is a ``user fee'' tied to the gas
tax............................................................
But as I indicated earlier, I do not believe there is any
political support for an increase in the gas tax across the
board. I think I have heard President Biden say that, and I
know that that is true on our side of the aisle as well. But a
targeted vehicle-miles-
traveled user fee on heavy trucks used as commercial vehicles,
along with perhaps some relief on other fees that the trucking
industry pays, to me seems like one idea that--while there is
no perfect idea, and there is also nothing free, we need to
come up with something that makes sense. And so that is
something I appreciate the committee considering, Mr. Chairman.
Thank you very much............................................
The Chairman. Thank you, Senator Cornyn, and we will be working
in a bipartisan way on these issues. Thank you.................
Senator Brown is next. He is chairman of the Housing and Banking
Committee, which has significant transportation
responsibilities as well. Senator Brown?.......................
Senator Brown. Thank you. Amazingly enough, Mr. Chairman, I am
going to ask about that. So thank you, and thanks for the
comments of my colleagues, and I really appreciate your holding
this hearing...................................................
We know there is an enormous need for infrastructure investment
everywhere in this country. And in my State especially, the
neighborhoods and towns and homes have been overlooked by
Washington and by Wall Street for too long. I worked with
Chairman Wyden, Senator Whitehouse, and my Republican colleague
Senator Portman, to introduce the Bridge Investment Act to
provide competitive grants for bridge replacement..............
The Brent Spence Bridge over the Ohio River between Cincinnati
and northern Kentucky carries 3 percent of our Nation's GDP
across it. But that bridge is dangerously outdated. We secured
more than $3 million for bridge repair in the highway package
developed by now-chairman Carper and Senator Barrasso last
Congress in their committee, but that barely scratches the
surface, as we know............................................
The Federal share of replacing Brent Spence alone is likely more
than $1 billion. Each of our States has thousands of small
bridges owned by cities and counties that need repair..........
So my question, Ms. Buch, is this. As the chairman said, I chair
the Banking and Housing Committee that has jurisdiction over
public transit issues too. Talk to me about how--what can
Congress do to make possible housing and transit investments,
working together? And as you answer, talk about the benefit to
workers and their families as we do that.......................
Ms. Buch. Chair Wyden, Senator Brown, thank you so much for the
question. At the county level, there are a variety of things
that we have determined that could help the investments in
housing, while paired with transportation......................
There are several ideas, one of which is to pursue transit-
oriented development housing partnerships with agencies and
support the FTA joint development projects. This prioritizes
the development of under-utilized and surplus properties across
transit corridors. In addition, there is a partnership outreach
to local financial institutions. This outreach could support
widespread development of ADU construction loan projects,
appraisal of pilot programs, and construction of loan programs
for home conversions and additional housing units..............
Also, there is the pursuit of community land trusts and limited
equity cooperative models in rural lands. This strengthens and
facilitates rural affordable housing via the community land
trust model, and the LEC hybrid model..........................
Senator Brown. Thank you.........................................
I had a conversation with Chairman Wyden over the weekend, a
pretty lengthy conversation about the tax gap. We know the
Trump-appointed IRS Commissioner estimates that the tax gap is
as large as $1 trillion. Senator Thune and Senator Whitehouse
in their subcommittee last week discussed that.................
People know that the difference between taxes owed and taxes
paid, when it is that large, it is not fair. Constituents in
Portland and Eugene, OR, or Columbus or Cleveland, OH, know if
you punch a clock in a factory, or wait tables, or help the
elderly in nursing homes, you have to pay the taxes you owe....
That is why, as I heard Senator Cornyn talk about revenue, this
is a place to start when it comes to financing these priorities
we are discussing. It is not about raising taxes. It is about
collecting taxes already owed by taxpayers who are not paying
what they owe..................................................
So I am hopeful my colleagues on both sides of the aisle can
agree that closing this tax gap, ensuring corporations and the
wealthy pay what they already owe, that that is a good place to
start when it comes to funding these infrastructure priorities.
Mr. Chairman, I yield back the last minute of my time. Thank you.
The Chairman. Thank you, Senator Brown. And thank you very much
for the helpful input as well, over the weekend. It was really
useful.........................................................
Senator Thune is next............................................
[Pause.].........................................................
The Chairman. John, you are muted................................
Senator Thune. You got me?.......................................
The Chairman. Yes................................................
Senator Thune. Thank you, Mr. Chairman, and thanks to all of our
witnesses for being here today as this committee begins working
toward a reauthorization of surface transportation programs....
This committee plays a crucial role in funding any
reauthorization of these programs, and it must be done in a
bipartisan manner that recognizes our Nation's diverse and
highly interconnected transportation systems. For example, it
is crucial that transportation policy and investment recognize
the importance of rural areas where the vast majority of
agricultural and industrial commodities originate..............
I have said it before, and I will say it again, that those
investments benefit the entire country, not just rural areas,
by keeping the national transportation system fluid and
interconnected. While they may not be located in major cities
or experience high traffic volumes, rural freight corridors are
a critical component of the Nation's transportation system,
ensuring that goods are transported around the Nation and the
world safely and efficiently...................................
Their circumstances also mean that revenue solutions which might
work in an urban area, such as tolling, are simply unworkable
in rural areas.................................................
Finally, it is crucial that we work together in this committee on
long-term funding for the highway trust fund, which is long
overdue and sorely needed. And I want to thank the witnesses
again for being here to talk about that subject................
Ms. Sheehan, as you all know, the highway trust fund will face a
$190-billion shortfall by 2030. Continued transfers from the
general fund, which pass this burden on to our grandkids, are
not a long-term solution to solvency...........................
Could you describe why the uncertainty associated with the
highway trust fund revenues has a negative effect on
infrastructure investments at the State level? And then, if you
could try and answer this together so we can try to get to a
second question through another panelist, you listed several
options for providing additional highway trust fund receipts.
Under current circumstances, and as the Nation recovers from
the pandemic, which do you see as the most viable?.............
Ms. Sheehan. Well, thank you for the question. It is extremely
important to have certainty around this funding. Any shortfall
on the highway trust fund would jeopardize our ability to
deliver on the projects and programs that we are committing to
and would be extremely disruptive to the communities that we
serve..........................................................
It also causes challenges for the construction community, as they
prepare to bid and advance the work that we are advertising. So
it is very important that we look at long-term funding
solutions for the highway trust fund...........................
As I mentioned, the AASHTO board of directors in 2019 coalesced
around four specific revenue mechanisms. The first would be a
motor fuel tax increase with indexing. Alternatively, you could
look at a freight-based user fee, a per-barrel oil fee, and
many of our State DOTs have been active participants in the
Surface Transportation System Funding Alternatives Program,
soliciting through that grant program funding to advance
mileage-based user fee or vehicle-miles-traveled fee concepts..
So we have a lot of experience now in this area and look forward
to working with the committee..................................
Senator Thune. Which of those do you think make the most sense,
based on where we are today?...................................
Ms. Sheehan. We believe we should look at a national pilot before
we would be ready to award a mileage-based user fee, or a VMT
model. So we would favor some of the other solutions perhaps as
short-term solutions...........................................
Senator Thune. Ms. Bloomfield, the American Rescue Plan tasked
the Department of Treasury to help close the digital divide.
But without coordination with expert agencies like the FCC and
NTIA, we risk wasting these funds and over-building existing
broadband networks.............................................
Could you talk about the need for proper coordination to ensure
that this funding goes to the areas that are truly unserved?...
Ms. Bloomfield. Absolutely. So first of all, given your
leadership role in the broadband space and how much work you
have done, I think we have just started to see some of the
rules come out from Treasury...................................
I am very heartened by the fact that they are really taking a
very forward-looking perspective on it. They are explicitly
allowing funding to be used for broadband, looking at making
sure we look at a target of 100/100 symmetrical speeds that
will bring the most robust broadband out all to parts of the
country. And, not unlike your commentary about transportation,
the fact is, the more Americans who are connected digitally as
well, the more valuable it is for everybody across the country.
So again, I think the threshold of looking at areas that are
lacking 25/3 being the basis for being unserved is really
critical. How do we get those folks connected? And then build
onto that with those who have networks that need to be
maintained and make sure that we can make broadband affordable
for all. That is another key component of all of this..........
But transportation and broadband have a lot of similarities, I am
discovering this morning.......................................
Senator Thune. Thank you, Mr. Chairman. My time has expired......
The Chairman. Thank you, Senator Thune...........................
Next is Senator Bennet...........................................
Senator Bennet. Thank you very much, Mr. Chairman. I want to
thank you and Senator Crapo for your comments about Build
America Bonds. That gives me some hope going forward...........
And I wanted to start with Ms. Buch. Last month, my colleague
Senator Wicker and I reintroduced our bipartisan American
Infrastructure Bond Act. The bill would create a new class of
direct-pay taxable bonds to help State and local governments
finance critical public projects...............................
These bonds would be similar to Build America Bonds created in
the Recovery Act, but would improve on those because, among
other things, they would be exempt from sequestration automatic
budget cuts. American Infrastructure Bonds would be attractive
to investors who do not benefit from traditional tax-exempt
bonds, such as pension funds and institutional investors.......
So, Ms. Buch, if States and local governments had access to this
additional tool of direct-pay bonds, what effect would you
expect it to have on public infrastructure growth and
development? Could it potentially save them money as compared
to relying solely on tax-exempt bonds?.........................
Ms. Buch. Senator Bennet, thank you. Expanding access to the
taxable bond market will incentivize and boost investment in
local communities. The COVID-19 pandemic has compounded the
existing strain on the Nation's infrastructure systems and
widened our digital divide.....................................
Thank you to Senators Bennet and Wicker for introducing this
bill. It will greatly improve our ability to invest in the
critical infrastructure projects and improve the resiliency of
our many county-owned infrastructure assets....................
We believe that the direct-pay bonds like Build America Bonds are
an excellent complement to municipal bonds for county
infrastructure projects, especially now as we continue to
battle the dangerous effects of COVID-19 on county budgets. And
we welcome the extra assurances that direct-pay bonds provide..
Senator Bennet. Thank you. Thank you for that....................
Ms. Bloomfield, 2 months ago I wrote to the Biden administration,
along with Senators King, Portman, and Manchin, urging the
administration to bring our Federal broadband standards into
the 21st century...............................................
Today, the FCC defines high-speed broadband as a download speed
of 25 megabits per second, and an upload speed of 3 megabits
per second. The standard at the U.S. Department of Agriculture
is even slower. If you are a parent working remotely with kids
going to school online, there is nothing high-speed about that.
As a country, we have to stop spending billions of dollars on
networks, as you said. They are outdated as soon as they are
finished. That hurts rural communities the most, marooning them
with broadband speeds that people living in a city or a suburb
would never accept, yet the Federal Government would say that
the job has been done..........................................
We need to invest in future-proof networks across the country
that will meet our needs not only today, but for years to come.
And I am sure you have heard people in Washington talk about
how high-speed broadband cannot work in rural communities. And
even if it did, people do not need those speeds. That has not
been our experience in Colorado, and I know your members
disprove that view every single day............................
Could you tell us more about how your members are investing in
affordable future-proof networks in rural America?.............
Ms. Bloomfield. Absolutely. And thank you, Senator, for your
leadership on weighing in about how important it is that we do
this right. We have this opportunity. We look at 100/100 as the
buildout minimum speed for any Federal funding because, again,
anything less is going to be obsolete immediately. And Federal
dollars would be wasted........................................
I think we have this chance to do this in a way that also brings
comparability, to your point. We are seeing providers
constructing networks in urban areas that are capable of 100/
100. Why shouldn't rural America have the same access to that
connectivity?..................................................
We certainly want to make sure that we haven't got, you know, one
set of citizens who are second class, particularly when we see
that one of the biggest hurdles for rural Americans is the
geography handicap.............................................
We have been able to bridge that with broadband. Again, you know,
watching folks--the number of telemedicine clinics that got set
up, as an example, over the course of the pandemic is amazing.
The use of telemedicine--a 40-percent increase.................
We will never put that genie back in the bottle, nor should we.
The ability to really unleash innovation and invention, and the
fact that we have to have our kids doing homework at the
counter while we are on our VPN for work--again, I think we are
short-sighted as a country if we make less of an investment....
Senator Bennet. Thank you for that...............................
Mr. Chairman, thank you..........................................
The Chairman. Thank you very much, Senator Bennet. And I am glad
that you and Senator Wicker are looking at a variety of
different bond options. I remember Senator Wicker was one of
our original sponsors back when we proposed Build America
Bonds, and the Federal Government had never bonded before. We
have come a long way, and we will be working very closely with
you and Senator Wicker. And I know Senator Crapo is going to
want to work in a bipartisan way on this as well...............
Senator Casey is next............................................
Senator Casey. Mr. Chairman, thanks very much. And I want to
thank our witnesses for their testimony today on so many of
these critical issues..........................................
I will start with what I think is an assertion that both parties
agree with. And that is, if we fail to invest in our
infrastructure, we are paying a cost. That failure to invest
results in costs to the Nation. And I would say, in my
judgment, our failure to invest in infrastructure is not a
problem of recent vintage......................................
We have failed to invest in our infrastructure for about a
quarter of a century. Once in a while we have made investments
in transportation infrastructure, but broad-based investments,
we have not made...............................................
In our State of Pennsylvania, the most recent estimate is that
about 15 percent of our bridges are in the structurally
deficient category. So that means thousands of bridges in our
State need substantial repairs. And I think that is one of the
reasons we are all wrestling with these issues about what are
the needs, and what are the investments we have to make, and
how do we pay for them?........................................
I come from a State that has a substantial rural population. We
have 67 counties, but 48 of the 67 are considered rural. And in
some parts of counties, that means that you have a lot of
agriculture, obviously, but ``rural'' can also mean a small
town. ``Rural'' can often mean communities that are left behind
when it comes to investments in infrastructure.................
One of the ways that I am looking at this infrastructure
challenge is through the context of not just bridges in the big
cities or in the larger population communities, but in off-
system bridges. The bridge that takes that ambulance over a
bridge to make sure that someone can be provided medical care.
The bridge in that small town that takes that school bus full
of children from their homes to the school that they go to. And
these off-system bridges, as Commissioner Buch has noted, have
not been the subject of nearly enough attention. I am not
putting words in her mouth; they are my words..................
So, Commissioner, I want to start with you on these off-system
bridges. About 47 percent of bridges in my home State are off-
system bridges. You told us there is about a little more than
$17 billion in backlog in maintaining these bridges............
Can you tell us what happens to a community when a bridge is not
maintained, these so-called off-system bridges?................
Ms. Buch. Senator Casey, thank you so much. I also live in a
district that is largely rural here in Oregon, and those
bridges are lifelines to metro centers where supplies are
needed. When we are considering emergency preparedness in our
community, those bridges are absolutely essential. With natural
disasters coming more frequently, more often, and more
powerful, it is so critical that we make sure that those roads
and bridges are in good repair so that emergency services can
come when they are needed......................................
They are also a way in which communities can easily get cut off
from the rest of the Nation, both from just physical trouble
but also when lines of communication are down--Internet, phone
lines, and such. So it is imperative that those bridges are
maintained on a very regular basis with ongoing funding, where
there are not fits and starts..................................
Senator Casey. Well, I appreciate that. And I think one of the
challenges we have is to make sure that we have local inputs
when we are making these determinations about infrastructure...
And I would ask you this, Commissioner: how can the Federal
Government better include local leaders in deciding how best to
spend Federal resources?.......................................
Ms. Buch. Counties firmly believe that at the local level is
where we make the best decisions on the best use of those
funds. It is so important to be able to receive those direct
payments so that we can make those critical decisions on behalf
of our residents...............................................
Senator Casey. Commissioner, thank you. I want to thank you and
the other witnesses, especially you and Ms. Bloomfield, for
focusing on these rural communities............................
Thank you, Mr. Chairman..........................................
The Chairman. Thank you, Senator Casey...........................
Senator Portman?.................................................
Senator Portman. Thank you, Mr. Chairman, for fitting me in. I
think this is an incredibly important hearing because, probably
the most important aspect of infrastructure that we are not
talking enough about is, how do you pay for it?................
I think there is a general consensus on the need for more funding
for our roads and bridges, and a broad definition of
infrastructure, including broadband, and certainly wider
infrastructure and electrical grids and so on. But how do you
pay for it is the tough thing..................................
I am going to mention three things here quickly. One is to use
some of the COVID money that has already been appropriated but
not obligated. Another would be these public-private
partnerships, the so-called P3s. Another would be
infrastructure banks; you know, building on TIFIA, and so on...
Let me start, if I could, with a question to you, Commissioner
Sheehan, with regard to transportation projects under the
COVID-19 legislation. $350 billion is supposed to go out under
the new American Rescue Plan. I think only about $50 billion or
$65 billion of that has gone out so far........................
My State of Ohio wants to use some of this for infrastructure.
Are you finding that is true with regard to other States?......
Ms. Sheehan. I thank you for that question. And yes, we are
hearing the same thing here in New Hampshire and across the
country. During the pandemic, many of our Governors were forced
to implement stay-at-home orders, and as a result we saw less
travel on our transportation network. That meant there was a
significant reduction in revenue at the State level............
Many of our States also support municipal transportation
investment. Here in New Hampshire, 12 percent of the revenue
that we collect goes to cities and towns. And so we would very
much anticipate the American Rescue Plan dollars being used to
both advance projects that have been put on hold because of
revenue uncertainty, as well as to increase the investment.....
Senator Portman. So under the current law, it can be used for
broadband and water infrastructure, but not for those roads and
bridges you are talking about. So would that be helpful to be
able to use that funding? And is there a way we can get credit
for that?......................................................
In other words, as we are asking about how do we pay for new
infrastructure, roads, and bridges, wouldn't this be a good
example of how we could take some already appropriated funds
and attach them to new infrastructure spending by changing the
law?...........................................................
Ms. Sheehan. So here in New Hampshire, we are closely examining
the guidance that came from the U.S. Treasury in terms of the
allowable uses of the American Rescue Plan dollars. But yes,
our goal is always to stretch the value of the Federal funds
that are provided to State DOTs and look at all the different
financing and funding options to make sure that we can maximize
the opportunity................................................
Senator Portman. In New Hampshire, would you use the Federal
money if you had to do more than a 20-percent match? Normally
it is a 20/80 match, most of the grant programs. What if it was
a 30/70 match? Would you still be interested in using the money
for infrastructure?............................................
Ms. Sheehan. Well, here in New Hampshire it is a little bit
different for us. We primarily use toll credits to match our
Federal programs. But we certainly would be looking at
opportunities to access discretionary grants, perhaps with
additional relief dollars. The more flexibility we have, the
more opportunity to extend the value and compete, as well, for
additional discretionary opportunities.........................
Senator Portman. Yes. Well, I will tell you, in some States like
Ohio, there is a strong interest in this, and it sounds like
New Hampshire is in the same situation. I hope we can use some
of this funding as a way to help close some of the gaps we will
have in terms of funding.......................................
The other is the P3s. I guess, Commissioner, you are probably a
good person to ask about this too, but also our representative,
Commissioner Buch, from the National Association of Counties:
what can we do on the Federal level to incentivize the use of
P3s?...........................................................
Right now, as I understand it, there is value-for-money analysis,
sort of like a cost/benefit analysis, that is used to evaluate
whether traditional public financing works better or a P3
structure of
public-private partnership. And the States are not required to
use this analysis for every project in the transportation
improvement plan. Should we be encouraging its use to try to
drive the use of P3s more for project financing? Would that
help pay for infrastructure?...................................
Ms. Sheehan. So certainly, in the State DOTs we have been
embracing the concepts of asset and performance management. So
we are looking at the cost/benefit analysis around different
investment strategies. And certainly, the P3s are a powerful
tool, and those opportunities to partner with the private
sector to increase the investment in transportation are
extremely attractive...........................................
Senator Portman. How about the National Association of Counties?
Quick answer to that. Is that interesting to you, to try to
encourage P3s more?............................................
Ms. Buch. It would definitely interest counties to know that
there are these options available. And the more variety, the
more tools in our toolbox, the more that we can find programs
that will fit and can help implement our infrastructure and
transportation needs----.......................................
Senator Portman. Okay. Thank you very much.......................
Dr. Kile, you detailed some Federal financing options available
to States and localities, like Federal infrastructure banks.
Can you talk for a second about the differences between
expanding TIFIA, which we used in Ohio and elsewhere, as
opposed to creating a new Federal infrastructure bank?.........
Dr. Kile. Sure. So, expanding TIFIA would allow more State and
local governments to borrow money to finance projects that
would be partly financed by private money. And State
infrastructure banks tend to be capitalized by either their own
money, or grants from the Federal Government. Those then
operate like a bank for infrastructure projects................
Senator Portman. So could the infrastructure banks pick up some
of the gap that is left right now with regard to TIFIA funding?
In other words, is it helpful over and above TIFIA funding?....
Dr. Kile. I think we would have to look at the specifics of a
particular proposal to provide more information on that........
Senator Portman. On TIFIA, what would the economic incentives of
creating a national infrastructure bank do with regard to other
financing options, like tax-exempt bonds, which are used
regularly?.....................................................
Dr. Kile. So I think different entities would look at the options
available to them, recognizing that any loan needs to be repaid
with future tax revenue or user charges........................
The Chairman. Senator Portman, we are going to have to move on...
Senator Portman. Thank you, Mr. Chairman. I appreciate it. Thanks
for the information............................................
The Chairman. I look forward to working with you.................
Senator Cassidy?.................................................
Senator Cassidy. Thank you, Mr. Chairman.........................
I am going to pick up a little with where Senator Portman was.
Let me first go to Ms. Sheehan. I am told that PPPs typically
only work if you have an adequate volume of traffic. So for
example, Virginia and Maryland just had a PPP coming out in
which they are going to expand the Beltway, not using a dime of
Federal taxpayer dollars, because the volume is so great on
those roadways. But in the rural areas, or the not-so-rural
areas--in Louisiana, there are only one or two places I am told
that such a PPP driven by tolls could adequately self-fund.....
Is that kind of your impression as regards the limitations of a
PPP?...........................................................
Ms. Sheehan. While it is unlikely that a rural or a smaller-scale
project would generate adequate revenue to directly pay the
debt service associated with public-private partnership
financing, it is not always a deterrent in terms of pursuing
these options..................................................
The State DOTs are looking at their entire program, not just the
individual projects. There is still some opportunity. As an
example, the Pennsylvania DOT did embark on a P3 initiative to
address numerous structurally deficient bridges across the
State..........................................................
But you are correct. In the majority of cases, you need to have
that sustainable source of revenue to pay the debt service on
the financing. And so it is used much more heavily for toll
road investment, and for investment----........................
Senator Cassidy. Let me stop you. I do not mean to be rude, I
just have limited time.........................................
Dr. Kile, one thing that I have observed that has happened in
Australia is that the Federal Government would put up a pot of
money where a local or provincial government--I forget what
they have--could get an underwriting of an attempted PPP, with
the proviso that any sale of an asset, or lease of an asset,
that money would go back in to the infrastructure, setting up a
virtuous cycle.................................................
Are you familiar with what Australia did?........................
Dr. Kile. I have heard of it, but we have not studied it
carefully......................................................
Senator Cassidy. Got you. So in principle, knowing that this
would be kind of an intuition, and I do not hold it for you
otherwise, that if what we have heard from New Hampshire is
that there is a limit as to the applicability of PPPs on a more
rural setting, or a less urban setting I should say, if there
was a kind of underwriting by the Federal Government, that
would be a way to address that which we just heard would be a
limitation. A fair statement?..................................
Dr. Kile. So I think, yes; I think anything that draws on private
money is going to be drawing on investors who are expecting a
return of some sort. And that return ultimately would either
come from some sort of user fee or tolls or a future----.......
Senator Cassidy. I accept that. But if 30 percent of your overall
cost of the project is financed by something from the Federal
Government, the user fees only have to pick up the remaining 70
percent, which means that either a lower user fee or less
volume would still be adequate to give the return that the
investors expect to have. Does that make sense?................
Dr. Kile. Yes, that sounds right.................................
Senator Cassidy. Now let me then ask, what both apparently
Australia and China have observed is that, once you set up a
virtuous cycle in which the proceeds from a lease or sale are
obligated to go back into infrastructure, that in turn sets up
more infrastructure development, which in turn sets up more tax
revenue and more construction activity--again, a virtuous cycle
which builds upon itself.......................................
Is it intuitive to you that that would be the case?..............
Dr. Kile. So I guess I would come back to, any sort of recycling
of revenue is absolutely coming from either a future government
or users. I do take it that increased investment in
infrastructure would have generally a positive effect on the
economy........................................................
Senator Cassidy. So it would be more than zero sum. It would
actually be something which would again be like a souffle
rising, if you will. The more economic activity related to
infrastructure, if there is pent-up demand, would increase
economic activity. Does that make sense?.......................
Dr. Kile. Yes. And so I do think that we have--it has been long
said that increased investment in infrastructure would tend to
increase the capital stock, and that would----.................
Senator Cassidy. So what can we do to encourage--I guess my final
question--what can we do to encourage States and localities to
do so-called ``asset recycling''? And maybe I will ask you,
ma'am, Ms. Buch. What can we do to encourage States and
localities toward asset recycling if we can see that it can
establish a virtuous cycle in which it increases economic
activity because of reinvestment of leasing and sales proceeds?
Ms. Buch. Chair Wyden, Senator Cassidy, I have to say that I am
not fully familiar with the concept that you are working on,
because at the county level we do not necessarily work with
that program. But I am happy to work with the National
Association of Counties and get back to you....................
Senator Cassidy. Okay............................................
Senator Wyden, I am out of time, and I yield back. Thank you.....
The Chairman. Thank you, Senator Cassidy.........................
Senator Warner is next...........................................
Senator Warner. Thank you, Mr. Chairman. And I want to build on
my friend Bill Cassidy's souffles and the fact that, in
Virginia, we have been on the cutting edge, or bleeding edge,
of TIFIA, of P3s, of a whole series of public-private
partnerships. And you know, the record is generally good. We
have made some mistakes along the way, but we actually have, I
think, a very good record. It is one of the reasons why,
literally for close to 10 years now, starting with Kay Bailey
Hutchison and with Lindsey Graham, I have been working on
creating a national infrastructure financing authority. It is
called The Repair Act. My lead is Senator Blunt on the
Republican side. Senator Cornyn has been a long-time supporter.
And what this would set up--because we are the only major
industrial nation in the world that does not have this kind of
national infrastructure financing program. We have one-off
programs like TIFIA, or WIFIA, but we do not have a
comprehensive approach.........................................
The Repair Act, which would only go towards investment-grade
projects and initial appropriations of $10 billion, would
generate $300 billion in projects. Obviously, as has been
mentioned, this is--these dollars need to be repaid. But when
we are looking at record-low interest rates and the ability of
the full faith and credit of the United States to get 40- or
50-year money, I think we are making a huge mistake not taking
advantage of it. And I hope this will be a component part of
the President's plan. I know my Republican friends have raised
this with the President, and I hope it starts to get some
traction.......................................................
One of the things that I think is important--and I am going to go
to Ms. Sheehan and Commissioner Buch in a moment--is not only
the ability to do these projects, but the ability to bring in
to a central place at the Federal level the structuring
expertise that, candidly, TIFIA alone or WIFIA alone or some of
these side programs, do not have...............................
And I do think, if we can bring that expertise that can go toe-
to-toe with Wall Street, that can go toe-to-toe with the
private-
sector financiers, the chances of getting the public sector a
better deal go way up. I think too many times smaller
jurisdictions have turned down this proposal because they just
thought it was too complicated. But if we had that centralized
expertise, I think this would become available to many more
jurisdictions. And as a matter of fact, our Repair Act has a
rural set-aside................................................
So, Ms. Sheehan, and then Commissioner Buch, could you talk
about, particularly for smaller jurisdictions, if we had this
centralized expertise along with this long-term capital out
there at a market or below-market interest rate, how this could
be better used for smaller jurisdictions that right now are
bypassing some of these programs? Ms. Sheehan, we will start
with you.......................................................
Ms. Sheehan. So, Senator Warner, I really appreciate all of the
various financing mechanisms that are available to State DOTs,
and to the municipality that we work with. But these programs
are complex, and it can be challenging to understand which
financing mechanism would be the most advantageous for your
particular project.............................................
So this is an intriguing idea, to have available to both States
and localities a resource where they could ensure that they are
receiving appropriate guidance on how to most successfully
finance their projects and reduce the cost of borrowing and,
most importantly, increase the value of the investment that is
being made.....................................................
So I think it would be particularly beneficial to municipalities
that struggle even more than we do at the State level in terms
of getting access to resources, to understand the opportunities
available to them..............................................
Senator Warner. Commissioner Buch?...............................
Ms. Buch. Senator Warner, I find this concept extremely
appealing. From a county level, our public works department
that carries out many of these transportation projects is on a
fee-for-service model. And if permits are coming in, we are
able to pay for that staffing. If they are not, that staffing
is not there...................................................
So the technical expertise portion would be extremely helpful,
because there is no extra money in our general fund to add
staff for these larger projects, unless it is built into the
project design and pro forma...................................
Senator Warner. Well, I appreciate both of you. I do think we
sometimes look at these from a pro forma basis and we do not
factor in the expertise that we need to have to assist States
and localities. This is complicated stuff. Wall Street brings
their first team. We need to have an equal quality team........
And, Mr. Chairman, I think this is a tool that ought to be used.
It can be used for broadband. It could be used for financing
electric charging stations for electric vehicles. And my hope
is that--I know the President expressed some interest that this
will be part of a package going forward........................
Thank you, Mr. Chairman..........................................
The Chairman. I look forward to working with you.................
Senator Lankford is next.........................................
Senator Lankford. Mr. Chairman, thank you very much..............
Dr. Kile, let me ask you a couple of quick questions on some of
your testimony. You had mentioned that with general transfers
into infrastructure spending, or from things that have a pay-
for from general transfer, that that has the potential to
actually slow our economy, when infrastructure construction
typically increases our economy. Adding additional debt, adding
just the transfers without pay-for has the potential to slow
that. Can you go into greater detail?..........................
Dr. Kile. Any investment in infrastructure is likely to build the
capital stock. And if those are well-selected projects, they
would tend to grow the economy as well.........................
As the government takes on more debt or general obligations, that
is debt that needs to be serviced in the future. So far,
interest rates have been low, and the question is whether and
how long that will be the case.................................
Senator Lankford. Because that could have the potential then of,
once interest rates continue to climb and the debt continues to
climb--so you seem to be affirming having something that is
paid for is very important rather than just a general transfer
in something that is not a pay-for, or having a pay-for that is
not legitimate.................................................
Dr. Kile. Well, so the general transfers obviously are partly
funded by debt, and increases in debt need to be serviced. So,
yes............................................................
Senator Lankford. Dr. Kile, there have been some questions about
electric vehicles. Currently electric vehicles get a tax credit
for the purchase of those vehicles, and then they also drive on
the roads for free. I know these are lighter-weight vehicles
typically, and so they are like other passenger cars as far as
the damage they do to the roads. But passenger cars do pay a
fee to be able to be on the road...............................
The electric vehicles--I think you quoted about $200 million in
income, which is no small amount, if they were just to be able
to pay their fair share. Now electric vehicles are
predominantly owned by the top 1 percent wealthiest Americans,
because they are incredibly expensive vehicles. And one of the
perks for being one of those wealthy Americans is also you get
to drive on the road and not pay a user fee if you buy an
electric vehicle...............................................
Do you anticipate over the next several years that user fee would
grow with the use of electric vehicles? Or do you anticipate
that $200 million a year that would come in if electric
vehicles paid the same as gas vehicles to be able to be on the
road, do you think there is an increasing amount of electric
vehicles coming, and so that amount of $200 million would
increase?......................................................
Dr. Kile. I think over time it probably would increase. Right
now, electric vehicles account for about 1 percent of the
vehicle fleet, and about 2 percent of sales. And as they grow
as a share of the vehicle fleet, any tax or fee applied to them
would tend to grow.............................................
Senator Lankford. What does CBO anticipate as the size of the
fleet growing over the next 10 years for electric vehicles?....
Dr. Kile. We would have to get back to you with specifics on
that. At the end of 10 years, it still would not--at current
growth rates, it would not be a huge share of the vehicle
fleet..........................................................
Senator Lankford. Less than 5 percent, you would anticipate?.....
Dr. Kile. That, I do not know....................................
Senator Lankford. Okay. Well, thank you..........................
Ms. Sheehan, let me ask you about other cost factors. Are there
regulatory issues that also increase the cost of construction--
as you are tracking that as well--that we should also address
while we are dealing with the different ways of paying for
things? And are there also ways to decrease the costs that
would have an effect on you?...................................
Ms. Sheehan. For many years, Senator, AASHTO has been advocating
for further streamlining of the project development process. It
is challenging to navigate all of the Federal regulations and
deliver a project in a timely fashion. And so, we would welcome
any opportunities to continue looking at ways to shorten the
design phase of projects so that we can get them into
construction and make those improvements that communities and
stakeholder are eagerly awaiting...............................
Senator Lankford. The categorical exclusion issue of allowing
States more flexibility with those dollars, was that something
helpful to you in the past, or something that would be helpful
in the future?.................................................
Ms. Sheehan. It is very helpful to have some flexibility and to
allow State DOTs, where it is appropriate, to take on more
direct responsibility so that we have that ownership over the
environmental process. It does not mean that we are going to
circumvent the law in any way, but that we can help expedite
things by reviewing documents internally versus having to
submit them to Federal agencies for their consideration........
Senator Lankford. Thank you......................................
Ms. Bloomfield, let me ask a quick question about broadband. We
have some areas that are very remote so that it is
exceptionally expensive to be able to reach some of those
areas. Would you encourage the prioritization of some of the
highest-cost areas so that they would get satellite connection
in those areas, and that we would give fiber a new priority for
where we have more folks in rural areas?.......................
For instance, we may have a rural community with 50 people in it,
and that we could get fiber to, but then there is the last 3 or
4 people 10 miles out of town that may take up to $10 million
to get fiber to them. Would you encourage a blending of those
to get coverage?...............................................
Ms. Bloomfield. I will be very frank with you. I do think that
there are certain--every tool in the toolbox has to be put on
the table when we talk about connecting all Americans..........
I do think it is really important to think about making the
wisest use of Federal dollars. I would also say that people
jump to the fact of fiber and its cost factor, but using fiber
is actually cheaper in the long run over many technologies,
including those that are going to fuel 5G......................
I also think with satellite, we have to really be clear about the
capacity a satellite will be able offer, and the up-front cost.
And even with line-of-sight, you have some geographic issues...
So again, I think that every area has to be viewed, but I do
think we should be looking at least to see where we can put
that future-proof technology...................................
Senator Lankford. Thank you......................................
The Chairman. Thank you, Senator Lankford........................
Next will be Senator Daines......................................
Senator Daines. Thank you, Mr. Chairman. Thanks to our witnesses.
I would like to start off first by saying we should not be
looking to reverse the Tax Cuts and Jobs Act as a way to pay
for the infrastructure package. I also do not believe we should
be raising the gas tax, because that is disproportionately
harmful to rural States like Montana...........................
Personally, I think extending the cap on the State and local tax
deduction, which expires at the end of 2025, is something that
we should look at, because that raises hundreds of billions of
dollars. It should be a great pay-for. I hope it is seriously
considered as discussions move forward.........................
With that, I would like to turn briefly to the topic of broadband
access. Over the last year, we appropriated billions and
billions of dollars for broadband. In rural States like
Montana, increasing connectivity is critical. But at this
point, it is not necessarily just a money issue; it is an
access issue...................................................
All the money in the world means nothing if it takes 3 years to
get a permit or a license to cross Federal land. In States like
Montana, Arizona, and others, it is nearly impossible to lay
down fiber without having to call a Federal agency for access..
And that is why Senator Kelly and I have introduced the
bipartisan Accelerating Rural Broadband Deployment Act that
will help speed up the process for gaining access to Federal
right of ways to deploy broadband..............................
A question for Ms. Bloomfield. Your members know better than
anyone else how difficult it can be to build out in rural
States like Montana. Would you explain why my bipartisan bill
needs to be an important component of any broadband
infrastructure package?........................................
Ms. Bloomfield. Absolutely. So you know better than most people,
Senator, that high costs are enough of a barrier in deploying
broadband in some high-cost States like Montana. But I will
share with you--you know, the initiative that you and Senator
Kelly began, by introducing your Accelerating Rural Broadband
Deployment Act, is really critical. Because what we have found
is that, even these who are getting--whether they are using
universal service funds, whether they are using the USDA
ReConnect funds--we are finding that they are getting tied up
in that bureaucratic paperwork, you know, coordinating
different programs, not having shot clocks.....................
And it is amazing how things like railroad crossings or crossing
Federal lands really can tie up deployment. And that is
becoming even more critical as we are finding that supply chain
issues are coming to the forefront. Because you may have a
carrier out there ready to build. Suddenly their ReConnect
money is held up by 6 months, 9 months, going through some of
these reviews..................................................
They are not sure what is happening. And meanwhile, they have
lost the window to either build, if you are in a State like
Montana where your build time is a lot shorter than it is in
southern States, or you have lost the capacity to get access to
some CPE equipment, or to fiber................................
So what you have done with your legislation is really important.
We strongly support it. And I think that it is going to really
increase transparency in the regulatory process................
Senator Daines. Thank you, Ms. Bloomfield........................
I want to pivot and talk a bit about speed. There is a lot of
talk about speed. Some think 10/1 is too slow, or 25/3, the
upgrade. I will say those--if you are a Montana rancher with 0/
0, there is no connectivity at all. They have been left behind
because Federal funding keeps going to upgrade under-served
communities instead of connecting those that are completely
unserved.......................................................
Ms. Bloomfield, do you agree that Federal dollars should
prioritize connecting the unserved rancher or community before
upgrading a home so they can stream three Netflix movies at the
same time, instead of just two?................................
Ms. Bloomfield. So I would like to think they are doing more
productive things than streaming. Maybe somebody is working on
a VPN. But I will say, absolutely. We have some work to do to
connect all Americans. And I think for new construction, using
Federal support, we absolutely should be using the mapping that
the FCC is coming down with now, consistently across all
States, to find those unconnected and make those the top
priority.......................................................
And then we can look to make sure that we continue to upgrade and
sustain the networks going forward.............................
Senator Daines. Ms. Bloomfield, thank you........................
And, Mr. Chairman, thank you as well.............................
The Chairman. Thank you, Senator Daines..........................
Senator Hassan is next...........................................
Senator Hassan. Well, thank you, Mr. Chair and Ranking Member
Crapo, again for having this hearing. And good afternoon,
Commissioner Sheehan. It is really nice to see you.............
I do want to ask you a question. You talk about the importance of
a long-term reauthorization of Federal surface transportation
programs for infrastructure projects in New Hampshire. Short-
term extensions could disrupt these projects and impact our
workforce, our economy, and our road safety....................
So can you give us examples, Commissioner, of projects in New
Hampshire that would be disrupted by a short-term extension of
surface transportation programs, and how a short extension
would impact New Hampshire's economy?..........................
Ms. Sheehan. Well, thank you, Senator. It is great to see you as
well this morning..............................................
Any interruption in the Federal surface transportation program
would have devastating consequences, especially in a cold-
weather State like New Hampshire with a relatively short
construction season. The inability to advertise projects in the
fall and winter can mean that we would lose the majority of the
entire construction season. So even a short-term extension
could have longer-term impacts.................................
We have projects of all types and sizes that we would plan to
advance, from important resiliency work like scour mitigation
on some of our critical bridges, to investments in intersection
safety improvements and guard rail upgrades. And then there are
numerous projects that are tremendously important to
communities. We have a lot of transportation alternative
funding that is anticipated to be utilized with projects being
advertised in the first quarter of the next Federal fiscal
year...........................................................
So we really want to be able to deliver on those commitments,
which is why a timely reauthorization is so important..........
Senator Hassan. Well, thanks so much. And again, thank you for
your leadership and for the work you do, and I look forward to
seeing you back home in person soon............................
I want to move to a question for Ms. Bloomfield. Ms. Bloomfield,
broadband is a necessity for families and small businesses in
the 21st century, and you have surely been making that point
this morning...................................................
Today I reintroduced the Broadband Financing Flexibility Act, a
bipartisan bill with Senator Capito, that would expand tax-
advantaged financing tools for rural broadband projects. Our
bill would make it easier for State and local governments to
work with private partners and finance high-speed rural
broadband projects through tax-exempt bonds....................
How would these kinds of financing tools encourage private-
sector deployment of high-speed broadband to rural areas?......
Ms. Bloomfield. I congratulate you on your initiative. I think it
is really--I think it is an exciting initiative. I think that
we have not seen a lot of our community-based providers
utilizing bonds, but I think that if there is the ability for
private providers, again community-based providers, to be able
to access some of these bond funds, I think that could be,
again, another piece of figuring out ways to actually make what
is a tough business model a go, particularly because we are
seeing in some areas a lot of partnerships where local
municipalities and governments are reaching out to our
community-based providers to say, ``We have a broadband void.
How can we work together to actually build a network, letting
the municipality potentially handle some of the financing and
work with the bonds, and letting the broadband provider
actually provide the broadband?''..............................
So I think that your initiative to focus on communities that need
broadband access is really critical. The fact that you are
looking to use funding for future-proof networks is really
another positive. And I think the bonds themselves will help up
front, with up-front deployment................................
I think the next question then becomes, how do you sustain it
after you've built it? But we can cross that bridge after we
get some of these networks built. So again, we commend you for
your leadership................................................
Senator Hassan. Well, thank you for that. I have one more
question for you which focuses on, again, rural broadband. The
year-end relief package contained my bipartisan bill with
Senator Grassley to extend the deadline for State and local
governments to use relief funds for broadband and other
infrastructure projects........................................
Through the American Rescue Plan, States and localities will soon
have access to additional assistance that can be used for rural
broadband projects.............................................
Ms. Bloomfield, how has the State and local relief fund to date
helped expand rural broadband connectivity? And what lessons
from the past year can we apply to supporting rural broadband
connectivity going forward?....................................
Ms. Bloomfield. Well, first of all, I have to thank you for
extending, because when the CARES Act went through, everybody
was very excited to see this additional funding coming out that
they could use on the State level, and so many States did agree
to allow the CARES Act funding to be used for broadband........
But suddenly that clock was ticking. And you know, if you were
not in line for fiber, you were not in line for some of the
equipment, that deadline just became a barrier. So extending it
became very helpful............................................
What I think some of those initiatives have done has really
prompted States that did not have State broadband programs to
now create their own programs. So that partnership, I think, is
really going to be important, having the Federal programs that
exist partnering with the State programs that probably, in a
lot of ways, know best where those gaps are within the State.
That is the way we are really going to bridge this digital
divide.........................................................
Senator Hassan. Thank you very much. I appreciate it.............
Thank you, Mr. Chair.............................................
The Chairman. Thank you. And thank you for your good work on
broadband, Senator Hassan. As Ms. Bloomfield knows, we put a
lot of work into trying to get that $50-a-month subsidy, and we
are seeing people step forward. The point is, in this country
we have to get to the point where broadband is like electricity
was years ago, where we said everybody has to have it. And we
are really glad that Senator Hassan is leading our committee on
that...........................................................
Next is Senator Barrasso.........................................
Senator Barrasso. Well, thanks so much, Mr. Chairman.............
You know, infrastructure is important to every State. It is
important to every community. It is important to every tribe in
the country. America's roads and bridges, highways, and tunnels
support the Nation's economic growth and our competitiveness...
Our economy is built on a well-functioning road system that
allows products from rural areas to get transported to our
population centers. We ship American-made products and goods
from one coast to the other. Interstates like I-80 in my home
State of Wyoming are critical arteries for commerce in the
country........................................................
Our roads create jobs. They move products. They keep our country
running and going strong. Roads and bridges have to keep pace.
The systems are vital to our country, and they need to be
maintained, and they need to be taken care of. We need to
maintain and upgrade and, where necessary, build new ones......
The highway trust fund is funded through user fees. Those who use
the roads pay for their upkeep. The most famous example of
course is the gas tax, which represented over 25 percent of the
highway trust fund tax receipts in 2019........................
A number of users of our roads, bridges, and highways do not pay
anything for their upkeep. And right now, electric vehicles do
not pay a cent to maintain America's roads. These vehicles do
not contribute because they do not buy gasoline................
The gas/electric/alternative fuel vehicles all use the same
roads. They put the same amount of wear and tear on those
roads. Every driver really should contribute to maintain our
highways.......................................................
My priority is to make sure these vehicles are contributing to
the maintenance of the roads, especially as their use continues
to increase from year to year. And you have seen the
predictions that by the end of this decade, 8 percent of
vehicles on the roads will be electric vehicles, but by 2040,
over 30 percent of the vehicles on the roads will be electric
vehicles.......................................................
So with the rapidly growing electric vehicle market, it is
necessary to make sure that drivers of these alternative fuel
vehicles are contributing to road maintenance. An electric
vehicle does as much damage to the highway as a traditional
gas-powered vehicle that has the same number of axles and
weighs the same................................................
Everyone who drives on the roads should contribute to the cost of
the maintenance. That is why I plan to introduce legislation to
ensure all users of our roads, bridges, and highways contribute
to the upkeep..................................................
So I have a question for the Congressional Budget Office, for Dr.
Kile. I appreciate your response to Senator Lankford regarding
an EV user's fee. I agree with him that $200 million is a
substantial amount, especially in rural America................
I would like to shift to getting your thoughts on the electric
vehicle tax credit. The Joint Committee on Taxation has said
that this credit disproportionately subsidizes higher-income
earners. Rather than subsidizing the wealthy, these funds might
better be utilized by investing in roads and bridges and
highways.......................................................
Can you speak to the possible revenue saved by repealing this
Federal tax credit for purchasing electric vehicles?...........
Dr. Kile. Senator, we would be happy to get back to you on that,
or work with our colleagues in the Joint Committee to come up
with an estimate of that. I do not have a number on that for
you this morning...............................................
Senator Barrasso. So, as far as funding our highways, couldn't
Congress direct these savings and future savings to fixing our
roads and bridges and highways?................................
Dr. Kile. Congress could do that, yes............................
Senator Barrasso. Thank you. You know, the chairman has released
a tax bill that would extend the electric vehicle tax credit
until electrical vehicles represent over 50 percent of vehicle
sales..........................................................
This extension could, I believe, cost lots of money that could be
used for actual infrastructure spending, instead of subsidizing
vehicles for the wealthy. Can you speak to the additional cost
of such massive extension of this tax credit to the point when
electric vehicles represent over 50 percent of vehicle sales?..
Dr. Kile. Again, Senator, we would be happy to work with our
colleagues on the Joint Committee on that, but I do not have an
estimate of that...............................................
Senator Barrasso. Okay. Thanks, Mr. Chairman.....................
The Chairman. Thank you, Senator Barrasso........................
Next will be Senator Cortez Masto................................
Senator Cortez Masto. Thank you, Mr. Chairman, and thank you to
all the panelists for this great conversation. Let me jump in
on the broadband conversation..................................
I am from Nevada. We definitely have under-served communities in
our urban and rural areas, and I want to thank so many of you
for really the good work that you are doing to make sure we are
bringing service to these communities..........................
Ms. Bloomfield, let me start with you. We have been talking about
the need for a strong oversight role to ensure that we are
properly investing billions into broadband access, as well as
sufficient coordination across all of our Federal agencies. And
I could not agree more.........................................
That is why I worked to pass the bipartisan ACCESS BROADBAND Act
in the year-end package last year. Can I get your support for
the proper and sufficient implementation of this legislation to
ensure that not only do we have an easier Federal broadband
funding system for our providers and communities, but that we
also track each dollar to ensure its efficient use?............
Ms. Bloomfield. Senator, you were like a visionary when you had
that passed. Little did you know all of these programs would be
coming down. So I would say that what you put together in your
legislative package, talking about streamlining these Federal
broadband programs--of which there are many--and improving the
Federal agency coordination, are really both very key efforts..
So I would share with you that we look forward to helping to work
with you, with Congress, with NTIA, anything that is needed to
make sure that all of these current existing and upcoming new
programs on broadband stay coordinated.........................
Again, we are seeing things happening on the State, on the
Federal level, all across these different agencies, and
ensuring that there is real operational coordination, I think
is really going to be the smartest use of Federal funding......
So again, absolutely we support your efforts. And we are eager to
get this up and running and to make it successful..............
Senator Cortez Masto. Thank you. And thank you again for your
partnership as we have worked together, particularly in the
State of Nevada, to really bring broadband into our
communities....................................................
And I have to thank NACo and the League of Cities. They have been
at the forefront in informing me on this legislation, based on
the needs in our communities. And let me just finally say to my
colleagues, in the 2018 farm bill we were able to pass a
bipartisan provision to really stand up an effective innovative
rural council that leverages beneficial investments across all
of our multiple departments....................................
That is intended to work through the permitting challenges that
we are talking about today. So I am hopeful that that gets set
up and we continue to work together. So thank you. Thank you so
much...........................................................
Commissioner Buch, thank you for being here. I am partial to our
cities and counties because I worked as an assistant county
manager in Clark County for a number of years. And my father
was a county commissioner. And so I always believe that you
guys are on the forefront and we should make it flexible for
you to utilize these dollars. You know better than anyone what
is needed in your communities..................................
Let me ask you this. I have introduced a bipartisan bill called
the Moving FIRST Act to create a Smart Communities Challenge
grant at the U.S. Department of Transportation. Listen, it is
an exciting time for us. We are going into an innovation
economy that includes taking this new technology that is going
to improve our communities, our transportation. As one of my
colleagues in Nevada has said, this technology is the new
asphalt for the future.........................................
And so, can you speak to what you are seeing at the local level,
and why you support expanding the transportation and technology
partnerships that we are seeing become more popular across the
country?.......................................................
Ms. Buch. Senator Cortez Masto, thank you. Thank you for the work
that you have done on that bill. Counties and NACo support the
bipartisan legislation of the Moving FIRST Act.................
Counties support transportation technologies that will help us
meet the transportation demands of the future and improve the
safety and efficiency of our local roads. Counties support
Federal incentives to promote nationwide energy conservation
efforts, including tax incentives, rebates, and promotions that
will promote the purchase of low- and no-emission vehicles by
both the public and the private sector.........................
Senator Cortez Masto. Thank you so much. I really appreciate this
conversation. And thank you to the chairman, again, and to the
ranking member. I yield the remainder of my time...............
The Chairman. Thank you, Senator Cortez Masto....................
Next will be Senator Warren, if she--there she is................
Senator Warren. I am here. Thank you, Mr. Chairman...............
So the COVID-19 pandemic has underscored how crucial
infrastructure is to making our economy and our communities
work. And that includes the roads and buses that Americans take
to work or to schools, but it also includes the child care that
allows parents to go to work, and the high-speed Internet that
our kids rely on for their studies.............................
And yet, our investments in all of that vital infrastructure have
been both inadequate and inequitable. So take our roads, which
earned a ``D'' on the most recent infrastructure report card
from the American Society for Civil Engineers. One out of every
five miles of American highways and roads is in poor condition.
So we are failing to adequately fund basic road maintenance and
repair, much less invest in transit modernization and
electrification. It holds back our economy. This contributes to
climate crisis. It harms public health, especially in minority
communities....................................................
Ms. Sheehan, you have worked for over a decade on public transit,
including bridges and highways in Massachusetts. So let me ask
you, would large-scale investments in transit electrification
help communities across the country?...........................
Ms. Sheehan. Well, thank you for that question, Senator. And the
answer is ``yes.'' Transit agencies and DOTs are embracing
electrification. I believe at this point transit agencies in
over 40 States have chosen to pursue electric bus purchases,
despite the higher initial purchase prices. The benefits
justify that additional investment, with significant cost
savings in terms of operation because of the increased fuel
efficiency. So, it's about a 78-percent lower lifetime fuel
cost compared to traditional vehicles. But most importantly,
these vehicles are quieter, and there is a 100-percent
reduction in emissions, which improves quality of life for
everyone who lives adjacent to public transit routes. So we are
continuing to pursue these investments.........................
Senator Warren. So thank you. That is very helpful, Ms. Sheehan.
Here we are falling behind on these investments. We need to go
big to combat climate change and to grow our economy...........
Now President Biden has proposed investing $174 billion in
vehicle electrification, which is a good start. The Build Green
Infrastructure and Jobs Act that I introduced with Senator
Markey and Representatives Levin and Ocasio-Cortez, would
invest $500 billion over 10 years to help us get to all-
electric public vehicles and rail..............................
My forthcoming Buy Green Act with Congressman Levin will
establish a further $1.5 trillion in Federal procurement to
purchase American-made clean energy products for Federal,
State, and local use, and for export...........................
Ms. Buch, let me ask you, you work with local governments all
across the country. Can we rely on local government to generate
the revenue needed to make these big investments in transit
modernization and electrification? Or does the Federal
Government need to step up if we are going to make this happen?
Ms. Buch. Senator Warren, well, we are doing our part on the
local level. Counties are limited in a variety of ways from
raising any local revenue. We rely on the strength of the
intergovernmental partnership to deliver these critical
infrastructure projects that our residents need and expect.....
Counties urge Congress to direct funds to locally owned
infrastructure that will allow us to better meet the needs of
our community..................................................
Senator Warren. Good. Thank you. I agree with you on this........
President Biden has proposed raising taxes on the wealthy, and on
giant corporations, to pay for these vital investments in our
Nation's infrastructure. Meanwhile, Republicans have proposed
imposing user fees and fuel taxes, rather than raising taxes on
the wealthy and on big corporations............................
So, Dr. Kile, let me ask you a question around this. Let's assume
that a school teacher making the average teaching salary in
Massachusetts, and a CEO making millions of dollars a year,
both have the same distance to drive as their commute to work.
And they use the same number of gallons of gas a year. Which
one of them pays more as a share of their income when we pay
for infrastructure investments by imposing a gasoline tax?.....
Dr. Kile. Senator, gasoline taxes tend to be regressive, in that
they impose a larger burden in terms of share of income that
goes to pay for those taxes on people in the lower- and middle-
income quintiles than they do on the upper-income quintiles....
Senator Warren. You just said in a fancier way that the school
teacher pays more as a share of his or her income than the
wealthy person does if you use these user fees? I hope I got
that right. Is that right, Dr. Kile?...........................
Dr. Kile. Yes. In the scenario you had, that is correct..........
Senator Warren. Good. You know, it is absurd to suggest that we
should finance this investment on the backs of school teachers
and firefighters and small business owners.....................
President Biden and I have both put forward full menus of options
for paying for these long-overdue investments in our shared
infrastructure options that are not going to hurt the very
people who are struggling the most to recover from this
pandemic.......................................................
My wealth tax, Real Corporate Profits Tax, and tax enforcement
plan, those three things would raise $6 trillion without
raising taxes on 99.9 percent of Americans by a single penny.
And that is enough to pay for every penny of President Biden's
American Jobs Plan, to pay for every single penny of his
American Families Plan, and to still have $2 trillion left
over...........................................................
Thank you, Mr. Chairman..........................................
The Chairman. Thank you, Senator Warren..........................
Senator Cantwell, with significant responsibilities in
transportation as the chair of the Commerce Committee, is next.
Senator Cantwell?..............................................
Senator Cantwell. Thank you, Mr. Chairman, and thanks to the
witnesses for this important hearing. I just want to clarify,
before I get to those transportation issues, you, Mr. Chairman,
and I and my colleagues Senator Young and Senator Portman, have
introduced legislation increasing the Low-Income Housing Tax
Credit. All our States face incredible shortages of affordable
housing, so continuing to push the tax credit increase to 50
percent over the next 2 years could help us deal with this
crisis. We are not really avoiding it; we are still having to
deal with a population without housing options and thereby
causing increased costs in health care and a whole variety of
issues.........................................................
So we have introduced legislation, and I wanted to ask the
witnesses--Ms. Buch particularly--do you consider a housing tax
credit part of critical infrastructure that we need to build in
the country? And would you support the funding of affordable
housing tax credit increases?..................................
Ms. Buch. Senator Cantwell, thank you so much for the question.
We appreciate your work to increase the supply of affordable
housing, and utilization of the low-income tax credit. Counties
support reducing the Private Activity Bonds threshold from 50
to 25 percent. And what I would like to add to that is that we
need to concurrently be able to increase the capacity of our
project developers to be able to fulfill the actual projects
that that pipeline will fill...................................
As a former project developer for an affordable housing provider
myself, I can tell you that there is not a streamlined
educational tool to train project developers. And so they
usually come in very green into an organization, and the
pipeline is very thin..........................................
Senator Cantwell. So we do have a backlog right now, right? I
mean, we have more projects that are on the books than we can
fund, correct?.................................................
Ms. Buch. The projects are available. The people that are
qualified as project developers and managers to actually
fulfill the work is where the pipeline squeezes................
Senator Cantwell. Okay...........................................
Ms. Buch. They need the extra training and the incentives to
build that particular industry base to fulfill those projects..
Senator Cantwell. Okay, so what are you thinking there as an
incentive on that? I mean, listen, I get it. If you are talking
about Seattle and you are trying to get--or you know, the whole
region, Puget Sound--and you're trying to get somebody to work
on those projects, there is enough construction work yet that
it is going to be challenging to get somebody to work on
affordable housing.............................................
Ms. Buch. Project developers are more of a liaison between the
provider that is actually wanting to develop the work and the
construction workers doing the work. These project developers
come up with the pro formas, the concept, write the grants,
everything that is needed inside the organization to actually
put the project forward........................................
That is the area where I find the most constraint in order to
fulfill the affordable housing needs...........................
Senator Cantwell. Well, I love what our--you know, there are
people all over Puget Sound trying to figure out what to do
about affordable housing. I know the same could be probably
said in Oregon, in the Portland area, but we are not going to
get out of this without the Federal tax incentive being
increased......................................................
The majority of affordable housing projects that get built get
built with the tax credit. So if we are not increasing the
available credit, no region is going to be able to successfully
get out of this predicament that we are in. And I definitely
think it is an issue of us not meeting demand. We have just,
for a bunch of different economic and demographic regions, have
had far more people falling into this category of needing this
kind of housing. And we just need to meet the demands..........
I think we are spending a lot of time discussing, well, how did
we get here? And in reality, we just have to meet demand. So I
hope that our colleagues will consider this. It obviously is
stimulative....................................................
I want to turn to Ms. Sheehan, or actually you, Commissioner
Buch. I think people think that, on transportation, we actually
can--you know, people have been talking about various things,
including user fees, but we really just do not have a
sustainable source for the future. Is that not correct, with
where we are on the highway trust fund?........................
I do not know how much this has come up, Mr. Chairman, already,
but I am just trying to get to the point of--we obviously want
to build back better, but the larger issue facing us is, we do
not have a sustainable fund for the future.....................
Ms. Buch. Senator Cantwell, I will take that. As we mentioned in
earlier testimony, counties are very concerned about the
looming insolvency of the highway trust fund. We encourage our
Federal partners to do as much as they can to find a
sustainable way to continue to fund that particular method that
we as counties rely on in order to fulfill all of the
transportation needs for our community.........................
Senator Cantwell. So, does any other witness want to take that
on? Ms. Sheehan, or----........................................
Ms. Sheehan. Senator, I would be happy to respond. Yes, AASHTO
acknowledges that we have a significant shortfall to overcome.
That is why we are willing to support this committee and
Congress, and to evaluate long-term sustainable solutions......
It has been mentioned a couple of times today, but any shortfall
or delay in Federal funding leads to serious cash flow problems
for States and local governments. And most importantly, we fail
to deliver on the projects and the commitments that we are
making as part of our public engagement processes..............
These are extremely important transportation investments that
impact the quality of life and provide economic opportunities,
and we need to find a sustainable way to pay for them..........
Senator Cantwell. Well, we have--I firstly, in a bipartisan way,
suggested cap and dividend in the past, just because the
dividend can keep consumers whole while you are making these
investments. And it helps you to mitigate the impact along the
way. It has picked up support from business roundtables and
chambers of commerce and various organizations. But I hope, Mr.
Chairman, that we will focus on this larger issue, because we
are on an unsustainable path. For us in the Northwest, we see
the incredible growth that is still there as a potential, even
post-pandemic, for us. We are seeing congestion at our ports,
on our highways. We need to make these investments to stay
competitive....................................................
And so, I hope that we will look not just at this very near term,
but this unsustainability that we have because the highway
trust fund will be, as the witnesses said, reaching a level of
insolvency.....................................................
So it is time to put us on a good stead for the future. So thank
you, Mr. Chairman..............................................
The Chairman. Thank you, Senator Cantwell, and particularly for
highlighting the importance of housing, both for our region and
the country....................................................
Our final Senator is our partner in this, Todd Young. So these
are bipartisan issues. And not only is Senator Cantwell right
about the Low-Income Housing Tax Credit, but I proposed
something called MIHTC, the Middle-Income Housing Tax Credit,
because I am not convinced, on our current path, that somebody
who is a firefighter, and somebody who is a nurse, is going to
have an opportunity to be part of the American Dream...........
So put me down as being in favor of Senator Cantwell and Senator
Young. And Senator Young will be our final questioner..........
Senator Young. Well, thank you, Mr. Chairman, and thank you for
highlighting the importance of housing affordability. And I
thank Senator Cantwell for her long-time leadership in this
area. It is a privilege to work with her.......................
Senator Cantwell also addressed briefly the issue of Private
Activity Bonds, which can serve an important role in financing
public projects. In fact, for infrastructure mega-projects over
the last 15 years, $12 billion in Private Activity Bonds led to
$45 billion in project activity. So we are looking at almost a
4 return there................................................
But under current law, our Nation's public buildings cannot
qualify for tax-exempt Private Activity Bonds when employing
public-private partnerships. Now there are certainly projects
beyond those that currently qualify for Private Activity Bonds
financing, which is why I recently reintroduced my Public
Buildings Renewal Act with Senator Cortez Masto. I am curious,
however, how we can further leverage private financing to fund
public projects................................................
Ms. Sheehan, are there opportunities to expand the use of Private
Activity Bonds in the transportation space? And do you believe
that it is a worthwhile financing mechanism for us to explore?.
Ms. Sheehan. So, thank you for that question. And yes, State DOTs
would be interested in extending any of the current financing
mechanisms that are available to us. As I have said in my
earlier testimony, we are really trying to, as you described
it, stretch the value of the investments that we are making and
be able to partner with the private sector to ensure that we
can invest at a greater level. And beyond what is available
with the revenues being provided, it is extremely important
that we can advance projects sooner and hedge against
inflation. And there is a strong economic climate for
borrowing......................................................
Senator Young. Well, thank you, Ms. Sheehan. I ask that because I
am looking for some more creativity as we try to identify ways
to either pay for or finance our infrastructure investments....
What we have seen from the Biden administration's proposals is
what we frankly might expect from a Democratic President--
expensive tax-and-spend proposals. Instead of shackling our
free enterprise system with harmful tax hikes as we emerge from
a global pandemic, I believe--and I think most of the Hoosiers
I represent believe--that we really need to explore creative
proposals that are already out there to leverage private-sector
dollars........................................................
We should do that before we turn to increasing taxes as we emerge
from this pandemic.............................................
Ms. Sheehan, just as a follow-up, what are some public-private
partnership proposals you support or think would be useful in
improving and developing our transportation infrastructure?....
Ms. Sheehan. So State DOTs looked at our entire program on all of
the projects, in particular the large-scale projects, and tried
to determine what the most cost-effective funding and financing
solutions might be. And so certainly where public-private
partnerships are concerned, we are trying to identify projects
that both have a sustainable source of revenue to be able to
pay the debt service and support the financing, as well as that
reliable source of Federal funding into the future so that we
can embark on P3 projects where we use availability payments
and are committing our future State and Federal revenues from
traditional sources to pay that debt service...................
But it is all about delivering the projects sooner. And so we
want to make sure that every financing option is available to
us, that we have as many tools in the toolkit as possible, and
that it is about providing that value to the citizens by
advancing the projects to benefit communities and provide
economic opportunities.........................................
Senator Young. Thank you, Ms. Sheehan............................
I will give Dr. Kile an opportunity to answer the same question.
Dr. Kile, what do you support in the public-private partnership
space as it relates to transportation infrastructure?..........
Dr. Kile. Well, of course CBO does not have a particular policy
that we support or oppose. We just assess options for you. As
far as----.....................................................
Senator Young. Could you assess some options for me?.............
Dr. Kile. Sure. Sure. As far as public-private partnerships go,
or any of the financing mechanisms, they do allow an
opportunity for Federal money to be used to couple with money
from the private sector. That money from the private sector is
only coming with the expectation of a return at some point,
either by revenue from users of whatever system is being
financed, or by future payments from a government..............
Senator Young. Okay. So why don't we focus on the prior category,
as opposed to the latter category. Could you offer some more
specificity to some of those options that would yield revenue,
which would be used in turn to pay the investors over a number
of years?......................................................
Dr. Kile. Sir, I am not quite sure--you said the ``prior
category,'' and I am not sure what that is.....................
Senator Young. You seemed to break down public-private
partnerships into crowding in private investment on the belief
that either user fees of some sort, right, would pay back the
investors, or the government itself would pay it back through
taxation, presumably, right? Or it could be bonding, but
ultimately, you know, that would cost taxpayers................
So could you offer me some examples of the first area, where the
revenue alone, as you have seen through real-life examples,
pays back the private investors?...............................
Dr. Kile. So there are a bunch of projects, many of them tend to
be toll roads, that collect revenues from users, tolls, and
that contributes to part of the funding of the project. We
would have to get back to you with the specifics of how that
funding breaks down by project.................................
Senator Young. Okay. Well, there is much more to discuss here,
but I am already over time. The chairman has been quite
generous. So thank you all, and thank you, Mr. Chairman........
The Chairman. I thank my colleague. And we began almost 3 hours
ago with a real dose of strong bipartisanship. I see our
friend, the ranking member, Senator Crapo, here. Both of us
made it clear that we want to involve the private sector more
extensively in terms of infrastructure funding. That is what
Build America Bonds are all about. And I note that five members
of the United States Senate today were co-sponsors of our
original effort, which in the space of a year and a half sold
$183 billion worth of Build America Bonds......................
So the point that my colleagues most recently made in the last
few minutes--Senator Young mentioned a role for the private
sector, which has already been proven. So we are going to
pursue that and all options....................................
Just a couple of final comments, and then I want Senator Crapo to
have a chance to talk as well. The principle of fairness must
be front and center in this whole effort with respect to paying
for roads......................................................
And just yesterday, The Wall Street Journal reported that U.S.
companies have authorized $504 billion of share repurchases.
That is stock buybacks, which is the most during this period in
at least 22 years..............................................
So what we are going to be explaining to citizens, as working
people are trying to figure out how to come out of the
pandemic, The Wall Street Journal is telling us we are having a
record mega-corporation spree in terms of stock buybacks.......
So we have to find a way to embed deeply the principle of
fairness, because we are all making the point that we have to
come up with solutions that are fair. And that means everybody
is going to have to be part of that solution...................
One last point, and that is, the Finance Committee has some
history here, and too often opportunities have been missed. For
example, 4 years ago the committee had significant bipartisan
agreement that a portion of the hundreds of billions of dollars
in repatriated funds from multinational companies as part of
the tax bill would go to fund infrastructure...................
And we had debates about what percentage it ought to be, but
there was a clear bipartisan consensus. And the Trump
administration did not want to have any part of that. So I want
to invite my colleague from Idaho to say anything, should he
choose to do so, but I think this has been a good session......
We want to thank our guests. The testimony was very good. It
really stuck to the facts and the record, and I intend to work
very closely with Senator Crapo in a bipartisan way. We cannot
miss this moment. Too many Americans are depending on our
coming forward on infrastructure. Because, as we said 3 hours
ago, you cannot have big league economic growth with little
league infrastructure..........................................
Senator Crapo, would you like to add anything else?..............
Senator Crapo. Yes. Just briefly--and thank you again, Mr.
Chairman, for holding this hearing and for the bipartisan
effort that you want to work with us on........................
There is no disagreement. There is no bipartisan disagreement
about the need for a strong, robust effort to strengthen our
infrastructure in the United States. And thank you to our
witnesses. You have discussed very eloquently and effectively a
number of the different specific types of options that we have
to look at as we try to find ways to get capital committed to
infrastructure in the United States, whether that is through
direct spending from the Federal Treasury, whether that is
through our tax policy, whether that is through the public-
private partnerships, or in other ways that we have discussed
today, to incentivize private capital to flow into
infrastructure spending and build out the infrastructure across
this Nation....................................................
Once again, I thank all of you for participating and for your
input from your expertise as to how this works, and how
Congress can most effectively accomplish this goal.............
And, Mr. Chairman, I will turn it back to you. Thank you again...
The Chairman. With that, the Finance Committee wants to thank our
guests. One week from today, questions for the record are due
from Senators. And with that, the Senate Finance Committee
thanks you all, and we are adjourned...........................
[Whereupon, at 12:58 p.m., the hearing was concluded.]...........
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Shirley Bloomfield, Chief Executive Officer,
NTCA--The Rural Broadband Association
introduction
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for the opportunity to participate in today's hearing focused
on funding and financing the Nation's infrastructure.
I am Shirley Bloomfield, chief executive officer of NTCA--The Rural
Broadband Association (``NTCA''). NTCA represents approximately 850
rural, community-based carriers that offer advanced communications
services throughout the most sparsely populated areas of the Nation.
All NTCA members are fixed voice and broadband providers, and many of
our members also provide mobile, video, and other communications-
related services to their communities. Operators like those in NTCA's
membership serve less than 5 percent of the population of the United
States, but cover approximately 37 percent of its landmass. As context,
the average density of the areas that NTCA members serve is roughly
seven subscribers per square mile--roughly the density of the State of
Montana. These companies operate in rural areas left behind decades ago
when communications networks were first being built out by other
service providers because the markets were too sparsely populated, too
high cost, or just too difficult to serve in terms of terrain.
Despite these challenges, and driven largely by the commitment to
the communities in which they serve and live, NTCA's small broadband
providers have been leaders in deploying advanced communications
infrastructure that responds to consumer and business demands and
connects rural America with the rest of the world. In rural America,
broadband infrastructure enables economic development and job creation
not only in agriculture, but for any other industry or enterprise that
requires advanced connections to operate in today's economy. Yet, for
all their progress to date, we still have a lot more work to do in
deploying and operating this critical infrastructure. Too many rural
consumers still lack sufficient broadband connectivity.And, even where
networks exist, operators still face the challenges of sustaining and
upgrading them to keep pace with consumer demand and delivering
affordable services.
The good news is that NTCA members have led the charge in getting
rural America connected. Nearly 70 percent of customers of NTCA's
member companies have access to 100 Mbps or better broadband service;
on average, roughly the same proportion of NTCA members' customers are
connected by fiber despite the very rural nature of the areas in
question. The bad news is that not every rural community is fortunate
enough to have an NTCA member call it home--and even NTCA members still
have work to do to realize their vision of delivering broadband to each
and every consumer in the areas they serve. Nonetheless, the efforts of
NTCA members and the programs that have supported their success offer
important lessons as to what does and does not work when it comes to
deploying and then sustaining broadband infrastructure and services. In
the remainder of my testimony, I will offer principles and policy
recommendations based upon this experience and with an eye toward the
objective of ensuring that every American, rural or urban, has access
to robust and affordable advanced communications services.
a holistic view of and approach to broadband infrastructure
President Biden expressly recognized the importance of advanced
communications networks by including broadband within his broader
infrastructure initiative. There appears as well to be bipartisan
consensus in Congress that broadband should be considered a national
infrastructure priority, and NTCA welcomes the opportunity to
participate in a further discussion on how best to tackle this
priority.
This being said, it is important to consider what investing in
infrastructure means. It is not a one-time act of building something
and then moving on. The asset being built needs to be maintained,
upgraded, and made useful over its entire life, or there is serious
risk that the investment will be wasted. In the case of broadband more
specifically, it does no good to build a network if the provider cannot
afford to operate it and recover the capital used to construct it--and
even the very best network is certainly of little use if no one can
afford to pay for the services offered atop it. Broadband services must
be activated and delivered, maintenance must be performed before
troubles arise, customer trouble calls must be answered, ``middle
mile'' capacity to reach distant Internet points of presence must be
procured, and upgrades must be made to facilities and electronics to
enable services to keep pace with consumer demand and business needs.
In addition to these ongoing operating costs, networks are hardly ever
``paid for'' once built; rather, they are often built leveraging
substantial loans that must be repaid or the use of cash-on-hand that
must be recovered over a series of years or even decades.
All of these factors make the delivery of broadband in rural
America an ongoing effort that requires sustained commitment, rather
than a one-time declaration of ``success'' just for the very
preliminary act of connecting a certain number of locations.
Particularly when one considers that even where networks are available,
many rural Americans pay more for broadband than urban consumers, and
it becomes apparent that the job of really connecting rural America--
and, just as importantly, sustaining those connections--is far from
complete. Federal law mandates that the Federal Universal Service Fund
(USF) ensures reasonably comparable services are available at
reasonably comparable rates in rural and urban areas alike. This
mission cannot be lost as we focus on financing deployment. We must
make sure the infrastructure is useful to and useable by the population
it is intended to benefit. So while the rural broadband industry and
our Nation as a whole have a great story of success in delivering
services, we have much more work to do in both deploying and operating
networks--and this is where public policy plays such an important role
in helping both to build and then to sustain broadband in rural markets
that would not otherwise justify such investments and ongoing
operations.
As this committee considers tax incentives and bonds to spur
broadband deployment, it should keep in mind that while such measures
may help in certain areas, it must also overcome how distance and
density make it difficult, if not impossible, to justify a business
case for infrastructure investment to start in many rural markets. No
provider, whether it be cooperative or commercial, and regardless of
size, can deliver high-speed, high-capacity broadband in rural America
without the ability to justify and then recover the initial and ongoing
costs of sustaining infrastructure investment in high-cost areas. If
there is insufficient help in the first instance to enable the business
case for ongoing operation of networks and providing affordable
broadband in rural areas, tax incentives may not by themselves promote
meaningful broadband deployment in many rural areas most in need of
broadband.
future-proof networks
Meeting Consumer Demand in Decades to Come
Any resources provided as part of an infrastructure plan should
look to get the best return on such long-term investments. For networks
with useful lives measured in decades--especially private investments
that leverage Federal dollars--this should mean the deployment of
infrastructure capable of meeting consumer demands not only of today
and tomorrow, but for ten or 20 years. Putting resources toward
infrastructure that needs to be substantially rebuilt in only a few
years' time could turn out to be Federal resources wasted--and would
still risk leaving rural America behind. Similarly, putting billions of
Federal dollars into ``bets'' on emerging technologies that may deliver
quality broadband if they turn out as promised is risky. The express
intended use of these resources is to get Americans access to better
broadband infrastructure, rather than speculate. These resources should
be invested in technologies that have a proven track record of
delivering for American consumers, rather than hanging hopes on
marketing campaigns and equipment vendor promises as to capabilities to
come.
As our members look to future data needs of their customers and
their communities, they have taken aggressive steps to focus on
anticipated increases in usage. This ongoing phenomenon accelerated
during the global pandemic that forced so many to learn, work, and get
treated by doctors at home; OpenVault has found, for example, that
upstream broadband traffic increased by 63 percent from December 2019
to December 2020.\1\ In addition to continuing to deploy ``last mile''
fiber as fast as they can, measures taken by NTCA members to stay ahead
of such demands include establishing robust and reliable connections to
statewide fiber networks that provide ``middle mile transport'' between
our local communities and the rest of the world, and adding redundant
connections to separate Internet points-of-presence where possible.
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\1\ Dan O'Shea, Pandemic Drove Upstream Broadband Traffic Boom:
OpenVault, Fierce Telecom (April 1, 2021, 12:46 PM), https://
www.fiercetelecom.com/telecom/pandemic-drove-upstream-broadband-
traffic-boom-openvault.
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Importance of Symmetrical Speed
Federally funded broadband programs should focus on the consumer
experience and the long-term implications for rural communities by
requiring the deployment of networks that in a decade or more will
still deliver speeds and other performance capabilities that customers
can rely upon. To this end, NTCA supports an increase in the minimum
broadband deployment performance benchmark to at least a symmetrical
speed of 100 Mbps/100 Mbps to ensure that federally supported networks
will meet the future needs of consumers--in other words, any funding
programs going forward should generally aim to ensure that new
deployments perform at least at this speed threshold. Beyond the
OpenVault findings noted earlier on pandemic-related traffic patterns,
residential demand for symmetrical bandwidth has increased consistently
at a rate of 20 to 25 percent annually for over two decades.\2\
Continued growth in demand is expected to increase significantly in
coming years, such that peak demand for a family of four is projected
to exceed 400 Mbps symmetric in just 7 years, with bandwidth needs
accelerating in the years after that.\3\ These imminent increases are
anticipated due to an array of new technologies that hold substantial
promise for consumers and businesses alike, such as greatly improved
virtual education, telemedicine, agriculture, business, security, and
entertainment. Indeed, the Federal Communications Commission (FCC) has
concluded that two users or devices simultaneously using one Internet
connection for a ``basic'' function, such as checking email, and more
than one high-demand application, like video conferencing or streaming
HD video, can require at least 25 Mbps, while adding just one more user
or device would necessitate an Internet connection exceeding 25
Mbps.\4\
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\2\ See Comments of the Fiber Broadband Association at 9-10, GN
Docket No. 20-269, at 15 (September 8, 2020) (``Comments of FBA'').
\3\ See Comments of FBA at 9-10.
\4\ See Household Broadband Guide, FCC, https://www.fcc.gov/
consumers/guides/household-broadband-guide (last visited May 13, 2021).
Despite the clear need for better performance and higher quality
broadband benchmarks, some claim an increased benchmark undermines the
concept of ``technological neutrality.'' Congress should not sacrifice
robust networks that meet the needs of Americans for the sake of
``technological neutrality.'' If a particular technology cannot meet
the standards of customers today and tomorrow, the proper answer is for
innovators in that field to find ways of improving network performance
(and establish they work in the field) rather than defining standards
downward. Existing Federal programs employ competitive processes for
considering applications that allow entities of all kinds to make
proposals of all kinds using different technologies they want to
deliver service. Lowering the bar simply so that all can play may make
this process more competitive in a rudimentary sense, but it hardly
serves the intended purpose of ``buying the best possible networks''
using taxpayer resources. Programs should aim higher with respect to
minimum standards and uphold preferential scoring for higher-speed
symmetrical and low latency performance, or risk leaving consumers with
``just good enough'' network technologies that might only temporarily
bridge the digital divide, leaving rural communities in the lurch as
they look in only a few years' time at the better performance of
networks in other areas.
Hold Providers Accountable
The FCC's recent iterations of its High-Cost program support,
through both the Connect America Fund and Rural Digital Opportunity
Fund (RDOF), have utilized reverse auctions as its competitive bidding
method. Despite proclamations of success when it comes to the use of
such reverse auctions, there is little to no track record upon which to
base such declarations as of yet. As of the date of preparation of this
written testimony, the map depicting locations served through the FCC's
programs indicates a grand total of 87 locations in three states that
have been served leveraging auction support.\5\ Performance testing to
confirm that providers are actually delivering what was promised in the
auction will not begin until 2023. Undoubtedly more locations are
coming online, of course, but it is clearly premature nonetheless to
conclude that reverse auctions, especially in their current form,
necessarily work to promote and sustain the availability of broadband.
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\5\ See Connect America Fund Broadband Map, FCC, https://
data.usac.org/publicreports/caf-map/ (last visited May 13, 2021).
It is not too soon, however, to highlight serious concerns about
the results of the recent RDOF Phase I auction--and in particular
whether winning bidders will deliver on the services they have
promised. Due to rules that allowed bidding on a confidential basis at
speculative levels based upon unproven technologies, many have raised
questions about the transparency and accountability within the RDOF
auction. While there is serious concern that this may have undermined
the effectiveness of the auction itself, we continue to hope at the
very least that the FCC will prioritize vetting RDOF winners now in a
more transparent and accountable way before funds flow--and ensure that
in any future programs to award funds, there is greater transparency
and vetting of would-be support recipients prior to allowing them to
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participate or claim the ability to deliver services in certain ways.
The RDOF experience should inform how Congress directs agencies to
distribute any broadband infrastructure funds moving forward. There
should be clear standards for what will be expected of and achievable
by providers looking to leverage any resources made available through
such an initiative. Looking to providers with proven track records of
operating in rural areas and delivering actual results makes the most
sense, but whoever receives any support should be required to show
clearly that they will use those resources to deliver better, more
affordable broadband that will satisfy consumer demand over the life of
the network in question. To ensure transparency, accountability, and
the integrity of Federal broadband programs, agencies should
stringently review and weight the technical, managerial, financial, and
operational capabilities of applicants or bidders as part of the
process of deciding on any award of funds to serve an area. There is
far too much money at stake and far too many consumers on hold to
gamble on confidential promises and untested technologies, and the real
success of any such effort will be defined by the actual delivery of
robust and reliable broadband to rural consumers.
promote local partnership
Leverage Community-Based Providers
Based in the small rural communities they serve, NTCA members have
deep long-standing relationships with their local governments and
anchor institutions. They have seen that some of the best results can
often be achieved when local commercial operators or cooperatives with
significant experience in building networks and delivering
communications services work with stakeholders in the community to
identify and respond to specific needs. Creating programs that
encourage and incentivize such partnerships and collaboration could
unleash broadband investment and help sustain those networks once
built.
NTCA providers know their customers, they know the geography, and
they know the business of delivering communications services in these
areas. As policymakers look for solutions to deliver broadband in
unserved parts of rural America, small businesses based in or near
those areas offer the greatest promise for achieving results quickly
and effectively. We strongly urge Congress and the Biden administration
to ``look local'' when it comes to identifying broadband solutions--and
to leverage the expertise and experience of smaller community-based
providers, regardless of corporate form, in overcoming these
challenges.
program coordination
Coordinate With and Leverage Existing Broadband Programs
The prospect of creating a new program that will ``finally solve
the digital divide'' is always exciting. But any new Federal broadband
plan should leverage what is already in place and has worked before.
Creating new programs from scratch is not easy, and if a new broadband
infrastructure initiative conflicts with existing efforts, that could
undermine our Nation's shared broadband deployment goals. Moreover,
even as some existing programs may not have performed as hoped and
intended, a number of these existing initiatives have worked very
well--where this is the case, the successful programs in place already
should be enhanced and built upon, rather than pushed aside for
something new. Therefore, any new Federal broadband program should
coordinate with Federal broadband programs at the FCC, United States
Department of Agriculture (USDA), and National Telecommunications and
Information Administration, and also State broadband programs.
Furthermore, small, rural telecom providers have long used the
FCC's High-Cost USF and USDA Rural Utilities Service (RUS) loans in
concert to deploy advanced telecommunications services in the most
rural areas of the United States. Many smaller providers have
successfully leveraged a mix of funds from these programs and private
investment to deploy broadband to millions of homes, businesses, farms,
and anchor institutions. While RUS lending programs have helped to
finance the substantial up-front costs of network deployment, the USF
High-Cost Fund helps make the business case for construction and
sustains ongoing operations at affordable rates. More specifically, USF
by law aims to ensure ``reasonably comparable'' services are available
at ``reasonably comparable'' rates. Not to be confused or conflated,
RUS capital and ongoing USF support serve distinctly important, but
complementary rather than redundant, purposes in furthering rural
broadband deployment. Ensuring that sources of Federal and State
support for broadband networks continue to work in concert not only
avoids duplication and helps deliver high-speed reliable broadband to
the consumer, it recognizes the hard realities of both deploying robust
networks and then delivering high-quality affordable services in the
most remote, sparsely-populated areas of the Nation.
Direct Funding for New Network Deployment to Unserved Areas
Funding for new network construction should be targeted to unserved
areas to limit overbuilding of existing networks that are meeting
Federal broadband standards. We should focus funding on the areas most
lacking in broadband and seek to build the best kinds of networks in
those areas--and we can then turn our attention to the areas next most
in need once that is complete. This iterative approach will ensure the
best possible use of Federal resources in the form of targeting funds
for new networks to the consumers that need help most and ensuring that
the networks then built to serve those consumers will last for decades
thereafter. It will also avoid funding two competing networks in an
area where without support cannot support even one.
support ongoing network operations
Robust broadband infrastructure is crucial to the current and
future success of rural America. But the characteristics that enable
the unique beauty and enterprise of rural America make it very
expensive to deploy advanced communications services there. Deploying a
communications network in a rural area requires a large capital outlay
due to the challenges of distance and terrain. The number of rural
network users, as compared with more densely populated urban areas, is
too small to justify investment in many cases and pay the costs of
deployment and ongoing operations through customer charges. Again,
while so many focus on the upfront financing aspects of this debate--
which is important, to be sure--it is equally important that we not
overlook the long-term viability of networks in these sparsely
populated rural areas and the kinds of support mechanisms needed to
sustain them and keep services affordable on them.
barriers to deployment
While high costs are perhaps the most imposing obstacle to
deploying and maintaining broadband in rural areas, other barriers
remain too, such as time-consuming and expensive right of way and
access delay issues and supply chain shortages.
Permitting Delays
Infrastructure investment depends not only on financing but also on
prompt acquisition or receipt of permissions to build networks.
Roadblocks, delays, and increased costs associated with permitting and
approval processes are particularly problematic for NTCA members, each
of which is a small business that operates only in rural areas where
construction projects must range across wide swaths of land. The review
procedures can take substantial amounts of time, undermining the
ability to plan for and deploy broadband infrastructure--especially in
those areas of the country with shorter construction seasons due to
climate. Additionally, obtaining reasonable terms and conditions for
attaching network facilities to poles that are owned and operated by
other entities can result in long delays and costly fees charged to
providers seeking to build out networks to rural communities lacking
service.
Navigating complicated application and review processes within
individual Federal land-managing and property-managing agencies can be
burdensome for any network provider, but particularly the smaller
network operators that serve the most rural portions of the country.
The lack of coordination and standardization in application and
approval processes across Federal agencies further complicates the
deployment of broadband infrastructure. We have seen much agreement for
some time now on solutions to simplifying the administrative barriers
to deployment. Specifically, Congress should look to implement the
recommendations of the FCC's Broadband Deployment Advisory Committee's
Streamlining Federal Siting Working Group final report issued in
January 2018.\6\ NTCA participated in the development of these
recommendations, which address streamlining of environmental and
historical reviews and application review periods, among other
pertinent recommendations in removing further regulatory barriers to
broadband deployment.
---------------------------------------------------------------------------
\6\ See Broadband Deployment Advisory Committee, Streamlining
Federal Siting Working Group, Final Report, FCC (January 23-24, 2018),
https://www.fcc.gov/sites/default/files/bdac-federalsiting-
01232018.pdf.
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Addressing Supply Chain Concerns
In recent years, Congress has provided significant funding through
several agencies to deploy broadband infrastructure with the goal of
bridging the digital divide. However, as broadband providers construct
these networks, it is important to monitor the status of the
communications supply chain. NTCA members are beginning to report
significant backlogs for critical communications equipment like fiber,
routers, antennas, network terminals, and customer premise equipment--
ranging from several weeks to 1 year. Delays in production of necessary
equipment appear to be related to both increased demand for broadband
investment as well as ongoing effects of the pandemic. To ensure that
existing and new infrastructure initiatives are as successful as
possible in responding to consumer needs and demands, we believe it is
important that the Federal Government work closely and directly with
manufacturers, distributors, and other suppliers to avoid disruptions
in the communications supply chain.
For these reasons, while there has been a great deal of focus on
the security of our supply chains, we strongly encourage Congress to
consider supply chain continuity and reliability as key components of
delivering on a successful broadband infrastructure agenda. As Congress
is poised to make future investments to solve the digital divide once
and for all, supply chain shortages must be addressed--including
consideration of ways to spur domestic supply chain production and
address any other shortcomings in the global supply chain. Without
attention to continuity and reliability, we risk billions of dollars in
funds intended for immediate broadband deployment being tied up in held
orders and delayed shipments.
conclusion
Rural America is difficult and costly to serve, with each rural
area presenting unique challenges. An effective national strategy to
achieve universal broadband requires a holistic and coordinated
approach that looks to solve challenges of availability and
affordability in all kinds of areas and for all kinds of consumers.
NTCA members are deeply committed to the customers they serve and,
given their experience and success in serving the most rural areas,
these providers should be seen as critical components of any strategy
seeking to achieve universal broadband in the United States.
A legislative infrastructure initiative offers a unique opportunity
to provide the resources needed to make these investments and
mechanisms that ensure efficiency and accountability in the expenditure
of funds already in place. Our industry is excited to participate in
this conversation regarding broadband infrastructure initiatives, and
we look forward to working with policymakers and other stakeholders on
a comprehensive infrastructure strategy to ensure that all Americans
will experience the numerous agricultural, economic, health, and public
safety benefits of broadband.
Thank you for the opportunity to testify, and for the committee's
commitment to broadband infrastructure investment in rural America.
______
Question Submitted for the Record to Shirley Bloomfield
Question Submitted by Hon. Todd Young
Question. President Biden's American Jobs Plan includes a provision
for $100 billion to support building out broadband for rural and
underserved areas--hoping to ensure 100-percent coverage across the
country.
Last December, the FCC announced $9.2 billion in Phase 1 awards to
expand rural broadband as part of their Rural Digital Opportunity Fund
auction program. An additional $11.2 billion is on the table in Phase
2, which will target underserved areas that did not receive funding in
Phase 1. Furthermore, the FCC established a 5G fund for rural America
that will distribute another $9 billion in funding over 10 years.
Overall, the FCC will be awarding nearly $30 billion for broadband
deployment, which is on top of broadband companies investing somewhere
between $70 and $80 billion annually for more reliable infrastructure.
As we work to bridge the digital divide, it seems more beneficial
for the Biden administration to coordinate among agencies and
stakeholders, and prioritize legitimate need instead of wasteful
buildout of infrastructure. As with any program, overbuilding can
result in expensive or overpriced services as the cost of unused
infrastructure has to be recovered.
Given the ongoing growth in private investments and the nearly $30
billion in Federal funds, is an additional $100 billion in
``infrastructure'' funding really necessary since we do not fully
understand the impact of current investments?
Answer. The FCC has previously estimated that roughly $80 billion
is needed to connect all Americans to robust broadband that will stand
the test of time, and NTCA believes a significant amount in that range
will be necessary to close this longstanding gap in service for the
most rural and hard to reach areas. This being said, we must also make
the best use of finite funds to build broadband networks that last.
Over the past decade, even as many telecom network funding programs
have been reoriented to promote broadband deployment and
sustainability, we have seen the errors of ``aiming too low'' with
respect to the kinds of networks that must be built--setting speed
targets that are quickly surpassed and deemed irrelevant, insufficient,
and unresponsive in the face of escalating consumer demands. We must
not repeat the same mistakes over and over again and hope for different
results.
NTCA, too, shares concerns about coordination. There are a number
of programs in place today that have done and continue to do good work
in advancing national broadband objectives, and it is essential that
any new programs work in concert with and complement these existing
efforts rather than creating conflicts with them in ways that undermine
the sustainability of networks already in place. It is also important
that funds for new future-proof networks are targeted to areas most in
need, rather than overbuilding existing networks and making the
hardest-to-serve pockets of rural America even harder to serve as a
result.
To make sure we expend new funds efficiently and effectively, NTCA
believes four principles should guide any broadband infrastructure
investment:
1. Identify the areas most in need and direct funding for new
networks there first. Start by tackling areas lacking 25/3 Mbps
broadband, for example. Once those areas are addressed, attention
should then be turned to the next most-in-need areas, where consumers
cannot perhaps access 50/5 Mbps broadband. This process should continue
by moving the bar higher on what constitutes an ``unserved'' area until
the funding available for deployment is expended.
2. Build the best possible networks in these areas in need. Rather
than repeat the mistakes of the last decade and engaging in
``incremental deployment'' that is far less efficient and far more
frustrating for consumers, we should be building networks that are
built to last. As the government helps to pay for these networks, it
should be getting a return on that investment over decades rather than
years or even just months. Even new networks built to deliver 100/20
Mbps broadband are highly likely to be deemed unsatisfactory in just a
few years' time due to escalating customer demands, meaning the
government will have paid for networks that need to be rebuilt again in
a short time frame--an inefficient result that risks wasting government
resources and leaving customers with substandard service yet again in
the future.
3. Coordinate among new and existing programs. As noted above,
there are many programs in place that have enabled robust networks in
rural areas. These efforts should be part of a comprehensive strategy,
with new programs targeting funds to areas where existing programs are
not already in the process of tackling and overcoming broadband
challenges.
4. Leverage Community-Based Expertise. Private operators and
cooperatives based in their communities have a tremendous track record
of success in deploying rural broadband. Precisely because they live in
the areas they serve, they are familiar with the challenges and have
incentives to make sure their friends, family, and neighbors are well
served. Any new infrastructure program should prioritize participation
of these local experienced providers, rather than prioritizing
providers based upon artificial distinctions such as corporate form.
______
Prepared Statement of Heather Buch, Subcommittee Chair, Transportation
Steering Committee, National Association of Counties
Chair Wyden, Ranking Member Crapo and distinguished members of the
committee, thank you for the opportunity to testify today on the
importance of restoring our Nation's infrastructure and what tools
counties need to help advance our shared infrastructure goals.
My name is Heather Buch, and I serve as the District Five
Commissioner in Lane County, OR. Lane County is home to nearly 400,000
residents to whom we provide critical services, including road and
bridge operation and maintenance, public safety and emergency services,
public housing, health and human services, and more. We predominantly
rely on local property taxes to ensure our many infrastructure
responsibilities are met; however, due to constraints on local revenues
that are enforced at the State level, a strong intergovernmental
partnership is critical as we work to meet the challenges of today and
the future.
Lane County is in a unique area of the country, ranging from rural
to urban and stretching from the Cascade Range mountains to the Pacific
coast. In fact, all of America's counties are highly diverse and vary
immensely in geography and natural resources, social and political
systems, cultural, economic and structural circumstances, public health
and environmental responsibilities. Of the Nation's 3,069 counties,
approximately 70 percent are considered rural with populations of less
than 50,000, and 50 percent of these counties have populations below
25,000. At the same time, there are more than 120 major urban counties,
where essential services are provided locally to more than 130 million
county residents each day.
Collectively owning and operating 44 percent of public road miles
and 38 percent of the National Bridge Inventory, counties are leaders
in the Nation's transportation system.\1\ In addition to providing safe
and efficient options for passenger vehicles and heavy trucks moving
people and goods along our Nation's roadways, counties also directly
support 78 percent of public transit systems and 34 percent of public
airports. Transportation and infrastructure are core public sector
responsibilities that impact everything from our daily commutes to
driving commerce around the globe. From building and maintaining roads
and bridges to providing efficient transit options, counties are a
driving force connecting communities and strengthening economies.
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\1\ http://www.magnetmail.net/actions/
email_web_version.cfm?ep=uo1VB8smspitsBH_2-1mu5d
fsRxmnCw45L2pd1bBAdDc-IzzmpwguMf2-je02BYOuCQQ57cIGa-
vjwChnZJ5dGzPL_zReZH_2zL
T9qnVp42BXmUpFxQirvBDqSOXj6NQ.
At the county level, our infrastructure duties extend far beyond
transportation. Counties annually invest $134 billion in the
construction of infrastructure and the maintenance and operation of
public works that includes essential community infrastructure, such as
airports, schools, hospitals, jails, courthouses, parks, broadband
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deployment, and water purification and sewage systems.
Counties are pleased to see that infrastructure continues to be a
bipartisan topic of discussion. We believe that now is the time to
seize this exceptional moment and deliver investments that will enhance
the quality of life for Americans across the country and help improve
our global competitiveness from the bottom up. To this end, counties
offer the following considerations:
Our Nation's infrastructure is in need of immediate, significant
investments, and now is the time to act.
Counties play a significant role in the national infrastructure
network but understand that improving our Nation's infrastructure
relies on a strong Federal-State-local partnership.
Given our unique position to support America's infrastructure,
counties call on our Federal partners to implement additional financing
tools and dedicated funding streams that will allow us to continue
providing excellent public services to support our residents and
communities.
Our Nation's infrastructure is in need of immediate, significant
investments, and now is the time to act.
Counties believe that, given the billion-dollar infrastructure
backlogs at every level of government that have been further
exacerbated by the COVID-19 pandemic, Congress must seize this
opportunity and provide historic investments in our Nation's
infrastructure.
The American Society of Civil Engineers recently estimated in the
2021 Report Card for America's Infrastructure \2\ that, assuming
Federal infrastructure spending continues at its current rate, a $2.6-
trillion investment gap will emerge over the next 10 years between the
funding level needed to return our Nation's infrastructure assets to
states of good repair and the amount actually being invested. This is
extremely concerning for counties, who along with other local
governments, are responsible for the vast majority of America's
transportation network, including 3.1 million public road miles.
---------------------------------------------------------------------------
\2\ https://www.asce.org/infrastructure/.
Off-system bridges (OSBs) are of particular concern to counties,
who collectively own 62 percent--or 227,995--of these often-compromised
structures. In Oregon, counties are responsible for 55.5 percent \3\ of
the State's share of OSBs. Representing vital cogs in the national
system, nearly 50 percent of the National Bridge Inventory is comprised
of off-system bridges.\4\ Due to their placement off Federal-aid
highways, these bridges have experienced consistent underinvestment
resulting in a current backlog of $17.3 billion in deferred maintenance
and repair needs, as well as serious safety concerns. Safety is always
at the forefront of local decision-making, and when county officials
are forced to choose one project over another because of a lack of
resources, the security of our residents and the many urban travelers
whose daily commutes take them on our local roads each day is
compromised.
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\3\ https://ce.naco.org/
%2Fapp%2Fprofiles%2FBridges%2FBridges_41000.pdf.
\4\ https://www.naco.org/sites/default/files/documents/
Bridge%20Profile_National_05.15.19.
pdf.
This concern extends far beyond just urban counties as 45 percent
of the Nation's traffic fatalities occur \5\ on rural roadways, though
only 19 percent of the U.S. population resides here. According to the
U.S. Department of Transportation, 34 percent of fatalities at public
at-grade rail crossings occur in rural communities, a factor that is
contributed to heavily by the 80 percent of railroad crossings in these
areas that lack active warning devices. Needless to say, the demand for
investment in safety across local communities, urban, suburban and
rural, is great.
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\5\ https://www.bts.gov/rural.
Counties play a significant role in the national infrastructure
network but understand that improving our Nation's infrastructure
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relies on a strong Federal-State-local partnership.
America's counties appreciate recent action by Congress to include
water, sewer and broadband projects as eligible uses of the direct
funds provided to counties by the American Rescue Plan Act (Pub. L.
117-2). However, significant infrastructure needs and backlogs existed
at the local level prior to COVID-19 and remain today. As we work to
meet those challenges, new obstacles have been borne from battling the
global pandemic and come at a time when the charge of county officials
to protect the health and safety of our residents has grown at a rapid
rate.
As owners of more roads and bridges than any other entity and home
to where the majority of daily commutes both begin and end, counties
are leading the way in transportation. In total, 1.8 million road miles
are owned and maintained by counties. In 2019, local resources
contributed 34 percent of total national funding for public transit--
second only to directly generated revenues, which provided just under
36 percent. To truly understand the county role in infrastructure,\6\
however, it is important to look beyond the ownership stake we have in
roads and bridges and, instead, holistically view the wide variety of
other community infrastructure needs county officials are tasked with
meeting. Counties support over 900 hospitals and invest in the
construction, operation and maintenance of 90 percent of jails that see
11 million individuals cycled in and out each year. Annually, we spend
more than $100 billion on community health centers and hospitals; $61
billion in the construction of public facilities, like schools and
libraries; and $22.6 billion on sewage and wastewater management.
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\6\ https://naco.sharefile.com/share/view/
s5be17ae6bc4f4e1da050a5e29228fdef.
More than statistics, counties have real world examples of our
infrastructure needs that, in some cases, can mean life or death. Last
year, on Labor Day, the State of Oregon experienced a not uncommon
scenario--exceedingly high winds coupled with extremely dry conditions.
It was a perfect recipe for wildfire, and by the end of the day, there
were seven counties with wildfires that endured through October. In
Lane County, the Holiday Farm Fire eventually consumed 173,000 acres in
and around the McKenzie River and destroyed over 400 homes, with one
individual losing their life. Residents fled the fire with literally
the clothes on their back. As Lane County continues to recover from
this devastating event, one of the most important takeaways for our
counties was uncovering significant vulnerabilities within our
emergency and community communications system. Prior to the fire, fiber
was installed on utility poles running along the main highway serving
our region, and a few microwave towers existed on several mountain and
ridge tops. Every single pole was destroyed by the fire, as were all
the mountain top sites, rendering communication and Internet access
completely nonexistent. While a FIRST Net portable tower was deployed,
the system is intended for use by first responders, and given the
terrain of the region, was limited even further to the firefighting
effort. The Federal Emergency Management Agency deployed to our
community, but because their efforts are limited to replacing what was
there prior to the disaster, we remain extremely vulnerable to future
emergency communication issues. Access to reliable broadband is not a
concern distinctive to Lane County--65 percent of counties have average
connection speeds \7\ beneath the Federal Communications Commissioner
definition of broadband. Any Federal infrastructure package should
provide considerable additional investments in broadband, a service
important now more than ever as Americans rely on an Internet
connection to attend work, school and social events.
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\7\ https://ce.naco.org/
?dset=Broadband%20Connections&ind=Download%20Speed.
While we are doing our part at the local level, 45 states limit the
ability of counties to raise revenue \8\ in various ways, making the
intergovernmental partnership vital to meeting our public-sector
responsibilities. In Oregon, \9\ the ability of counties to levy
property taxes is restricted by the State, who has imposed an overall
property tax rate limit of $15 per $1,000 of value. The rate may not
exceed $5 per $1,000 of value for public school purposes and $10 per
$1,000 of value for general government purposes. If the property tax
rate on any piece of property exceeds this limit, the county must
reduce proportionally the taxes for that property to the limit through
a process called ``compression.'' Alongside this limitation, the state
constitution imposes another limit that the assessed value of a
property unit may not increase by more than 3 percent annually. Since
counties may not levy any sales taxes in Oregon, we rely heavily on
property taxes; as such, these limits on property tax revenue
significantly impact our county budget. Our inability to raise revenue,
coupled by the extreme loss in revenue due to the COVID-19 pandemic,
further limits our ability to invest in critical infrastructure
projects and services.
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\8\ https://ce.naco.org/
?dset=State%20Limits%20and%20Mandates&ind=State%20Limits%20
and%20Mandates%20Profiles.
\9\ https://ce.naco.org/%2Fapp%2Fprofiles%2FDMWL%2FDMWL_41000.pdf.
For western counties, State restrictions on local revenues can be
even more impactful, as much of the land within our boundaries is
considered Federal land, thus removing our ability to collect property
taxes in these areas. This committee well knows the role that Federal
forest revenues play in supporting the development and maintenance of
roads and bridges across the West, and we appreciate the action of the
chair and ranking member on this matter. Unfortunately, the Secure
Rural Schools Act has sunset and divisions over Federal forest
management policies remain. Consequently, Lane County expects to see
declining amounts from national forest receipts over our coming
planning horizons, further depleting the availability of our local
resources to make investments in our community. Until a permanent
revenue solution for public lands counties can be implemented, we urge
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final passage of S. 435, the Secure Rural Schools Reauthorization Act.
Given our unique position to support America's infrastructure,
counties call on our Federal partners to implement additional financing
tools and dedicated funding streams that will allow us to continue
providing excellent public service.
Counties, States, and other localities are the main funders of
infrastructure in the United States. Municipal bonds enable local
governments to build essential infrastructure projects, such as
schools, hospitals, and roads. In fact, over the past decade, 90
percent of infrastructure muni bond financing went to schools,
hospitals, water and sewer facilities, public power utilities, roads,
and mass transit. Municipal bonds, along with other Federal financing
tools, are a key resource for counties in need of infrastructure
financing. As counties continue to face hundreds of billions of dollars
in budgetary shortfalls \10\ as a result of our frontline response to
COVID-19, the tools available to us to make badly needed investments in
local infrastructure should be expanded, not restricted at a time when
we need Federal resources most.
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\10\ https://www.naco.org/resources/press/fiscal-impacts-covid-19-
could-reach-202-billion-counties-direct-and-flexible-funding.
We appreciate the work of members of this committee to reintroduce
the American Infrastructure Bond Act that will provide local
governments additional financing tools and the flexibility to fulfill a
wide range of community infrastructure needs. To build on this
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progress, America's counties offer the following recommendations:
Restore the tax exemption for advance refunding bonds: Before
January 1, 2018, municipal issuers were able to issue single tax-exempt
advance refunding bonds prior to 90 days before call. This critical
tool allowed State and local governments to effectively refinance their
outstanding debt in order to take advantage of more favorable interest
rate environments or covenant terms. Advance refunding bonds frequently
provided issuers with the flexibility to lower debt servicing charges
that would otherwise be a fixed cost. The Government Finance Officers
Association (GFOA) found that, between 2007 and 2017, there were over
12,000 tax-exempt advance refunding issuances nationwide which
generated over $18 billion in savings for tax and ratepayers over the
10-year period. Prior to their elimination in the Tax Cuts and Jobs Act
(Pub. L. 115-97), advance refunding bonds made up approximately 27
percent of issues in 2016. Restoring this important tax exemption would
require an act of Congress, but it would prove to be one of the most
effective actions to provide State and local governments with more
financial flexibility to weather downturns and increase infrastructure
investment.
Fully restore the State and Local Tax (SALT) deduction: The SALT
deduction has been a bedrock principle since the first three-page
Federal income tax in 1913, and the deduction supports local school
funding, home ownership, lower middle-income taxes, tailored social
services, infrastructure development, and local job creation efforts.
By capping SALT deductibility, Congress shifted the intergovernmental
balance of taxation and limited State and local control of tax systems.
Eliminating the $10,000 cap on SALT deductions would improve counties'
ability to deliver essential public services, such as emergency
response, public health services and infrastructure development. In
Lane County, 91 percent of middle-income taxpayers benefited from the
SALT deduction,\11\ and 63.7 percent of all SALT deductions benefited
middle income households.
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\11\ https://ce.naco.org/%2Fapp%2Fprofiles%2FSALT%2FSALT_41039.pdf.
Return long-term solvency to the highway trust fund (HTF):
Returning our Nation's transportation and infrastructure assets to
states of good repair and beginning to build back better is a tall task
and a responsibility too large and complex for any single level of
government to undertake alone. For many areas of the country, the use
of innovative financing mechanisms and attracting private capital is
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simply not possible.
As such, counties believe that among one of the most critical
actions the committee can undertake to advance our Nation's
infrastructure is to provide a permanent fix for the HTF. Counties
depend on the long-term certainty and solvency of the HTF to deliver
critical infrastructure projects for our many residents and urge
Congress to enact a meaningful solution that will counteract the fund's
looming insolvency. HTF revenue sources that better account for all
users of the road will be critical as transportation technologies that
are not reliant on motor fuel continue to be increasingly integrated
into the national network.
The State of Oregon, where a vehicle-miles-traveled (VMT) pilot
has been underway for several years, is currently considering codifying
the VMT program to require owners of new electric or highly fuel-
efficient vehicles to pay into the State's HTF based on their distance
driven beginning in 2026. Counties believe that this pilot is
replicable on a national scale and that Congress should seriously
consider transitioning toward a VMT that will better account for all
users of the road and help to shore up the ailing HTF.
Finally, counties utilize a variety of Federal financing tools
to build or repair our local transportation assets, including
Transportation Infrastructure Finance and Innovation Act (TIFIA) loans,
qualified tax credit bonds, infrastructure banks and public-private
partnerships. As such, we recommend lawmakers strengthen and increase
these opportunities that help counties leverage Federal financing for
capital projects.
Direct Federal funds to locally owned infrastructure: As the
form of government closest to the people and the level of government
responsible for a vast majority of our Nation's infrastructure,
counties know how to put Federal dollars to work where they are needed
the most. While we understand the importance of the intergovernmental
partnership, the ``trickle down'' effect simply does not work for many
counties, who lack access to both public and private capital for
infrastructure. Counties agree that transportation and infrastructure
projects should not be carried out in a silo and should contribute to
regional connectedness; however, when already isolated communities are
further cut off from resources by the outage of a local bridge, rural
communities suffer greatly. As a result of the 47 percent of heavy
truck vehicle miles traveled that occur on local rural roads, the
impact of this closed bridge is felt far beyond local economies when
trucks are forced to travel up to three times longer distances to find
a passable bridge. Nearly 60,000 bridges in rural communities have
weight limits or are closed entirely. This is not just a rural issue,
however, and we urge lawmakers to provide all of America's counties,
parishes and boroughs with access to direct Federal funds for
transportation projects.
Support small issuers: Counties urge Congress to include a
temporary extension and permanent restoration of proven financing tools
utilized by State and local governments, schools, hospitals, airports,
special districts, and other public sector entities to provide
efficient and low-cost financing for critical investments in
infrastructure that will move the country forward. Specifically, we
urge you to increase the bank-qualified borrowing limit from $10
million to $30 million, and apply the limit at the borrower level,
which would ensure that small local governments could provide access to
capital for immediate infrastructure.
Support resilient energy systems: Counties support Federal
incentives to promote nationwide energy conservation efforts. To
facilitate decentralized energy conservation activities, the Federal
Government should seek input from local government on implementation
and continue to adequately fund all conservation and fuel assistance
programs. We support incentives to research and develop renewable
energy technologies, including wind, solar, geothermal, biomass,
electricity from landfill gas, and other forms of waste-to-energy which
will achieve the objective of clean and safe forms of energy. Lastly,
we support incentives to research and develop energy storage
technology.
Local governments support tax incentives, rebates and promotions
to increase the purchase of lower pollution vehicles by private
businesses and all levels of government. Federal policy must be
established to ensure the availability of a refueling infrastructure
and of competitively priced, reliable alternative fuel and alternative
fuel vehicles, and such policy should consider its impact on gas tax
revenues and the HTF before requiring conversion of motor vehicles.
Importantly, to successfully advance our shared infrastructure
goals, counties firmly believe that increased or expanded Federal
financing opportunities cannot come in lieu of direct Federal funding
streams for locally owned and operated infrastructure.
conclusion
Chair Wyden, Ranking Member Crapo, and members of the committee,
thank you again for inviting me to testify here today.
With additional Federal aid and resources, counties across America
will be able to strengthen our communities and enhance local, regional,
and State economies by investing in infrastructure.
We appreciate the bipartisan efforts thus far to invest in
infrastructure. As you consider further Federal resources, counties ask
that you provide the tools we need to meet the demands of today and to
build back better.
______
Questions Submitted for the Record to Heather Buch
Questions Submitted by Hon. Rob Portman
Question. According to the Federal Highway Administration, 36
States have passed public-private partnership-enabling legislation, yet
the use of this financing tool is still quite small. As Commissioner
Sheehan noted in opening testimony, CBO states that P3s have accounted
for only 1-3 percent of spending for highway, transit, and water
infrastructure since 1990.
How can we on the Federal level better encourage the use of P3s?
Answer. On behalf of America's 3,069 counties, the National
Association of Counties (NACo) offers the following the
recommendations: positively weighting grant applications that utilize
private investment; providing technical assistance to mitigate the
complexities of the process; engaging local organizations, including
development districts and chambers of commerce, to better facilitate
the creation of P3s; decreasing the administrative burden of applying
for Federal grant programs, whether by reducing paperwork and other
requirements, or by providing the necessary resources for local
governments to hire additional staff; and increasing public awareness
of P3s.
In some instances, rural or more isolated counties are simply
unable to attract private capital; therefore, in these cases, the
Federal Government should provide funding opportunities, such as
through direct competitive grants.
Question. From 2007-2016, the average annual financing for highway
infrastructure provided by State Infrastructure Banks amounted to $200
million, or about 1 percent of new financing by State and local
governments.
Can you speak to how we can address the underutilization of State
infrastructure banks? What makes this form of financing unpalatable for
State and local infrastructure projects?
Answer. The Oregon Transportation Infrastructure Bank appoints an
advisory committee that is comprised of both State and local officials
and other community stakeholders, which helps ensure counties and other
local governments are actively involved in project selection--a
critical factor in the ultimate success of a State infrastructure bank-
financed transportation project.
Question. In your testimony you listed infrastructure banks as a
tool that counties utilize for financing infrastructure projects that
could be strengthened by Congress. While 33 States have authorized the
creation of an infrastructure bank, I recognize their utilization on
projects is a small fraction of the current financing for local
transportation projects.
Could you go into further detail on your thoughts regarding the
creation of a Federal infrastructure bank?
Answer. Counties support an ``all tools in the toolbox'' approach
to Federal financing and funding of infrastructure projects. A national
infrastructure bank (NIB) is one such tool. As adopted by the NACo
Transportation Policy Steering Committee, the NIB resolution states:
Adopted Policy: The National Association of Counties (NACo) urges
Congress to enact legislation to create a new National Infrastructure
Bank (NIB) system in the tradition of George Washington, John Quincy
Adams, Abraham Lincoln, and Franklin Roosevelt. This proposed bill has
the following critical points:
1. It would create a new NIB by exchanging existing Treasury debt
for preferred stock in the bank. The proposal is to raise $500 billion,
out of the $23 trillion in Treasury debt, and put it in the bank. This
would require no new Federal debt.
2. The NIB would pay 2 percent interest above the Treasury yield
to the investors, with all transactions being federally insured. The 2
percent would be included in the U.S. budget and not go through
appropriations. This model has been used in the past, initiated by the
first Treasury Secretary Alexander Hamilton.
3. The NIB would perform as a traditional commercial bank and be
able to provide financing in the form of loans. The bank would loan $4
trillion to States, cities, counties, authorities, and multistate
entities to address the infrastructure crisis in the Nation. Loans
would be long-term, at Treasury rates and for infrastructure projects
only.
4. There would be a board of directors composed of mainly
engineers and infrastructure experts, with State, local, and county
officials with experience in infrastructure construction to assist in
the implementation of the projects. The bank would report all banking
transactions to Congress on a regular basis.
5. The NIB would create 25+ million new high-paying jobs, which
would increase the tax base and increase the productivity of the entire
economy. Previous such entities have increased real GDP by 3-5 percent
per year, and payback multiples have been anywhere from 2-10 times the
investment.
______
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
Thank you, Mr. Chairman, for holding this timely hearing on funding
and financing options for our Nation's infrastructure.
Infrastructure investment has traditionally been bipartisan and
accomplished through regular order. I am encouraged by the productive
meeting I had last week with President Biden and some of my Republican
Senate colleagues about the need to modernize and expand our
transportation system and broadband network in a bipartisan manner.
The framework Republican Senators discussed with President Biden
included: roads and bridges, transit, rail, airports, drinking water
and wastewater infrastructure, port and inland waterways, water
storage, and broadband infrastructure. Consideration of offsetting the
cost of infrastructure with a corporate tax rate increase or increases
in international taxes, especially coming out of the largest negative
shock to the economy on record, is counterproductive and a non-starter
on my side of the aisle.
With the FAST Act extension expiring at the end of September,
reauthorization of our surface transportation programs should be the
basis of any infrastructure conversations. As our witnesses will
discuss, Congress must provide long-term stability and certainty for
these programs so that transportation agencies, cities, counties, and
States across the country can make responsible long-term transportation
planning decisions.
For the last few transportation authorizations, Congress has made
the decision to spend more than the receipts going into the highway
trust fund. In order to advance a comprehensive, long-term
reauthorization bill, it is important that we do so in a fiscally
responsible manner. There is no silver bullet for how to pay for
transportation infrastructure, but historically it has been paid for by
user fees, which makes sense.
For many years, the users of transportation infrastructure paid
fees for that use through the gas and diesel taxes which were deposited
into the highway trust fund, and then distributed to pay for our
Nation's roads, bridges, and transit systems. There have been many
changes to the transportation landscape since Congress last raised the
gas tax in 1993, such as increased fuel efficiency and a significant
increase in electric vehicles, or EVs, on the road. With this
evolution, Congress needs to ensure all users of the transportation
infrastructure are paying into the highway trust fund.
To make up the projected $195-billion 10-year shortfall of the
highway trust fund, Congress needs to think creatively of ways to
ensure EVs are paying in their fair share. If we are able to identify a
top-line spending number and go through a bipartisan FAST Act
reauthorization process, I am ready to work with my colleagues on the
other side of the aisle to do the hard work of addressing the solvency
of the highway trust fund. With that, the United States will have the
funding we need to maintain and modernize our transportation system to
meet the rapidly evolving landscape of today and in the future.
To maximize use of taxpayer dollars, we should consider proposals
to attract private capital for infrastructure projects, repurpose
unused Federal funds, and improve and expand upon existing
infrastructure loan programs. We should consider how public-private
partnerships can fit into our comprehensive infrastructure funding and
financing approach.
The Transportation Infrastructure Finance and Innovation Act
(TIFIA), Railroad Rehabilitation and Improvement Financing Act (RRIFA),
and Water Infrastructure Finance and Innovation Act (WIFIA) are good
examples of financing tools that can leverage Federal resources, and we
should consider ways those programs should be improved and expanded.
Private Activity Bonds (PABs) for transportation projects have proven
so attractive that the program is oversubscribed, with the $15-billion
cap having been met and additional applications outstanding.
We should consider how PABs and other bond programs can be used to
help States and localities move their infrastructure projects forward.
There are hundreds of billions of dollars in unspent funds from COVID
relief packages. Those funds should be put to work and repurposed to
fund infrastructure projects.
Mr. Chairman, the word ``infrastructure'' itself has become
somewhat of a fluid term lately. As this hearing demonstrates, there is
bipartisan support for finding long-term funding and financing
solutions for transportation infrastructure, as well as increasing
access to broadband connections, particularly in rural America.
Americans rely heavily upon broadband technology for business,
government, education, and personal activities.
Efforts have been underway for some time to address a ``digital
divide'' in broadband deployment between rural, urban, and suburban
areas to ensure communities, regardless of size, can access
technological advancements. The pandemic magnified the importance of
expansive and reliable broadband technology as so many Americans found
themselves working and learning from home.
Mr. Chairman, thank you again for holding this hearing. Let's get
to work in a bipartisan way to maintain, modernize, and expand
America's infrastructure.
I thank the witnesses for their willingness to participate in
today's hearing.
______
Prepared Statement of Joseph Kile, Ph.D., Director of
Microeconomic Analysis, Congressional Budget Office
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for inviting me to today's hearing. I will discuss the status
of the highway trust fund, approaches to paying for highway spending,
and Federal subsidies for State and local borrowing for highway
spending.
summary
Federal spending on highways (or, synonymously, roads) totaled $47
billion in 2019.\1\ Most of those outlays were for grants to State and
local governments to support their spending on capital projects. (Those
governments typically spend roughly three times as much of their own
funds on highways each year, not only on capital projects but also to
operate and maintain roads.) That $47 billion also included spending
for Federal programs that subsidize State and local governments'
borrowing for highway projects; other subsidies for State and local
borrowing are provided through the tax code.
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\1\ That is the latest year for which detailed data are available
about different types of spending for highways by the Federal
Government.
Most Federal spending for highways is paid for by revenues credited
to the highway account of the highway trust fund, largely from excise
taxes on gasoline, diesel fuel, and other motor fuels. For more than a
decade, those revenues have fallen short of Federal spending on
highways, prompting transfers from the Treasury's general fund to the
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trust fund to make up the difference.
The Congressional Budget Office projects that balances in both the
highway and transit accounts of the highway trust fund will be
exhausted in 2022. If the taxes that are currently credited to the
trust fund remained in place and if funding for highway and transit
programs increased annually at the rate of inflation, the shortfalls
accumulated in the highway trust fund's highway and mass transit
accounts from 2022 to 2031 would total $195 billion, according to CBO's
baseline budget projections as of February 2021.\2\
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\2\ See Congressional Budget Office, ``Details About Baseline
Projections for Selected Programs: Highway Trust Fund Accounts''
(February 2021), www.cbo.gov/publication/51300. CBO's baseline budget
projections incorporate the assumption that current laws generally do
not change. Some of the taxes that are credited to the highway trust
fund are scheduled to expire on September 30, 2022, including the taxes
on tires and all but 4.3 cents of the Federal tax on motor fuels.
However, under the rules governing baseline projections, these
estimates reflect the assumption that all of the expiring taxes
credited to the fund will continue to be collected after fiscal year
2022.
The current authorization for Federal highway programs expires on
September 30, 2021. As they consider reauthorization, policymakers have
many decisions to make about how much to spend on highway programs, how
to pay for them, and the extent to which they want to provide
additional Federal subsidies for State and local borrowing for highway
spending.
Revenues Credited to the highway trust fund
The highway trust fund has two accounts--one for highways and the
other for mass transit--to which certain fuel and other vehicle-related
excise tax collections are credited. In CBO's February 2021 baseline
projections, revenues credited to the highway trust fund in 2022 total
$43 billion, and outlays from the fund exceed revenues by about $13
billion.
Currently, users of highways impose many costs that they do not
fully pay for, including wear and tear on roads and bridges; delays
caused by traffic congestion; injuries, fatalities, and property damage
from accidents; and harmful effects from exhaust emissions. A
combination of taxes on fuel and mileage that made users pay for more
of those costs would make use of the system more efficient.
Policymakers have a number of options to increase the resources
available in the highway trust fund:
Policymakers could increase the existing fuel taxes. The tax
on gasoline has been 18.4 cents per gallon, and the tax on diesel fuel
24.4 cents per gallon, since October 1993. Increasing those taxes would
boost the trust fund's revenues. For example, increasing them by 15
cents per gallon in October 2022 and adjusting them for inflation
thereafter would raise an estimated $291 billion more in revenues for
the highway trust fund from 2023 to 2031 than projected in CBO's
February baseline. Increases of that amount would eliminate the fund's
shortfall and provide $95 billion for additional spending by 2031.
However, those increases in fuel taxes would reduce taxable business
and individual income, resulting in reductions in income and payroll
tax receipts that would offset about one-quarter of the increase in
fuel tax receipts.
Policymakers could institute new taxes or fees, such as taxes
on vehicle miles traveled (VMT) or a tax or fee on electric vehicles
(EVs). One option would be to impose a VMT tax on commercial trucks.
CBO has estimated, using data from 2017, that if such a per-mile tax
was applied to all commercial trucks on all roads and all of the
practical steps necessary to implement it were in place, each cent of
tax would generate $2.6 billion per year. The Federal Government's
costs of implementing such a tax and ensuring compliance could,
however, be substantial. Another option, an annual tax on EVs, would
not have a substantial effect on the trust fund's shortfall over the
next 10 years because the number of such vehicles is small.
Alternatively, policymakers could transfer money from the
Treasury's general fund. Under that option, the Federal Government
would, in effect, pay for a portion of highway spending in the same way
that it funds other programs and activities.
Among the considerations for policymakers is that implementing new
taxes would probably be more costly for the government than increasing
current taxes. And some approaches would raise concerns about privacy,
especially if applied to personal vehicles.
New approaches to taxing highway use, such as a VMT tax, could be
assessed through demonstration projects. Those projects could take
different approaches to key components of a tax, allowing lawmakers to
assess which approaches were most effective. For example, the projects
might tax different vehicles and roads, apply different taxes at
different times of day, and assess or collect tax in different ways.
Federal Support for State and Local Borrowing for Highway Spending
In addition to providing grants from the highway trust fund, the
Federal Government supports investment in highways by State and local
governments through several financing programs that subsidize the cost
that those governments incur when borrowing to pay for that spending.
From 2007 to 2016, the Federal Government subsidized an average of $20
billion (in 2019 dollars) per year of new financing for highways that
State and local governments obtained through tax-preferred bonds,
direct loan and loan guarantee programs, and funds used to capitalize
State infrastructure banks (SIBs). Tax-exempt bonds accounted for about
three-quarters of that borrowing.
Federal policymakers could offer new programs or expand current
programs to subsidize State and local governments' borrowing to build
more roads:
Policymakers could authorize State and local governments to
issue more tax-exempt bonds to fund projects undertaken primarily by
private entities.
They could introduce a Federal tax credit bond program.
Depending on its design, such a program could subsidize the same amount
of borrowing by State and local governments that tax-exempt bonds do,
but at a lower cost to the Federal Government, by effectively
eliminating some of the benefits of tax-
exempt bonds that go to higher-income bondholders.
Or they could extend more Federal loans to State and local
governments to finance transportation projects.
In addition, policymakers could allow States to collect tolls on
Interstate highways, which would constitute an additional revenue
stream to borrow against.
status of the highway trust fund
The Federal Government's surface transportation programs are
financed mostly through the highway trust fund, an accounting mechanism
in the Federal budget that comprises two separate accounts, one for
highways and one for mass transit. The trust fund records specific cash
inflows from revenues collected through excise taxes on the sale of
motor fuels, trucks and trailers, and truck tires; taxes on the use of
certain kinds of vehicles; and interest credited to the fund. The
highway trust fund also records cash outflows for spending on
designated highway and mass transit programs, mostly in the form of
grants to States and local governments.
In 2019, $45 billion in revenues and interest were credited to the
highway trust fund--$39 billion to the highway account and $6 billion
to the transit account. Most of those revenues came from taxes on
gasoline and other motor fuels.
According to CBO's February baseline projections, if the excise
taxes are continued at their current rates and current funding for
highway and transit programs increases annually at the rate of
inflation, the revenues and accumulated balances of the highway trust
fund will be insufficient to cover spending from either the highway
account or the transit account, starting in 2022 (see Figure 1). In
those projections, revenues and interest credited to the highway trust
fund in 2022 total $43 billion, and outlays exceed revenues and
interest earnings by about $13 billion.
[GRAPHIC] [TIFF OMITTED] T1821.001
.eps[GRAPHIC] [TIFF OMITTED] T1821.002
.epsTo cover the shortfalls recorded in the fund's accounts,
lawmakers have enacted legislation that since 2008 has transferred more
than $150 billion--mostly from the Treasury's general fund--to the
highway trust fund. This year, lawmakers transferred $14 billion from
the general fund--more than $10 billion to the highway account and $3
billion to the transit account. Such intragovernmental transfers have
allowed the fund to maintain a positive balance, but they have not
changed the amount of receipts collected by the government.
spending for highways
Almost all spending on highway infrastructure and transit projects
in the United States is funded publicly. Although the private sector
participates in building, operating, and maintaining projects, the
Federal Government and State and local governments typically determine
which projects to undertake and how much to spend on them.
In 2019, the most recent year for which data about highway spending
by all levels of government are available, the Federal Government spent
$47 billion on highways--an amount equal to 0.23 percent of gross
domestic product (GDP). Such spending's share of total economic output
has, in general, been stable over the past 30 years, though it is only
half as large as it was in the 1960s, when construction of the
Interstate highway system expanded (see Figure 2).
State and local governments spent more than three times as much as
the Federal Government on highways in 2019--$150 billion, or 0.72
percent of GDP. Like Federal spending on highways, State and local
governments' spending as a share of GDP peaked in the 1950s and 1960s,
when it accounted for about twice the share it has in recent years.
Two characteristics of the ways that the Federal Government
typically spends on highways stand out. First, most Federal highway
funding takes the form of grants to State and local governments, which
own most public roads in the United States and have broad discretion,
with some constraints, to spend those Federal funds. Second, Federal
spending on highways is almost entirely dedicated to capital projects
that are intended to expand or rehabilitate eligible Federal-aid
highways (which consist of the Interstate Highway System and most other
roads except for local roads).
In 2019, most of the $47 billion that the Federal Government spent
on highways took the form of grants to State and local governments,
which own almost all highways. Federal agencies own less than 1 percent
of public roads (typically, those in national parks and forests, on
Indian reservations, or on other federally owned land).
In general, State and local governments decide which projects to
undertake and, as construction proceeds, receive reimbursements from
the Federal Government for projects that meet Federal eligibility
criteria for various programs. Most Federal highway programs set a cap
on the portion of a project's total costs that a Federal grant may
cover--typically 80 percent. State and local governments must cover the
remaining costs with nonfederal funds, such as tax revenues or proceeds
from issuing municipal bonds.
Federal highway programs are dedicated almost entirely to capital
projects rather than to the operation and maintenance of roads. In
2019, $45 billion (or 96 percent) of Federal spending for highways went
to capital investment. That spending includes outlays for the purchase
of structures (such as new highways and bridges) and equipment as well
as expenditures that improve or rehabilitate structures and equipment
already in place. Such an allocation between capital and operation and
maintenance has been typical of Federal spending for highways since the
1950s.
Because the Federal Government does not generally own highways, the
responsibility to operate and maintain them falls to State and local
governments. Spending patterns reflect that: Operation and maintenance
accounted for 58 percent of State and local governments' spending on
highways, net of Federal grants, in 2019. Operation and maintenance
costs include the costs of providing necessary operating services (such
as snow removal) and maintaining and repairing existing capital (such
as filling potholes) as well as the costs of funding other highway-
related programs (such as education about highway safety).
Unless additional funds are provided to the highway trust fund
(either through an increase in revenues credited to the fund or through
additional transfers from general revenues), the disparity between the
receipts credited to the fund and outlays from the fund will require
the Department of Transportation to delay its reimbursements to States
for the costs of construction. CBO estimates that, starting in the
first half of 2022, balances in the highway account of the trust fund
will fall to zero, and the department will be unable to reimburse
States in a timely fashion for the bills presented to the fund. The
department may choose to more closely manage the timing of
reimbursements to States before balances reach zero. For example,
measures considered in the past have included partially reimbursing
States to align total reimbursements with semimonthly receipts. The
possibility of delays in payments from the Federal Government increases
uncertainty among States when they plan transportation projects.
revenues credited to the highway trust fund
The Federal Government collects revenues for the highway trust fund
primarily from taxes on motor fuels. Lawmakers could increase revenues
by raising those taxes or by instituting new ones.
Sources of Revenues
Of the revenues credited to the highway trust fund in 2019, $36
billion (or 82 percent) stemmed from excise taxes on gasoline, diesel
fuel, and other motor fuels (see Figure 3). Receipts from the tax of
18.4 cents per gallon on gasoline and ethanol-blended fuel contributed
the largest amount--$26 billion, or nearly 60 percent of the fund's
revenues. Receipts from the tax of 24.4 cents per gallon on diesel and
other fuels totaled $10 billion, or about one-quarter of the fund's
revenues. The taxes on gasoline and diesel fuel have been in place
since 1993, and the rates have not been adjusted since then. All but
4.3 cents of the per-gallon Federal tax on motor fuels are scheduled to
expire on September 30, 2022.\3\
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\3\ In accordance with the rules governing baseline projections
specified in the Balanced Budget and Emergency Deficit Control Act of
1985, CBO's baseline revenue estimates reflect the assumption that all
the expiring taxes credited to the fund will continue to be collected
after fiscal year 2022.
If those taxes were extended at their current rates, revenues from
gasoline and diesel-fuel taxes would decline at a rate of less than 1
percent per year through 2031 following an economic recovery after the
disruptions caused by the 2020-2021 coronavirus pandemic, CBO projects.
Factors contributing to that decline include the rising fuel economy of
vehicles and the slow rate of growth of the total number of miles
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traveled by vehicles.
Not all of the receipts from the excise taxes on motor fuels are
dedicated to highway spending. A portion of those receipts--2.86 cents
per gallon, which amounted to about $6 billion in 2019--goes to the
transit account of the highway trust fund. In addition, 0.1 cent per
gallon goes to the Environmental Protection agency's leaking
underground storage tank trust fund, which supports programs run by
State and local governments that prevent and clean up leaks from
underground petroleum storage tanks.
[GRAPHIC] [TIFF OMITTED] T1821.003
.epsRevenues from three other taxes, which are specific to heavy
vehicles, are also credited to the highway trust fund. The excise tax
on trucks and trailers--equal to 12 percent of the sales price of
tractors, trucks, and trailers that exceed certain weights--accounted
for 12 percent of the trust fund's revenues in 2019. A tax on the use
of heavy vehicles (a $100 to $550 annual tax on trucks over 55,000
pounds) and an excise tax on certain tires for heavy trucks contributed
smaller amounts to the fund. (That excise tax on tires is scheduled to
expire on September 30, 2022.)
In addition to those taxes, various fees and interest on invested
balances, totaling about $1 billion per year, are credited to the trust
fund.
Options
Lawmakers have several options for increasing resources in the
highway trust fund. One option is to increase existing taxes on
gasoline and diesel fuel. Alternatively, lawmakers could impose new
taxes on vehicle miles traveled, on freight movement, or on electric
vehicles. Finally, the Congress could make additional transfers from
the Treasury's general fund to the highway trust fund.
Increase Existing Fuel Taxes. CBO analyzed two options that would
increase Federal excise tax rates on gasoline and diesel fuel by 15
cents or 35 cents per gallon and adjust them to grow with inflation
thereafter.
According to estimates by the staff of the Joint Committee on
Taxation (JCT), increasing the tax rates on fuel by 15 cents in October
2022 and indexing them to the consumer price index thereafter would
increase revenues to the highway trust fund by $26 billion in 2023.
Over the 2023-2031 period, cumulative fuel-tax receipts credited to the
highway trust fund would exceed the amount in CBO's February baseline
projections by $291 billion. An increase of that amount would eliminate
the projected cumulative shortfall in the highway trust fund and
provide an additional $95 billion in revenues to the fund by 2031.
Interest payments on any accumulated balances would further increase
the resources available in the trust fund.
Increasing the tax rates on fuel by 35 cents in October 2022 and
indexing them to the consumer price index thereafter would increase
revenues to the highway trust fund by $60 billion in 2023. The
cumulative fuel-tax receipts credited to the highway trust fund over
the 2023-2031 period would total an estimated $627 billion more than
the amount in CBO's February baseline projections.
However, those increases in fuel taxes would reduce Federal income
and payroll tax receipts by decreasing taxable business and individual
income. As a result, the net budgetary effects through 2031 would be
smaller: deficit reductions of $224 billion and $485 billion,
respectively.
Institute New Taxes or Fees. Another option is to impose new taxes
or fees that better align what people pay for using roads with the cost
of building those roads. The most recent national study of how
different types of vehicles contribute to the highway costs that
Federal programs pay for was published by the Federal Highway
Administration (FHWA) in 2000. Passenger vehicles constituted the
largest group of vehicles in use and were estimated to account for
about 60 percent of Federal highway costs in 2000, even though their
estimated cost per mile of highway use was the lowest at 0.8 cents.
Costs attributed to trucks accounted for the remaining 40 percent
of Federal highway costs, but trucks provided about one-third of the
highway trust fund's revenues. For each mile they traveled in 2000,
combination trucks (that is, tractors pulling one or more trailers)
were estimated to impose a cost of 8.4 cents. For all trucks, the
estimated cost per mile traveled ranged from 2.2 cents for the trucks
carrying the lightest loads to 20.3 cents for those with the heaviest
loads.\4\
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\4\ See Federal Highway Administration, Addendum to the 1997
Federal Highway Cost Allocation Study Final Report (May 2000), Tables 4
and 6, www.fhwa.dot.gov/policy/hcas/addendum.cfm.
More recently, some States have calculated cost shares for
different types of vehicles that are similar to the estimates in the
FHWA study. In 2019, Oregon estimated that light vehicles (mainly cars
and other passenger vehicles) would account for about two-thirds of
State highway costs in 2020 and heavy vehicles for about one-third.\5\
As the Oregon report noted, however, highway spending by State
governments includes maintenance costs, such as snow removal and
pothole patching, whereas Federal spending does not.
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\5\ See Oregon Department of Administrative Services, Office of
Economic Analysis, Highway Cost Allocation Study, 2019-2021 Biennium
(prepared by ECONorthwest, 2019), www.
oregon.gov/das/OEA/Pages/hcas.aspx.
In recent years, revenues credited to the highway trust fund have
declined. Because of improvements in fuel efficiency, drivers use less
fuel and therefore pay less in fuel taxes to travel the same distance.
Policymakers would have to make a number of decisions about how to
design and implement new taxes in order to reach intended revenue
targets and address highway users' equity and privacy concerns in the
---------------------------------------------------------------------------
administration of those taxes.
Impose a VMT Tax. Instituting a tax on vehicle miles traveled would
charge all vehicles for their highway use regardless of the vehicle's
fuel efficiency or energy source. Such a tax could help allocate
resources efficiently by making users pay for the costs they impose.
However, it would present several challenges. A VMT tax would be more
costly to administer than the current excise taxes on fuels. In
addition, such a tax would raise privacy concerns if calculating and
collecting the tax required the government to track people's movement
and use of vehicles. Apart from those challenges, a VMT tax would have
implications for equity that are similar to those of fuel taxes--
namely, the burden, relative to income, would be greatest for lower-
income households because the money paid in taxes for highway use would
constitute a larger share of their total income than of higher-income
households' total income.
Limiting a VMT tax to only commercial trucks would raise fewer of
those concerns. Because many trucking companies already track their
vehicles, implementing a VMT tax on only commercial trucks would
require overcoming fewer administrative and privacy hurdles than
implementing such a tax on all vehicles would.
To establish a truck VMT tax, lawmakers would have to consider
three sets of questions:
Which types of trucks would be subject to the tax, and
travel on which roads would be subject to the tax?
What would the rates be for different trucks and for
different roads?
How would the tax be assessed, and how would payments be
made?
Table 1.--Estimated Annual Revenues From a VMT Tax of 5 Cents per Mile
if One Had Been in Place in 2017
Billions of 2017 Dollars
------------------------------------------------------------------------
Combination
All Trucks Trucks \1\
------------------------------------------------------------------------
All Roads 12.8 8.0
Interstates and Arterial Roads 10.1 7.0
Interstates 5.3 4.2
------------------------------------------------------------------------
Data source: Congressional Budget Office. See www.cbo.gov/publication/
57206#data.
VMT = vehicle miles traveled.
\1\ Tractors pulling one or more trailers.
Establishing and operating a program to collect a VMT tax on
commercial trucks would entail not only costs to set up the program,
including capital costs for new equipment, but also ongoing
administrative and enforcement costs that are likely to be higher than
the costs to administer fuel taxes. Whereas gasoline and diesel-fuel
taxes can be administered at low cost because they are collected from a
small number of firms (the taxes are assessed at roughly 1,300 fuel
distribution terminals nationwide, and the number of distinct firms is
smaller), a VMT tax would be collected from truck owners and thus would
have a larger share of its gross revenues offset by implementation
costs.\6\
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\6\ Internal Revenue Service, ``Terminal Control Number (TCN)/
Terminal Locations Directory'' (accessed May 12, 2021), https://
go.usa.gov/xV5PB.
In a 2019 analysis, CBO considered the effects on revenues of
several possible formulations of a VMT tax on commercial vehicles.\7\
One example suggested that if a 5-cent tax per mile traveled by trucks
had been in place in 2017, it would have generated between $4 billion
and $13 billion in revenues that year, depending on the types of trucks
and roads that the tax applied to. If a per-mile tax was applied to all
commercial trucks on all roads, each cent of tax would generate $2.6
billion. Taxing all trucks, including box and large pickup trucks,
would raise more revenues than taxing only combination trucks.
Similarly, revenues would be greater if the tax applied to travel on
all public roads than they would be if it applied only to travel on
Interstates or on Interstates and arterial roads (see Table 1).
---------------------------------------------------------------------------
\7\ See Congressional Budget Office, Issues and Options for a Tax
on Vehicle Miles Traveled by Commercial Trucks (October 2019),
www.cbo.gov/publication/55688.
Those estimated revenues do not include any offset to account for
reduced revenues from income and payroll taxes. Such an offset, which
CBO and JCT employ when estimating the effects of legislative proposals
that would raise excise tax revenues, would vary over time, depending
on tax rates and economic projections. In calendar year 2021, the
offset is 21 percent.\8\
---------------------------------------------------------------------------
\8\ Joint Committee on Taxation, Updated Income and Payroll Tax
Offsets to Changes in Excise Tax Revenues for 2021-2031, JCX-11-21
(February 23, 2021), www.jct.gov/publications/2021/jcx-11-21/.
More recently, JCT has estimated the change in Federal revenues
that would result from imposing a new excise tax of 30 cents per mile
on freight transport by heavy trucks, starting January 1, 2022. Such a
tax, applied only to certain heavy trucks while carrying freight, would
increase net revenues to the Federal Government by $33 billion in 2023,
the first full year it would be in place. From 2022 through 2031,
---------------------------------------------------------------------------
Federal revenues would increase by $337 billion.
Those estimates, which are net of reductions in income and payroll
tax receipts that would partially offset the increase in excise taxes,
reflect an assumption that an effective administrative framework is in
place when the tax goes into effect. That would be challenging,
however. Such a framework would require that an electronic device that
was either acquired by taxpayers or built into vehicles by
manufacturers be used to track miles. Furthermore, the information
logged by the device would need to be securely and accurately
transmitted to the Internal Revenue Service (IRS), and an independent
verification system would be required for successful collection of the
tax. If the IRS did not have an effective and automated way to match
individual trucks and railcars to particular taxpayers and verify that
the miles reported were accurate, some taxpayers might underreport
their mileage or fail to report any mileage at all. If effective
electronic data matching was not implemented, discrepancies would only
be caught by auditing, which requires significant resources. At
present, those systems do not exist, and their development would take
both time and government resources.
Furthermore, the number of taxpayers and vehicles subject to the
tax would be substantial. Many of those taxpayers would have no prior
excise tax filing requirement and no experience with the excise tax
system. As a result, the IRS would need to undertake significant
outreach to educate them about the new tax and the recordkeeping it
would require. The amount of revenues collected from a tax on vehicle
miles depends greatly on the extent of compliance, and JCT's estimate
should be viewed as entirely conceptual, because it does not take into
account those factors.
Institute a Tax or Fee on Electric Vehicles. Under current law,
drivers of EVs pay little or no Federal or State fuel taxes. (EVs
include plug-in hybrid vehicles, which combine a gasoline engine with a
battery-powered electric motor that can be recharged by plugging it
into an external electricity source, as well as all-electric vehicles,
which run solely on battery power.) However, many States have begun
charging owners of EVs an annual fee, typically from $50 to $200.
In 2019, total Federal gasoline taxes paid for each light-duty
vehicle averaged about $100. If the Congress imposed an annual tax of
$100, starting in October 2021, on all light-duty electric vehicles,
the revenues generated by that tax would average about $0.2 billion per
year from fiscal years 2022 through 2026. That amount would equal 1.6
percent of the highway trust fund's cumulative shortfall over that 5-
year period, according to CBO's baseline budget projections as of
February 2021.\9\ Such a tax would be similar to the existing annual
use tax on heavy vehicles in that it would apply to all vehicles with a
certain characteristic--in this case, that they run on electricity.\10\
If the tax was not applied to plug-in hybrids, the amount of money
collected would be smaller, and operators of those vehicles would not
have to pay both that tax and gasoline taxes.
---------------------------------------------------------------------------
\9\ Congressional Budget Office, ``Details About Baseline
Projections for Selected Programs: highway trust fund Accounts''
(February 2021), www.cbo.gov/publication/51300.
\10\ See Joint Committee on Taxation, Overview of Selected
Provisions and Options Relating to Funding and Financing Infrastructure
Investments, JCX-2-20 (January 27, 2020), www.jct.gov/publications/
2020/jcx-2-20.
Those estimates rely on the Energy Information Administration's
projections of the number of light-duty electric vehicles and on the
FHWA's estimates of fuel consumption by light-duty vehicles.\11\ CBO's
estimate of revenues from a tax on electric vehicles does not account
for two factors, however. One is that imposing such a tax would reduce
taxable business and individual income, resulting in decreases in
income and payroll tax receipts that would not affect the highway trust
fund but would, in the overall budget, partially offset the amount of
money collected from the new tax. In addition, the estimate does not
account for the cost of the administrative and auditing systems that
would have to be in place once the tax went into effect. The
development of such a framework would take time and funding. Outreach
to owners of electric vehicles would be necessary as well.
---------------------------------------------------------------------------
\11\ U.S. Energy Information Administration, Annual Energy Outlook
2021 (February 2021), Table 39, www.eia.gov/outlooks/aeo/; and Federal
Highway Administration, Office of Highway Policy Information, ``Highway
Statistics 2019'' (November 2020), Table VM-1, https://go.usa.gov/
xHdwq.
Establish a Highway Freight Tax. An alternative option for raising
highway revenues would be to institute a new tax on freight traveling
by highway that was similar to the taxes currently collected on freight
transported by plane or by ship. Taxes on freight transportation could
raise a substantial amount of money relative to the shortfall in the
highway trust fund, but the amount of revenues generated would depend
on what was taxed and what rate was set. Implementing a highway freight
tax would require policymakers to make decisions about which freight
shipments would be taxed and to design and implement a system to
collect those taxes. Those choices would determine the capital costs of
setting up the system as well as the ongoing costs to administer it and
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enforce collections.
The taxes on freight transported by plane and by ship provide two
different models of how a tax on freight transported by trucks might
work. The tax on domestic cargo transported by air is one of several
sources of revenues credited to the airport and airway trust fund--the
primary funding source for the Federal Aviation Administration and for
Federal grants to airports. If policymakers used that tax as a model
for designing a freight tax on cargo transported by truck, they would
need to decide which shipments to include and which shipping fees to
tax. A trucking industry association reported that total revenues for
the industry were about $800 billion in calendar year 2019, though that
includes only primary shipments (that is, the first movement of freight
from an origin to a destination), not secondary shipments by truck.\12\
---------------------------------------------------------------------------
\12\ American Trucking Association, ``Economics and Industry Data''
(accessed May 10, 2021), www.trucking.org/economics-and-industry-data.
Cargo transported by ship is taxed differently. The freight tax on
ship cargo, which through the harbor maintenance trust fund provides
half of the funds for Federal spending on harbor maintenance, is
assessed on the value of domestic and imported cargo moving through
ports on the coasts and Great Lakes. (Exports are not subject to the
tax because the Constitution forbids the taxation of exports.)
Policymakers seeking to implement a similar tax on freight shipped by
trucks over the Nation's highways would face decisions about which
cargo would be subject to such a tax and about how to value those
shipments. In 2017, the value of shipments sent by truck in the United
States--including intermediate and finished goods and imported and
exported goods--totaled nearly $10.5 trillion.\13\
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\13\ Census Bureau, ``CFS Preliminary Report: Shipment
Characteristics by Mode of Transportation: 2017'' (accessed May 10,
2021), https://go.usa.gov/xvuZG.
Transfer General Revenues. Since 2008, lawmakers have transferred
more than $150 billion from general revenues to the highway trust fund.
Most recently, in October 2020, the Continuing Appropriations Act, 2021
and Other Extensions Act (Public Law 116-159) authorized a transfer of
more than $10 billion to the highway account and $3 billion to the
transit account. Further transfers could supplement the revenues
collected from the excise taxes dedicated to highway and transit
programs. In CBO's 10-year baseline projections, which reflect the
assumptions that excise taxes are continued at their current rates and
that current funding for highway and transit programs increases
annually at the rate of inflation, outlays from the highway account
exceed accumulated balances and annual cash inflows in 2022, as do
outlays from the transit account. In the highway account, the
cumulative shortfall over the 2022-2031 period is projected to be $141
billion; the cumulative shortfall in the transit account over the 2022-
---------------------------------------------------------------------------
2031 period is projected to be $55 billion.
Using general revenues to fund Federal highway spending on an
ongoing basis would have the effect of decoupling spending from the
user charges that pay for that spending, but that approach has two
advantages. First, if taxes were increased to pay for highway programs,
the incremental costs of collection would be negligible because income
taxes and other broad-based taxes are already in place. In addition,
compared with several of the other options for increasing the amounts
credited to the highway trust fund, funding highways through broad-
based taxes would have the advantage of not imposing a larger burden,
relative to income, on lower-income households.
Funding highway programs with general revenues instead of taxes on
highway users would also have some disadvantages. If spending on other
programs was reduced to pay for highway programs, the benefits of
highway investments would be at least partially offset by a reduction
in the benefits that would have been provided by that other spending.
If, instead, lawmakers chose to pay for highway programs by taking on
additional debt, such a policy would tend to slow the economy in the
long term by reducing the amount of money available for private
investment.\14\ Finally, if highway spending was less connected to
highway-use taxes, users would have a reduced incentive to drive less
or to conserve fuel, and any gains in fairness and efficiency from a
system in which users pay for the benefits they receive would be
reduced or eliminated.
---------------------------------------------------------------------------
\14\ See Congressional Budget Office, The Macroeconomic and
Budgetary Effects of Federal Investment (June 2016), www.cbo.gov/
publication/51628.
---------------------------------------------------------------------------
federal support for state and local borrowing for highway spending
In addition to providing grants to State and local governments to
pay for highway capital projects, the Federal Government also supports
State and local investment in highways through a variety of mechanisms
that reduce the cost of their borrowing. In some cases, that Federal
support comes through forgone Federal tax revenues. Other mechanisms
appear as spending in the Federal budget. The Federal cost of each
dollar of financing provided to State and local governments varies for
the different mechanisms.
To finance investments in highways, State and local governments
issue bonds to obtain funds that they repay over time; to a lesser
extent, they also borrow from the Federal Government. Financing allows
State and local governments to pay for highways and other
infrastructure over a period that more closely matches the useful life
of that infrastructure. Financing can be particularly attractive when a
government does not have the resources on hand that are required to
fund a desired investment. However, financing is not a source of
revenues; it is a means of making future State and local revenues
available to pay for projects sooner. Future revenues committed to
paying back funds that are borrowed today will not be available to pay
for projects in the future.
Of the available federally supported financing mechanisms, tax-
preferred bonds are the one that States and localities have used most
frequently to finance highway infrastructure. Most of those tax-
preferred bonds are tax-exempt bonds, but tax credit bonds, which are
no longer authorized to be sold, have been used in the past and still
affect the Federal budget. Another financing mechanism, direct Federal
credit programs, offers loans or loan guarantees to State and local
governments for highway projects. Finally, States can establish
infrastructure banks to finance highway projects, but the use of that
financing mechanism for such purposes is not widespread.
From 2007 to 2016, CBO estimates, an average of $20 billion (in
2019 dollars) each year, or about one-fifth of the public sector's
total capital spending on highways, involved federally supported
financing.\15\ That federally supported financing accounted for 37
percent of the $54 billion (in 2019 dollars) that State and local
governments spent, on average, each year for highway capital projects
from funds other than Federal grants over that period.
---------------------------------------------------------------------------
\15\ See Congressional Budget Office, Federal Support for Financing
State and Local Transportation and Water Infrastructure (October 2018),
www.cbo.gov/publication/54549.
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Tax-Preferred Bonds
State and local governments frequently issue bonds, which they sell
to investors, to raise money to pay for capital investments in highways
and other infrastructure. Tax-exempt bonds are the most frequently used
federally supported financing mechanism. The interest paid on such
bonds is generally exempt from Federal income tax, so issuers can pay a
lower interest rate than private bonds would pay and still attract
investors. But to attract enough investors, issuers must pay a higher
interest rate than they would need to pay to attract some investors.
Some of the Federal subsidy goes to those investors who would have
purchased the bonds at a lower interest rate and thus does not provide
a benefit to the issuer.
Although the Federal Government does not currently authorize State
and local governments to issue tax credit bonds, when such bonds were
issued in the past, the Federal subsidy was paid either as an annual
credit against bondholders' Federal income tax liability (instead of,
or sometimes in addition to, the interest that typically would be paid)
or as a direct payment to the bonds' issuer that was equal to a portion
of the interest paid to the bondholder. All of the benefit of the
Federal subsidy for tax credit bonds could, therefore, go to the State
or local government issuing the bond.
Federal subsidies for tax-preferred bonds are paid through
reductions in taxes or spending from the general fund, so neither tax-
exempt bonds nor tax credit bonds affect outlays from the highway trust
fund.
Tax-Exempt Bonds. From 2007 to 2016, State and local governments
issued an average of $15 billion (in 2019 dollars) of new tax-exempt
bonds for highway projects per year (see Table 2). Such bonds accounted
for about three-quarters of the new federally supported highway
financing in those years.\16\ State and local governments rely on
several different sources of funds to repay that borrowing, including
general revenues and fuel and vehicle-related taxes. In addition, some
highway projects generate revenues to repay bondholders from tolls.
State and local governments may also issue grant anticipation revenue
vehicle (GARVEE) bonds, which are backed by expected future Federal
grants. All of those financing options provide State and local
governments substantial latitude in choosing which public-purpose
projects to finance with bond proceeds.
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\16\ That amount does not include the issuance of ``refunding''
bonds, which are used to pay off bonds that have already been issued.
Another type of tax-exempt bond, qualified private activity bonds
(QPABs), may be used to finance projects that are undertaken mainly by
private entities. The State or local government issues such bonds on
the private entity's behalf after receiving approval from the Federal
Department of Transportation. The total amount authorized to be issued
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as highway QPABs nationwide is currently capped at $15 billion.
For every dollar of tax-exempt bonds with a 20-year repayment
period issued in 2021, Federal tax revenues would be reduced by 23
cents, CBO estimates, because the interest paid on those bonds would be
exempt from Federal taxes. If the average annual amount of new bond
financing from 2021 to 2025 was the same as it was from 2007 to 2016,
the Federal revenues forgone for those bonds would be about $3 billion
per year.
Table 2.--Selected Federally Supported Mechanisms That State and Local
Governments Use to Finance Highway Infrastructure
------------------------------------------------------------------------
Estimated
Federal Cost of
Average Annual New Financing
Amount of New Provided in Type of
Mechanism Financing, 2007 Fiscal Year 2021 Federal Examples
to 2016 (billions (cents per Support
of 2019 dollars) dollar
financed) \1\
------------------------------------------------------------------------
Tax-Exempt 15 23 Forgone Traditiona
Bonds tax l tax-
revenues exempt
governmen
t bonds;
grant
anticipat
ion
bonds;
qualified
Private
Activity
Bonds
Tax Credit 4 \2\ 28 percent less For Build
Bonds than tax-exempt traditio America
bonds providing nal tax Bonds
the same credit
subsidy to bonds,
issuers \3\ forgone
tax
revenues
; for
direct-
pay
bonds,
such as
Build
America
Bonds,
mandator
y
spending
Direct 2 1 (FCRA Discretio TIFIA
Federal accounting); 24 nary program
Credit (fair-value appropri
Programs accounting) \4\ ations \
5\
------------------------------------------------------------------------
Data source: Congressional Budget Office. See www.cbo.gov/publication/
57206#data.
FCRA = Federal Credit Reform Act of 1990; TIFIA = Transportation
Infrastructure Finance and Innovation Act.
\1\ The estimate for tax-exempt bonds is based on 20-year financing; the
estimate for direct Federal credit programs is for loans from the
TIFIA program, which commonly have terms of 30 to 35 years. All
estimates are discounted present values--that is, they express related
current and future cash flows as an equivalent lump sum paid when the
financing is provided.
\2\ The average reflects the Build America Bonds that were issued for
highway projects in 2009 and 2010, the only 2 years in which those
bonds were authorized to be sold.
\3\ No current program allows such bonds to be issued for transportation
infrastructure.
\4\ These estimates are for direct loans from the TIFIA program. The
FCRA estimate is from the Office of Management and Budget. CBO's fair-
value estimate reflects the market value of the financial risk
associated with the program.
\5\ The largest direct Federal credit program for transportation, the
TIFIA program, is formally funded by contract authority, which is a
form of mandatory budget authority. However, use of that contract
authority is controlled by limitations on obligations contained in
annual appropriation acts.
Much of that Federal cost represents benefits to the State and
local governments that issue the bonds (by allowing them to offer a
lower interest rate on their bonds), but some of that cost goes to
benefits that accrue only to certain bondholders. Bondholders with
higher marginal tax rates save more than those with lower marginal tax
rates. To appeal to some investors whose tax rates are lower or who
find the bonds less attractive for other reasons, bond issuers must
offer interest rates that are higher than those required to attract
investors with higher tax rates. The benefits received by those
bondholders who save more in taxes than is necessary to compensate them
for the lower interest rates of the tax-exempt bonds represent costs to
the Federal Government that do not benefit the bond issuers.
Tax Credit Bonds. The Federal Government has also supported the
issuance of tax credit bonds by State and local governments at certain
times. Most recently, State and local governments were authorized to
issue Build America Bonds in 2009 and 2010. Those direct-pay tax credit
bonds required the Federal Government to make cash payments to the
bonds' issuer equal to a portion of the interest that the issuer paid
to bondholders. That allowed the issuer to offer a higher rate of
return on the bonds, which was necessary to offset the tax liability
that bondholders would incur on the interest they received. For every
$100 in interest paid to holders of Build America Bonds, an issuer
would receive $35 from the Federal Government, resulting in a credit
rate of 35 percent. For tax credit bonds that were authorized in
earlier periods, the form of Federal support differed: An annual
Federal income tax credit was provided to bondholders instead of, or in
addition to, the interest that would typically be paid on the bonds.
The cost to the Federal Government of tax credit bonds depends on
the amount of subsidy that is authorized. Tax credit bonds could,
however, provide the same amount of support to their issuers as tax-
exempt bonds at a Federal cost that is 28 percent lower than that of
tax-exempt bonds, CBO estimates. That difference exists because the
entire Federal cost of a tax credit bond benefits the issuer, whereas
part of the cost of tax-exempt bonds provides a subsidy to bondholders
with high marginal tax rates.
Direct Federal Credit Programs
The Transportation Infrastructure Finance and Innovation Act
(TIFIA) program provides credit assistance to State and local
governments primarily for highway and mass transit infrastructure,
although it can be used for a broad range of surface transportation
projects. Spending for the TIFIA program comes out of the highway trust
fund.
The Department of Transportation must approve a State or local
government's application for TIFIA assistance. To qualify, a project
generally must cost at least $50 million, though the minimum cost is
lower for rural or local projects ($10 million) and for intelligent
transportation system projects ($15 million). Projects receiving TIFIA
assistance are expected to attract other public and private investment
in addition to the Federal support. Examples of TIFIA-funded projects
include the Central 70 Project in Colorado, which is redesigning,
reconstructing, and adding capacity to a section of Interstate 70 in
Denver; the Monroe Expressway toll road in North Carolina; and the
Portsmouth Bypass in Ohio.
The TIFIA program lends at Treasury bond rates for up to 35 years.
In addition, repayment is deferred until 5 years after a project is
substantially complete, and TIFIA loans have a subordinated status,
meaning that a project's other lenders and equity investors retain
rights to be repaid before the Federal Government (unless the borrower
defaults and enters bankruptcy, in which case the TIFIA loan takes a
priority equal to that of the project's senior debt). In practice,
TIFIA loan amounts have typically been limited to about 33 percent of a
project's eligible costs, though borrowers may apply for loans of up to
49 percent of eligible costs.
The budgetary cost of TIFIA loans depends on the riskiness of the
loans made and thus varies from year to year. In 2019, TIFIA provided
about $1.5 billion in loans; to do so, it used $98 million of its
budget authority at an estimated subsidy rate of 6.3 percent, or a
Federal cost of 6.3 cents per dollar financed.\17\ To estimate the
subsidy rate for loans made in a given year, the Department of
Transportation uses a model that it recently updated in consultation
with the Treasury Department and the Office of Management and Budget
(OMB). Using that model, OMB estimates that the subsidy rate of loans
made in 2021 will be 1 percent.\18\
---------------------------------------------------------------------------
\17\ Budget authority is the authority provided by law to incur
financial obligations that will result in immediate or future outlays
of Federal Government funds. The subsidy rate is an estimate of how
much a type of credit assistance from a given program costs the Federal
Government per dollar disbursed; it is calculated according to the
method specified in the Federal Credit Reform Act of 1990. For
budgetary purposes, the subsidy rate is calculated by the Office of
Management and Budget and is applied to the amounts appropriated to a
Federal credit program to determine the volume of loans the program can
provide. See Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2020: Analytical Perspectives (March 2019),
Table 22-2, www.govinfo.gov/app/details/BUDGET-2020-PER/; and Federal
Highway Administration, Center for Innovative Finance Support,
``Transportation Infrastructure Finance and Innovation Act (TIFIA)''
(accessed May 10, 2021), https://go.usa.gov/xvJxs.
\18\ Office of Management and Budget, Budget of the U.S.
Government, Fiscal Year 2021: Credit Supplement (February 2020), Table
1, www.govinfo.gov/app/details/BUDGET-2021-FCS.
Those official budgetary estimates do not reflect the cost of
market risk--the risk that arises because borrowers are more likely to
default on their debt obligations when the economy is performing
poorly.\19\ Taking that risk into account, CBO estimates that the loans
made under the program in 2021 will have a subsidy rate of 24 percent.
Those rates may increase in subsequent years when Treasury interest
rates are projected to rise as the economy recovers from the
disruptions caused by the pandemic.
---------------------------------------------------------------------------
\19\ Market risk is the component of financial risk that remains
even after investors have diversified their portfolios as much as
possible; it arises from shifts in macroeconomic conditions, such as
productivity and employment, and from changes in expectations about
future macroeconomic conditions. An approach that takes that risk into
account is called a fair-value approach. See Congressional Budget
Office, Measuring the Cost of Government Activities That Involve
Financial Risk (March 2021), www.cbo.gov/publication/56778, and
Estimates of the Cost of Federal Credit Programs in 2021 (April 2020),
www.cbo.gov/publication/56285.
---------------------------------------------------------------------------
State Infrastructure Banks
State infrastructure banks are financial institutions that State
governments create and run to lend money to fund infrastructure
projects. SIBs established for highway and mass transit projects do not
receive designated Federal grants each year, but State governments may
decide to use some of the Federal formula grants that they receive for
highways and mass transit to capitalize them. Some banks choose to
increase their current lending capacity by issuing tax-exempt bonds,
thus receiving a second form of Federal support. Most of the financial
support that SIBs have provided has gone to highway projects.
Of the 33 States that have established SIBs, only about a dozen
have actively used them. From 2007 to 2016, average annual financing
for highway infrastructure provided by SIBs amounted to $200 million
(in 2019 dollars), or about 1 percent of the total amount of new
financing by State and local governments that the Federal Government
subsidized each year. The data necessary to estimate the Federal costs
of financing SIBs are unavailable.\20\
---------------------------------------------------------------------------
\20\ In 2018, CBO estimated that the Federal cost of direct loans
and leveraged loans (those made using the proceeds of bond issues) made
in 2023 by the Clean Water State Revolving Funds program and the
Drinking Water State Revolving Funds program would be 23 cents and 43
cents per dollar financed, respectively. See Congressional Budget
Office, Federal Support for Financing State and Local Transportation
and Water Infrastructure (October 2018), www.
cbo.gov/publication/54549. If those costs were estimated today, they
would reflect very different interest rates for Treasury bonds and tax-
exempt bonds from those that were anticipated in 2018. How well such
estimates would correspond to the costs of loans from transportation
SIBs is unclear.
---------------------------------------------------------------------------
Options
Changes to Federal programs that support the financing of State and
local highway capital projects could expand the amount of investment in
Federal-aid highways by making State and local investments less costly
to finance. Policymakers could expand the use of tax-exempt bonds. Or
they could establish a new program to provide State and local
governments with the opportunity to issue new tax credit bonds. In
addition, they could increase the use of TIFIA loans. Another option
Federal lawmakers could pursue is to allow more tolling on Interstate
highways, thereby providing States with a revenue stream they could
borrow against. If any of those options were implemented and State and
local governments expanded their use of the financing mechanisms, the
Federal costs would, in most cases, take the form of forgone Federal
revenues. TIFIA outlays, however, are paid out of the highway trust
fund, so expansions of that program would affect the shortfall in the
trust fund.
Raise the Cap on Highway QPABs. Of the $15 billion in Qualified Private
Activity Bonds allowed to be issued for highway and other surface
transportation projects, about $13.5 billion in such bonds had been
issued as of April 2021, and another $1.2 billion in such bonds had
been approved by the Department of Transportation but had not yet been
issued. (In the past, some projects that received a QPAB allocation
switched to other forms of financing, so some of those bonds that have
had funds allocated for them but that have not been issued may never be
issued.)\21\
---------------------------------------------------------------------------
\21\ See Department of Transportation, ``Private Activity Bonds''
(April 19, 2021), https://go.usa.gov/xv6NQ.
Giving private entities access to the tax-exempt bond market
through QPABs lowers the cost of capital for those borrowers and can
promote infrastructure projects when State and local governments have
self-imposed limits on borrowing. Development of large, complex
infrastructure projects often takes years, so the limit on the use of
QPABs for funding highway and surface transportation projects reduces
the certainty that the bonds would still be available if developers
---------------------------------------------------------------------------
chose to apply for them in the future.
If the availability of QPABs increased and their use became more
widespread, Federal costs would go up. Like tax-exempt bonds, QPABs
result in forgone Federal revenues. Private funding might be available
to some developers without QPABs (albeit at a higher cost); if so, the
projects that would be unable to receive financing without them would
be those of marginal value.
Institute a Tax Credit Bond Program. Instituting a new tax credit
bond program that was similar to the Build America Bonds program that
was active in 2009 and 2010 would provide State and local governments
with an additional option for issuing debt to finance capital spending.
Tax credit bonds could offer State and local governments the same
Federal subsidy as tax-exempt bonds at a lower cost to the Federal
Government.
Whereas CBO estimates that 20-year tax-exempt bonds issued by State
and local governments in 2023 would cost the Federal Government 26
cents for each dollar financed, tax credit bonds issued that same year
(with the same maturity and the same Federal subsidy of a 22-percent
reduction in interest costs) would cost the Federal Government 19 cents
per dollar financed. In other words, for the same Federal cost as
traditional tax-exempt bonds, the Federal Government could, by
authorizing tax credit bonds, provide State and local governments with
a subsidy that was almost 40 percent larger, thereby reducing their
financing costs more than tax-exempt bonds would. Ultimately, the
Federal cost of such a program would depend on the amount of subsidy
that lawmakers authorized and the amount of bonds that State and local
governments issued.
Tax credit bonds might offer one further advantage over tax-exempt
bonds--they might appeal to a broader set of investors, particularly
those with little or no tax liability, such as pension funds and other
tax-exempt organizations.
Expand the TIFIA Program. From 2015 through 2019, 19 highway and
bridge projects received financing through the Transportation
Infrastructure Finance and Innovation Act program. The average total
cost per project was $1 billion, and each received, on average, $314
million in TIFIA loans. The smallest project to receive assistance had
a total cost of $127 million; the TIFIA loan for that project totaled
$47 million.
The financing assistance provided through TIFIA is paid for with
outlays from the highway trust fund, so expanding the program would
increase the trust fund's shortfall if no changes were made to the
revenues credited to the fund.
Lawmakers have at least two options for expanding TIFIA financing:
Increase the maximum Federal share of eligible projects'
costs. By law, the maximum share of costs that can be financed through
the program is 49 percent, but in practice, the Department of
Transportation has not provided more than about one-third of a
project's cost in TIFIA assistance. At the end of 2019, TIFIA
assistance accounted for an average of 28 percent of the total cost of
each of the active projects funded by the program.
Extend TIFIA assistance to a wider variety of projects. To be
eligible for TIFIA assistance, a project's costs must generally exceed
$50 million, though lower minimums are set for rural or locally
sponsored projects. In practice, however, no projects with estimated
costs of less than $50 million have received TIFIA assistance.
Allow States to Collect Tolls on Interstate Highways. With a few
exceptions, Federal law does not permit States to collect tolls on
existing Interstate highways. Allowing them to do so would offer a new
source of revenues that State and local governments could use to back
bonds for capital projects or to attract private developers that would
provide financing for a public-private partnership. If any of the
financing mechanisms supported by the Federal Government were used for
such projects, Federal costs would increase, either through lending
programs, such as TIFIA, or through the Federal subsidies provided for
financing mechanisms, such as tax-exempt bonds.
______
Questions Submitted for the Record to Joseph Kile, Ph.D.\1\
---------------------------------------------------------------------------
\1\ See testimony of Joseph Kile, Director of Microeconomic
Analysis, Congressional Budget Office, before the Senate Committee on
Finance, ``Options for Funding and Financing Highway Spending'' (May
18, 2021), www.cbo.gov/publication/57206.
---------------------------------------------------------------------------
Questions Submitted by Hon. Rob Portman
infrastructure banks
Question. You noted in your testimony that only about a dozen
States use their infrastructure banks despite 33 having enabling
legislation on the books. Further, you indicated that from 2007-2016,
the average annual financing for highway infrastructure provided by
State infrastructure banks amounted to $200 million, or about 1 percent
of new financing by State and local governments.
Can you discuss what barriers exist to increased use of State
infrastructure banks?
Answer. State infrastructure banks and revolving funds--financial
institutions that State governments create and run to lend money for
infrastructure projects--are used less often for surface transportation
than for water utilities. One reason is that State infrastructure banks
do not receive Federal grants that are specifically designated to
capitalize them, unlike revolving funds for water infrastructure. As a
result, infrastructure banks for water utilities typically offer more
favorable loan terms than infrastructure banks for highways. Meanwhile,
States must choose between allocating Federal grant money to capitalize
a State infrastructure bank for highways or funding highway projects
directly with that grant money. Another reason is that when State
infrastructure banks issue loans to local governments, the local
governments must repay the loans. Local governments can repay loans
made for water projects with fees from users of the water utility. But
highway projects often lack such revenue streams. Therefore, State and
local governments frequently draw on the municipal bond market for
highway projects rather than on State infrastructure banks.
State infrastructure banks are attractive sources of financing for
local highways and transit projects when the financing is cheaper for
local entities than the cost of issuing their own bonds, such as when
local entities want to finance relatively small amounts of capital.
State banks can generally issue bonds on a larger scale; therefore,
costs for underwriting, legal fees, and marketing are typically lower
for them than for local entities.
State infrastructure banks for transportation have also proved
advantageous when financing has needed to be executed quickly. After
some natural disasters, loans provided by those banks have provided
temporary funding for relief, allowing recovery efforts to start before
Federal grant money for disaster relief was received.
Question. There have been several congressional proposals for the
creation of a Federal infrastructure bank. While often there is an
appropriation to start the bank, many of these proposals assume a 10:1
debt-to-equity ratio and an ability to leverage $100 billion or more in
infrastructure investment.
Could you describe the way leverage in a national infrastructure
bank could be used to stretch the Federal dollars? That is--to get more
investment in infrastructure at a smaller Federal price tag?
Answer. The Federal Government can provide grants, loans, and other
credit assistance, and tax preferences to help State and local
governments (or the private sector) build infrastructure. Loans and tax
preferences for borrowing cost the Federal Government less than grants
because loans and borrowed funds are eventually repaid and grants are
not. Infrastructure projects that generate user fees, tolls, or another
form of revenue are better candidates for loans than projects that do
not generate funds that could be used to repay the loan.
Spending by a national infrastructure bank that was funded and
controlled by the Federal Government would be included in the Federal
budget. Because of the Federal Credit Reform Act of 1990, such a
national infrastructure bank would not be able to revolve loans (that
is, relend loan repayments) in the same way that State infrastructure
banks can. Alternatively, spending by a national infrastructure bank
that was independent of Federal control would be outside the Federal
budget. However, to attract additional capital to leverage the initial
funding by the Federal Government, an independent bank--one that the
Federal Government was not obliged to support--would have to subsidize
providers of additional capital to compensate them for the increased
risk of losing money on their investments. Such subsidies are an
additional cost for the Federal Government.
Some State and local infrastructure banks issue tax-preferred debt
to leverage their Federal funding, which increases the Federal
Government's costs by reducing the amount of taxes it collects. To
illustrate the impact on the Federal Government, CBO projected that
loans from State infrastructure banks will cost the Federal Government
23 cents in 2023 (as a representative future year) for every dollar
financed; if those banks leveraged their Federal funds by issuing tax-
exempt bonds, the cost to the Federal Government would rise to 43 cents
for every dollar financed.\2\
---------------------------------------------------------------------------
\2\ See Congressional Budget Office, Federal Support for Financing
State and Local Transportation and Water Infrastructure (October 2018),
www.cbo.gov/publication/54549.
Some Federal programs that serve particular kinds of infrastructure
have many of the characteristics of a national infrastructure bank. For
instance, the Transportation Infrastructure Finance and Innovation Act
(TIFIA) program provides loans, loan guarantees, and lines of credit to
help finance transportation projects. In 2019, TIFIA provided about
$1.5 billion in loans. TIFIA loans, which cover up to half of a
project's costs, provide flexible repayment terms and more favorable
interest rates than applicants could secure in private capital markets.
Demand for TIFIA loans is limited, however, because the Federal
Government requires borrowers to have a source of funding for
---------------------------------------------------------------------------
repayment.
airports' passenger facility charges
Question. The passenger facility charge that helps fund airport
maintenance and improvement is currently capped at $4.50 per flight
segment with a maximum of two PFCs charged on a one-way trip or four
PFCs on a round trip, for a maximum of $18 total.
Does CBO have an estimation of how much revenue could be generated
for airport maintenance if the passenger facility charge (PFC) was
indexed to inflation starting from 2000? Starting from 2021?
Answer. Although PFCs are authorized by Federal law, they are
collected by commercial airports that are controlled by nonfederal
public agencies. Because the fees are not paid to the Federal
Government, increasing them would not increase Federal revenues.
Indeed, CBO and the staff of the Joint Committee on Taxation (JCT)
expect that increasing the maximum allowable PFC would result in an
increase in tax-exempt financing and a subsequent loss of Federal
revenues.
If PFCs had been indexed to inflation beginning in 2000, the
maximum charge per flight segment would be $6.79 in 2022.\3\ If that
indexing continued through 2031 and airports charged the maximum fee,
CBO estimates that airports would collect an additional $25.7 billion
from 2022 through 2031.
---------------------------------------------------------------------------
\3\ CBO calculated inflation by using the chained consumer price
index for all urban consumers.
If PFCs were instead indexed to inflation from the current $4.50 in
2021, CBO projects that the maximum fee per flight segment would be
$4.61 in 2022. If indexing of the 2021 amount continued through 2031
and airports charged the maximum fee, CBO estimates that airports would
---------------------------------------------------------------------------
collect an additional $5.1 billion from 2022 through 2031.
Question. How much revenue could be generated by an increase of the
PFC by $1.00? By $2.00?
Answer. CBO estimates that increasing the maximum allowable PFC per
flight segment by $1 in 2022 would yield airports an additional $8.5
billion in collections from 2022 through 2031. CBO projects that an
increase of $2 would yield $17 billion in additional collections for
airports over the same period.
fees on electric vehicles
Question. In your testimony, you note that an annual fee on light-
duty electric vehicles would generate revenues averaging about $0.2
billion per year over the next 5 years. I recognize that electric
vehicles make up only 2 percent of the vehicles on the road today.
However, the electric vehicle industry estimates a 30-percent growth
rate in EV adoption over the next 10 years.
What would the implication of this growth be on annual fee revenue?
Answer. CBO's estimate of the revenues from an annual fee on light-
duty electric vehicles relied on the Energy Information
Administration's projections of the number of light-duty electric
vehicles. In those projections, the stock of electric vehicles in the
United States grows by about 55 percent between 2022 and 2026, and
sales of electric vehicles increase by about 15 percent a year, on
average. If electric vehicles were adopted more quickly, those fee
revenues would be higher. If annual sales growth was 30 percent, the
number of electric vehicles would roughly double over the 2022-2026
period, and revenues would be about 20 percent more than CBO projected
(that is, an average of $0.3 billion per year, taking rounding into
account).
Two additional factors would affect the net amount the government
collected from an annual fee on electric vehicles. One, that fee would
reduce taxable business and individual income. Those reductions and the
decreases in income and payroll tax receipts that would follow would
not affect the highway trust fund, but they would partially offset the
amount of money the Federal Government collected from the new tax. Two,
the administrative and auditing systems necessary to collect such a fee
or tax might be challenging to implement. A system to identify owners
of electric vehicles, assess a tax or fee, and collect it would have to
be developed and would need to be funded.
______
Questions Submitted by Hon. John Barrasso
electric vehicles
Question. Chairman Wyden has introduced legislation to provide a
$7,500 refundable tax credit for electric vehicles that will not begin
to phase out until electric vehicles represent half of all U.S. vehicle
sales.
Because electric vehicles do not support the highway trust fund,
what impact will electric vehicles' representing 50 percent of U.S.
vehicle sales have on the highway trust fund?
Answer. As electric vehicles become a larger share of the light-
duty vehicle fleet, the highway trust fund's revenues will decline
because drivers of electric vehicles do not pay fuel taxes. The Energy
Information Administration projects that electric vehicle sales will
account for about 7 percent of vehicle sales in 2031. If the Federal
Government offered a $7,500 refundable tax credit on electric vehicles
and fuel-cell vehicles (fuel cells, another new technology, use
hydrogen as an energy source), JCT projects that sales of those
vehicles would account for 10 percent to 20 percent of light-duty
vehicle sales by 2031. JCT did not project that electric vehicles would
account for 50 percent of vehicle sales by 2031. If electric vehicles
were adopted more rapidly than JCT projected, the highway trust fund's
revenues would be lower than those in CBO's most recent baseline
projections. If sales of electric vehicles were half of all sales of
U.S. vehicles from 2028 to 2031, the trust fund's revenues would be
roughly $4 billion lower in 2031 than CBO projects. However, sales of
electric vehicles would need to grow by 66 percent a year, on average,
between now and 2028 to represent half of all vehicles sold annually.
Question. What are the estimated job losses within the auto
manufacturing, auto parts, auto sales, and auto repair industries if
electric vehicles represent 50 percent of all U.S vehicle sales
annually?
Answer. CBO has not analyzed the impact on employment of increases
in sales of electric vehicles. That analysis would depend on where the
electric vehicles and their key components were manufactured and
whether their production was more or less labor-intensive than
production of vehicles with internal combustion engines. (The National
Highway Traffic Safety Administration assesses the domestic
manufacturing content of different vehicle models each year.)\4\
Because electric vehicles generally require less maintenance than
conventional vehicles, employment in the auto repair industry would
probably decline if sales of electric vehicles increased.
---------------------------------------------------------------------------
\4\ See National Highway Traffic Safety Administration, ``Part 583
American Automobile Labeling Act Reports'' (accessed August 2, 2021),
https://go.usa.gov/xFXrs.
---------------------------------------------------------------------------
funding for the transit account of the highway trust fund
Question. Currently, the mass transit account within the highway
trust fund receives revenues equivalent to 2.86 cents per gallon of
highway motor fuels excise taxes.
Given the significant investment needed to modernize America's
roads and bridges, what options are available for mass transit to
create the necessary revenue stream to provide for future investments
and maintenance of their own systems, rather than relying on
allocations from the highway motor fuels excise taxes?
Answer. About two-thirds of the funding for public transit comes
from subsidies provided by Federal, State, and local governments. At
the Federal level, the highway trust fund's transit account receives
revenue from the excise taxes on motor fuels and from the trust fund's
highway account (an estimated $1.2 billion is transferred from the
highway account to the transit account each year). Those two sources of
funds total $64 billion over the 2022-2031 period, or 46 percent of the
anticipated $140 billion shortfall between spending and revenues in the
highway account over that period, according to CBO's baseline
projections from July 2021.
Additional funds for transit systems could come from State and
local governments, transit users, or Federal sources other than excise
taxes on motor fuels. States and localities, which account for about
one-half of public transportation funding, could raise the taxes
received by transit systems or impose new taxes. New taxes for State
and local areas might include value capture strategies such as taxes on
businesses or properties located near transit stations, which typically
benefit most from the transit service. Such taxes could include sales
taxes on goods sold within special districts, land value taxes (a levy
on the value of unimproved land), and tax increment financing (in which
a share of the revenues from real estate taxes is dedicated to
transit), among others.\5\ Transit agencies could also increase user
fees. In 2019, before the pandemic, transit agencies' operating
receipts (most of which come from passenger fares) totaled about $20
billion. However, with fewer riders as a result of the coronavirus
pandemic, raising fares may not increase revenues by much, and how much
ridership will rebound is unclear. Additional funds could also be
transferred from the Treasury's general fund; between 2008 and 2018,
the Congress authorized $29 billion in transfers to the transit
account.
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\5\ For more information on value capture strategies, see Federal
Highway Administration, ``Value Capture'' (accessed August 2, 2021),
www.fhwa.dot.gov/ipd/value--capture/.
Alternatively, the Congress could prompt transit systems to reduce
their use of Federal grants. About two-thirds of Federal outlays for
transit are for capital spending. The Federal Government could limit
its grants for capital spending to projects that rehabilitate existing
facilities or replace worn-out or unsafe equipment, or it could stop
making grants for capital spending and instead make grants only for
operation and maintenance of transit systems. The Federal Government
could also replace capital grants with Federal loans to transit systems
---------------------------------------------------------------------------
or direct pay tax credit bonds.
______
Prepared Statement of Victoria F. Sheehan, President, American
Association of State Highway and Transportation Officials
introduction
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for the opportunity to appear today and speak to the critical
need to provide stable and predictable funding for the Federal
transportation program, while also providing additional financing tools
for States and local governments to access.
My name is Victoria Sheehan, and I serve as Commissioner of the New
Hampshire Department of Transportation (NHDOT) and as president of the
American Association of State Highway and Transportation Officials
(AASHTO). Today, it is my honor to testify on behalf of the Granite
State and AASHTO, which represents the State departments of
transportation (State DOTs) of all 50 States, Washington, DC, and
Puerto Rico.
First, allow me to express the State DOTs' collective and utmost
appreciation for you--the members of the Senate Finance Committee. Your
leadership on several important issues affecting State DOTs must be
commended: the repeal of the $7.6-
billion rescission of highway contract authority in 2019; the extension
of surface transportation programs through fiscal year 2021, while
providing necessary funds to shore up the Federal highway trust fund
for the duration of the extension; the $10 billion in COVID-19 relief
funding for State DOTs to help replace lost revenue in December 2020;
and just as important, your firm commitment to getting the Federal
surface transportation bill done on time and possibly providing
infrastructure funding as part of a future economic stimulus and
recovery package.
I would like to emphasize the following issues as part of my
testimony today: the importance of a timely reauthorization of Federal
surface transportation programs; the need for a long-term funding
solution for the highway trust fund; financing mechanisms can
supplement, but not replace direct Federal funding; and the tangible
economic benefits of investing in highway, transit, and other
transportation infrastructure--both as part of the reauthorization
effort and as part of any investment in the recovery from the current
pandemic.
the importance of a timely reauthorization of
federal surface transportation programs
States like New Hampshire rely heavily upon the Federal surface
transportation program in order to enable the necessary infrastructure
investments for our citizens. A stable Federal surface transportation
program has become even more crucial as New Hampshire and States across
the county continue to recover from the impacts of the pandemic. Any
delay in the reauthorization process--or even worse, a series of short-
term extensions--would wreak havoc across the country and would impact
not just State DOTs, but our partners such as local governments and the
construction industry.
In New Hampshire it would impact projects in every county, with
projects of all types and sizes being vulnerable, including roadway
safety improvements, State of good repair work, as well as capacity
improvements, and active transportation investments. Due to our
inability to complete work in the winter months, even a short-term
delay could have longer term impacts, especially if the timing was such
that we could not confidently advertise projects and maximize the
summer construction season.
While this committee is not generally responsible for developing
surface transportation policies, you have the unenviable task of
identifying and securing funding to pay for these programs. AASHTO
members acknowledge the difficulty of the job ahead of you in the
coming months, but we stand ready to work with this committee and
others in Congress to find a funding solution that addresses the
growing infrastructure investment needs across the country.
need for a long-term funding solution for the highway trust fund
For many years, Congress has struggled with how to address the
insolvency of the Federal highway trust fund (HTF). Since 2008,
Congress has had to transfer over $150 billion from the general fund of
the Treasury to the highway trust fund in order to maintain funding
levels. While AASHTO is very grateful for this committee and Congress's
unwillingness to reduce surface transportation investments, we
recognize that general fund transfers do not provide the long-term
solution needed to stabilize these important programs.
According to recently released baseline projections from the
Congressional Budget Office, in order to simply maintain the current
HTF spending levels adjusted for inflation after the current extension
of the Fixing America's Surface Transportation (FAST) Act, Congress
will need to identify $74.8 billion in additional revenues for a 5-year
bill through 2026; $97.2 billion would be needed to support a 6-year
bill through 2027 for both the highway and transit accounts.
At the same time, the purchasing power of HTF revenues has declined
substantially mainly due to the flat, per-gallon motor fuel taxes that
have not been adjusted since 1993, losing over half of their value in
the last 28 years. This loss of purchasing power is especially stark
when compared to cost of other basic goods and services during the same
time period.
Exhibit 1: Purchasing Power Loss of the Gas Tax Relative to POther
Household Expenses
------------------------------------------------------------------------
Item Desciption 1993 2015 Percent Change
------------------------------------------------------------------------
College Average Tuition $1,908 $9,145 379%
Tuition and Fees at
Public 4-year
Universities
------------------------------------------------------------------------
Health National $3,402 $9,523 180%
Care Expenditure Per
Capita
------------------------------------------------------------------------
House Median New Home $118,000 $292,000 147%
Price
------------------------------------------------------------------------
Gas Per Gallon $1.08 $2.56 137%
------------------------------------------------------------------------
Beef Per Pound of $1.97 $4.38 122%
Ground Beef
------------------------------------------------------------------------
Movie Average Ticket $4.14 $8.43 104%
Ticket Price
------------------------------------------------------------------------
Bread Per Pound of $0.75 $1.48 98%
White Bread
------------------------------------------------------------------------
Income National Median $31,241 $56,516 81%
Household
------------------------------------------------------------------------
Stamp One First-Class $0.29 $0.49 69%
Stamp
------------------------------------------------------------------------
Car Average New Car $16,871 $25,487 51%
------------------------------------------------------------------------
Federal Per Gallon $0.18 $0.18 0%
Gas Tax
------------------------------------------------------------------------
Source: Bureau of Labor Statistics, Center for Medicare and Medicaid
Services, College Board, Federal Reserve Bank of St. Louis, Oak Ridge
National Laboratory, Census Bureau, Energy Information Agency, Postal
Service.
Every State is required to have a Statewide transportation
improvement program which identifies funded priorities for the next 4
years. In order to do this, States must make assumptions about what
might happen to Federal funding when programs expire on September 30,
2021. Any shortfall or delay in Federal funding will lead to serious
cash flow problems for States and local governments. A lack of stable,
predictable funding from the HTF makes it nearly impossible for State
DOTs to effectively plan--and this is especially true for large
projects that need a reliable flow of funding over multiple years.
Projects that State DOTs undertake connect people, enhance the quality
of life for our citizens, and just as important, stimulate economic
growth in each community where they are built.
States have answered the call to action for increasing
transportation investments, with more than two-thirds of all States
having successfully enacted transportation revenue packages over the
past decade--including in the Granite State.
In 2014 the New Hampshire House and Senate approved Senate Bill
367, a 4.2 cents per gallon increase in the State gas tax, which is
known as the road toll in New Hampshire. The bill was structured so
that the additional revenue could be used across the roadway network.
Twelve percent of the revenue collected is returned to cities and
towns, a portion is also committed to municipally owned bridges, but
the majority of the funding was pledged to the reconstruction of
Interstate 93 from the border with Massachusetts to Manchester, the
largest city in the State. The intent being to complete the final
phases of this $800 million project without reducing the investments
being made in other parts of the State.
It should be noted that Federal transportation funding does not
displace or discourage State and local investment. In fact, as
evidenced by significant transportation infrastructure investment
needs, further strengthening and reaffirmation of the federally
assisted, State-implemented foundation of the national program is even
more critical now than in the past.
In order to provide additional HTF receipts to maintain or increase
current Federal highway and transit investment levels, there is no
shortage of technically feasible tax and user fee options that Congress
could consider. Potential revenue solutions for the HTF fall into three
main categories: raising the rate of taxation or fee rates of existing
Federal revenue streams into the HTF--examples include motor fuel taxes
on gasoline and diesel (including indexing), user fees on heavy
vehicles, and sales taxes on trucks, trailers, and truck tires;
identifying and creating new Federal revenue sources for the HTF--
examples include a mileage-based user fee, per-barrel oil fee, and
freight user fee; and redirecting current revenues (and possibly
increasing the rates) from other Federal sources into the HTF--examples
include Customs duties, income taxes, and other revenues from the
general fund.
The matrix below illustrates the breadth of potential HTF revenue
mechanisms, including a column that shows an illustrative rate or
percentage increase and the associated revenue yield estimated.
Exhibit 2: Matrix of Illustrative Surface Transportation Revenue Options
----------------------------------------------------------------------------------------------------------------
$ in Billions
Illustrative ---------------------------------
Existing highway trust fund Rate or Definition of Mechanism/ Total Forecast
Funding Mechanisms Percentage Increase Assumed 2018 Yield 2019-
Increase Yield \1\ 2023
----------------------------------------------------------------------------------------------------------------
Existing HTF Funding Mechanisms
----------------------------------------------------------------------------------------------------------------
Diesel Excise Tax 20.0 cents cents/gal increase in $8.8 $42.2
current rate
----------------------------------------------------------------------------------------------------------------
Gasoline Excise Tax 15.0 cents cents/gal increase in $21.8 $102.1
current rate
----------------------------------------------------------------------------------------------------------------
Motor Fuel Tax Indexing of cents/gal excise tax $3.7
Current Rate to CPI (Diesel)
----------------------------------------------------------------------------------------------------------------
Motor Fuel Tax Indexing of cents/gal excise tax $8.8
Current Rate to CPI (Gas)
----------------------------------------------------------------------------------------------------------------
Truck and Trailer Sales Tax 20.0% increase in current revenues, $0.6 $4.2
structure not defined
----------------------------------------------------------------------------------------------------------------
Truck Tire Tax 20.0% increase in current revenues, $0.1 $0.5
structure not defined
----------------------------------------------------------------------------------------------------------------
Heavy Vehicle Use Tax 20.0% increase in current revenues, $0.2 $1.2
structure not defined
----------------------------------------------------------------------------------------------------------------
Other Existing Taxes
----------------------------------------------------------------------------------------------------------------
Minerals Related Receipts 25.0% increase in/reallocation of $0.6 $3.4
current revenues, structure
not defined
----------------------------------------------------------------------------------------------------------------
Harbor Maintenance Tax 25.0% increase in/reallocation of $0.4 $1.9
current revenues, structure
not defined
----------------------------------------------------------------------------------------------------------------
Customs Revenues 5.0% increase in/reallocation of $1.9 $10.3
current revenues, structure
not defined
----------------------------------------------------------------------------------------------------------------
Income Tax--Personal 0.5% increase in/reallocation of $5.3 $28.4
current revenues, structure
not defined
----------------------------------------------------------------------------------------------------------------
Income Tax--Business 1.0% increase in/reallocation of $1.7 $8.9
current revenues, structure
not defined
----------------------------------------------------------------------------------------------------------------
License and Registration Fees
----------------------------------------------------------------------------------------------------------------
Drivers License Surcharge $5.00 dollar assessed annually $1.1 $6.1
----------------------------------------------------------------------------------------------------------------
Registration Fee (Electric $100.00 dollar assessed annually $0.0 $0.2
Light Duty Vehicles)
----------------------------------------------------------------------------------------------------------------
Registration Fee (Hybrid Light $50.00 dollar assessed annually $0.2 $1.3
Duty Vehicles)
----------------------------------------------------------------------------------------------------------------
Registration Fee (Light Duty $5.00 dollar assessed annually $1.3 $6.8
Vehicles)
----------------------------------------------------------------------------------------------------------------
Registration Fee (Trucks) $100.00 dollar assessed annually $1.2 $6.3
----------------------------------------------------------------------------------------------------------------
Registration Fee (All $5.00 dollar assessed annually $1.3 $7.1
Vehicles)
----------------------------------------------------------------------------------------------------------------
Weight and Distance Based Fees
----------------------------------------------------------------------------------------------------------------
Freight Charge--Ton (Truck 10.0 cents cents/ton of domestic $1.1 $5.8
Only) shipments
----------------------------------------------------------------------------------------------------------------
Freight Charge--Ton (All 10.0 cents cents/ton of domestic $1.3 $7.1
Modes) shipments
----------------------------------------------------------------------------------------------------------------
Freight Charge--Ton-Mile 0.5 cents cents/ton-mile of domestic $10.1 $54.2
(Truck Only) shipments
----------------------------------------------------------------------------------------------------------------
Freight Charge--Ton-Mile (All 0.5 cents cents/ton-mile of domestic $21.6 $115.9
Modes) shipments
----------------------------------------------------------------------------------------------------------------
Transit Passenger Miles 1.0 cents cents/passenger mile $0.6 $3.2
Traveled Fee traveled on all transit
modes
----------------------------------------------------------------------------------------------------------------
Vehicle Miles Traveled Fee 1.0 cents cents/LDV vehicle mile $29.1 $155.7
(Light Duty Vehicles) traveled on all roads
----------------------------------------------------------------------------------------------------------------
Vehicle Miles Traveled Fee 1.0 cents cents/truck vehicle mile $2.9 $15.7
(Trucks) traveled on all roads
----------------------------------------------------------------------------------------------------------------
Vehicle Miles Traveled Fee 1.0 cents cents/vehicle mile traveled $32.0 $171.5
(All Vehicles) on all roads
Sales Taxes on Transportation Related Economic Activity
----------------------------------------------------------------------------------------------------------------
Freight Bill--Truck Only 0.5% percent of gross freight $3.8 $20.2
revenues (primary shipments
only)
----------------------------------------------------------------------------------------------------------------
Freight Bill--All Modes 0.5% percent of gross freight $4.6 $24.8
revenues (primary shipments
only)
----------------------------------------------------------------------------------------------------------------
Sales Tax on New Light Duty 1.0% percent of sales $2.8 $14.9
Vehicles
----------------------------------------------------------------------------------------------------------------
Sales Tax on New and Light 1.0% percent of sales $4.2 $22.4
Duty Vehicles
----------------------------------------------------------------------------------------------------------------
Sales Tax on Auto-related 1.0% percent of sales $2.7 $14.4
Parts and Services
----------------------------------------------------------------------------------------------------------------
Sales Tax on Diesel 2.0% percent of sales (excluding $1.5 $7.9
excise taxes)
----------------------------------------------------------------------------------------------------------------
Sales Tax on Gas 2.0% percent of sales (excluding $5.2 $28.0
excise taxes)
----------------------------------------------------------------------------------------------------------------
Tire Tax (Light Duty Vehicles) 1.0% of sales of LDV tires $0.3 $1.4
----------------------------------------------------------------------------------------------------------------
Sales Tax on Bicycles 1.0% percent of sales $0.1 $0.3
----------------------------------------------------------------------------------------------------------------
Other Excise Taxes
----------------------------------------------------------------------------------------------------------------
Container Tax $15.00 doller per TEU $0.7 $4.0
----------------------------------------------------------------------------------------------------------------
Imported Oil Tax $2.50 dollar/barrel $4.5 $23.9
----------------------------------------------------------------------------------------------------------------
\1\ Assumed yield in 2018 or the latest year data is available.
We fully recognize the ongoing funding challenge is not merely
technical. To that end, after much deliberation, our board of directors
in May 2019 coalesced around four specific revenue mechanisms with
substantial estimated yield that could address the HTF shortfall:
Motor fuel tax increase and indexing.
Freight-based user fee.
Per barrel oil fee.
Mileage-based user fee (MBUF) or vehicle-miles-traveled (VMT)
fee.
Specifically on the MBUF/VMT, this committee and others in Congress
will play a critical role in deciding how best or if to proceed at the
Federal level in implementing this mechanism to meet long-term needs.
Given the growing interest in this topic in Congress, let me offer some
insights.
The FAST Act established the Surface Transportation System Funding
Alternatives (STSFA) program to provide grants to States or groups of
States to demonstrate user-based alternative revenue mechanism. Since
2016, the STSFA program has provided $73.7 million to 37 projects in
States across the Nation funding projects that test the design,
implementation, and acceptance of user-based systems, such as a vehicle
mileage-based user fee.
And just last week, AASHTO's board of directors that I chair
adopted a policy resolution on development of a national framework for
MBUF implementation. In it, we call for the following:
The national MBUF pilot program should focus on the
development of protocols such that the public may give consideration to
mileage-based user fees as a potential replacement of motor fuel taxes;
A national mileage-based user fee pilot program should focus
on the development of national policies and standards related to data
collection, interoperability, and administrative structure and cost;
A national mileage-based user fee program should take into
consideration both tax and social equity principles so it is no more
burdensome than the motor fuels tax program currently in place;
A national education campaign to inform public understanding
and consideration of vehicle mileage-based user fees as an equitable
way to pay for highways is an essential part of a national effort; and
A national mileage-based user fee pilot program must build on
the leadership and expertise of State departments of transportation.
financing mechanisms can support, but not replace direct federal
funding
The State DOTs continue to support a role for Federal financing
tools given their ability to leverage scarce dollars that allow needed
projects to benefit communities sooner. I want to recognize the work of
you, Mr. Chairman, and others on this committee to develop and pursue
additional financing tools to help meet transportation needs.
Financing tools can play an important and specific role--and AASHTO
has supported many such financing options in the past especially the
Build America Bonds from 2009 that States very much appreciated.
AASHTO's members appreciate the ability to access capital markets and
many States already rely on various forms of financing ranging from
traditional tax-exempt bonds, tax-credit bonds, State infrastructure
banks, and private equity, among other financing options.
When State DOTs are advancing larger-scale projects, we carefully
examine which funding and financing mechanisms will be most
advantageous, given the type of the work and the status of other
projects in our construction program. We strive to find the most cost
effective way to advance large scale projects, without limiting our
capacity to continue making investments statewide. As an example, while
the 2014 State gas tax increase was intended to fund the final phases
of the reconstruction of Interstate 93 from Salem to Manchester, NHDOT
also pursued a Transportation Infrastructure Finance Innovation Act
(TIFIA) loan, backed by the State gas tax increase. The goal was to
stretch the value of the new revenue, with the TIFIA loan structured so
that New Hampshire is paying interest only for the first 10 years of
the 20-year loan, allowing us to pledge the additional new revenue
collected to rural paving and bridge work. The result was the
completion of a regionally significant project, savings of over $20
million in financing, as well as improved pavement and bridge condition
across New Hampshire, due to the ability to pave 1,400 miles of roadway
and replace 23 structurally deficient bridges during the interest only
period of the loan.
With all this said, however, AASHTO strongly believes that Federal
surface transportation funding must continue to be focused on direct
formula-based apportionments from the highway trust fund to States and
transit agencies--which in turn relies on user fee and tax revenues
deposited into the HTF. And the HTF can only be fixed with real revenue
solutions, and not be substituted by financing tools such as the
Transportation Infrastructure Finance and Innovation Act (TIFIA)
program, infrastructure banks, or any program that provides direct
loans or loan guarantees to support transportation projects. These
loans require repayment from an identified revenue stream--i.e., a
funding source.
While innovative transportation finance has evolved significantly
over the last 20 years, the simple fact remains that the use of
financing tools that leverage existing revenue streams are typically
not viable for the vast spectrum of publicly valuable transportation
projects. To this day, most transportation projects simply cannot
generate a sufficient revenue stream through tolls, fares, or other
user fees to service debt or provide return on investment to private
equity holders. According to the CBO, for example, P3s have accounted
for only one to three percent of spending for highway, transit, and
water infrastructure since 1990.
the tangible economic benefits of investing in highway,
transit, and other transportation infrastructure
Fortunately, infrastructure investment is again one of the top
national policy agenda items. This year, both Congress and the Biden
administration are discussing potential infrastructure investment
legislation. An infrastructure package, coupled with a robustly funded
surface transportation bill, provides a unique window of opportunity to
make much-needed improvements to this Nation's transportation system.
Achieving both of these goals--infrastructure investment and a
robustly funded surface transportation bill--demands bold action to
invest in our transportation systems at the appropriate level to
guarantee the success of our Nation's future as we recover from the
impacts of the COVID-19 pandemic. This action has the clear support of
the American public and is one of the few areas of possible bipartisan
agreement.
conclusion
The current trajectory of the HTF--the backbone of Federal surface
transportation program--is simply unsustainable, as it will have
insufficient resources to meet current Federal investment levels beyond
FY 2021.
Congress can take the action now to address the projected annual
shortfalls by boosting much-needed revenues. Whichever revenue tools
are utilized, AASHTO looks forward to assisting you and the rest of
your Senate colleagues in finding and implementing a viable set of
revenue solutions that will renew our national heritage of investment
in our country and our future through transportation.
Thank you for the opportunity to provide the perspective of the
Nation's State DOTs.
______
Questions Submitted for the Record to Victoria F. Sheehan
Questions Submitted by Hon. Rob Portman
Question. According to the Federal Highway Administration, 36
States have passed public-private partnership-enabling legislation, yet
the use of this financing tool is still quite small. As Commissioner
Sheehan noted in opening testimony, CBO states that P3s have accounted
for only 1-3 percent of spending for highway, transit, and water
infrastructure since 1990.
How can we on the Federal level better encourage the use of P3s?
Answer. Public-private partnerships (P3s) can play a role in
helping to finance infrastructure investments. State DOTs have become
more sophisticated when it comes to evaluating whether or not a P3
makes sense for a particular project.
One of the key challenges to the utilization of P3s is the ability
to identify a project that can generate the revenue needed to ``pay
back'' the private-sector investment. This can be particularly
challenging in rural areas.
Financing tools such as P3s are important options for State DOTs to
consider--but they do not replace the need for actual revenue or
funding.
Question. From 2007-2016, the average annual financing for highway
infrastructure provided by State infrastructure banks amounted to $200
million, or about 1 percent of new financing by State and local
governments.
Can you speak to how we can address the underutilization of State
infrastructure banks? What makes this form of financing unpalatable for
State and local infrastructure projects?
Answer. Because State infrastructure banks (SIB) provide loans or
financing for particular projects, many of the same challenges that
exist to secure private-sector investment also exist for projects
financed through a SIB.
Given all of the transportation investment needs that States
currently face, requiring a State to use its regular apportionments to
capitalize the SIBs may prove to be an insurmountable obstacle.
Additionally not all State owned assets are eligible for Federal
funding, which means that regular apportionment cannot always be
leveraged. If additional Federal funds were provided that specifically
encouraged States to capitalize SIBs there would be an incentive to
increase utilization.
Question. I understand that States weigh the financing options for
major projects through a tool known as a Value for Money analysis in
which the private financing option for an infrastructure project is
compared against a public financing option. States are not currently
required to conduct these analysis to obtain Federal funding for
projects or for those projects included on their State transportation
improvement plans.
If we were to require a State to conduct a Value for Money analysis
for projects of a certain size, what sort of size, scope, or type of
project makes the most sense to conduct this sort of analysis on?
Answer. Project sponsors use the Value for Money (VfM) analysis
process on a case-by-case basis to compare the aggregate benefits and
costs of a P3 procurement against those of a traditional project
delivery model. While VfM analysis can aid in decision-making, it is
just one of several factors to consider in determining how to proceed
with a procurement. AASHTO would not support a mandate for this type of
analysis for potential P3 projects, but rather efforts to incentivize
the use of this type of analysis. The process of assessing the public-
sector and private-sector costs of a project demands extensive time and
resources.
Question. In a comparison of federally supported and solely State-
funded transportation projects, I often hear that the Federal
requirements and other regulatory hurdles present additional costs and
can make federally supported projects more costly for States.
Is there a particular cost increase, on average, that New Hampshire
and other AASHTO experience when utilizing Federal funds to support a
project in comparison to State-funded projects?
Answer. There is limited research on the cost and benefit of
Federal requirements, with the most authoritative study being ``Federal
Requirements for Highways May Influence Funding Decisions and Create
Challenges, but Benefits and Costs Are Not Tracked'' by the Government
Accountability Office in 2008 (https://www.gao.gov/assets/gao-09-
36.pdf).
This report does say, ``According to transportation officials and
contractors, administrative tasks associated with the Federal
requirements pose challenges. For example, analyzing impacts and
demonstrating compliance with NEPA requires extensive paperwork and
documentation. State officials also said that coordinating with
multiple government agencies on environmental reviews is challenging,
in part because these agencies may have competing interests.
Furthermore, according to State DOTs, some provisions of the Federal
requirements may be outdated.''
______
Prepared Statement of Hon. Ron Wyden, a U.S. Senator From Oregon
These days you'd have trouble getting members of Congress to agree
on the proper way to butter toast, but just about everybody agrees on
upgrading America's infrastructure. The sorry state of our
infrastructure is a danger to individuals. For example, you cannot
cross the Mississippi River on a bridge that's cracked in half. It's
also a recipe for national decline if the U.S. continues to fall behind
China and other countries on broadband, roads, highways, ports, rail
networks, airports, housing, and other areas. The tougher question on
infrastructure is how to go about paying for it.
In my judgment, there's an obvious answer. It's long past time for
mega-corporations to pay a fair share for building and repairing roads
and bridges. They drive trucks across America's roads and highways.
They send products to market through the airports and waterways. They
rely on our power grids and communication systems. They ought to pitch
in for the infrastructure that makes America an economic superpower.
The hard evidence, however, shows that these mega-corporations have
never contributed less to Federal revenues in modern American history
than they do now. Data from the independent Congressional Budget Office
show that in the wake of the Trump tax law, corporate income tax
revenue is down nearly 40 percent from the 21st-century average. Many
of the largest corporations pay nothing--zero.
New reports out just this week say that corporations flush with
cash are also gearing up for new rounds of stock buybacks that
overwhelmingly benefit wealthy shareholders. It's not any kind of cash
crunch that's kept big corporations from pitching in. Asking the
largest of the large corporations to pitch in a fair share will not
sacrifice America's competitiveness. Competitiveness does not mean the
biggest corporations pay zero tax. Paying for infrastructure and
creating high-wage, high-skill jobs are not mutually exclusive.
Now, there's lots of talk about how it's got to be user fees that
pay for infrastructure, but that's not a step toward fairness. The
suggestion is, middle-class workers are going to pay what mega-
corporations will not.
Middle-class budgets are already hard-pressed, and if you don't
think Americans keep track of the cost of driving, you haven't watched
the TV news much in the last week.
The fact is, the infrastructure tab has been growing for decades
due to Congress's negligence and corporations failing to pitch in
fairly. I'm not going to tell a rancher in eastern Oregon or a home
health aide on the coast that they've got to make up the shortfall.
Working people driving long distances are willing to pay their fair
share--they've been doing so every time they pull up to the pump. They
aren't going to support immunizing mega-corporations from paying
anything at all.
Prior to 2017, there was also bipartisan interest in bringing back
cash trapped overseas as the best way to fund a major infrastructure
bill. Study after study showed that corporations had trillions of
dollars parked around the world. Senators even had the repatriation
bills ready to go. In 2017, however, Republicans went a different
direction and plowed that cash into even bigger corporate tax goodies
as part of the Trump tax law. That was a major lost opportunity, and
the infrastructure tab has only grown in the years since then.
Today the Congress also ought to be looking at smart financing
tools to help draw private dollars off the sidelines and into
infrastructure. It worked a decade ago with Build America Bonds.
Initially, projections said that only a few billion dollars' worth of
those bonds would sell. The number wound up being more than $180
billion. So that's clearly an approach the Congress must return to as
it works on infrastructure.
I want to thank our witness panel for joining the committee today.
The outcome of this debate has the potential to change the course of
our economy for generations to come. I'm more optimistic today than I
have been in years that the Congress will be able to go big on
infrastructure. I'm looking forward to discussing all these issues
today.
______
Communications
American Council of Life Insurers
101 Constitution Ave, NW, Suite 700
Washington, DC 20001-2133
(202) 624-2400 t
[email protected]
https://www.acli.com/
March 23, 2021
The Honorable Joseph R. Biden Jr.
President
The White House
Washington, DC 20500
The Honorable Nancy Pelosi The Honorable Charles Schumer
Speaker Majority Leader
U.S. House of Representatives U.S. Senate
H-232, The Capitol S-221, The Capitol
Washington, DC 20515 Washington, DC 20510
The Honorable Kevin McCarthy The Honorable Mitch McConnell
Republican Leader Republican Leader
U.S. House of Representatives U.S. Senate
Room H-204, The Capitol S-230, The Capitol
Washington, DC 20515 Washington, DC 20510
Dear Mr. President, Madam Speaker, Majority Leader Schumer, Leader
McCarthy, and Leader McConnell:
It has been a year since the country was gripped by the coronavirus
pandemic. Far too many Americans have lost loved ones and the fragility
of the economy has caused financial stress for those facing uncertainty
about the future. Vaccinations have provided hope for the end of COVID-
19, but the fact remains that the pandemic left an economic crisis in
its wake. We share your concern for the nation's economy and the effect
it continues to have on American workers and families in our
communities.
In the midst of the country's racial, health, and economic turmoil in
2020, life insurers are meeting the moment with ACLI's Economic
Empowerment and Racial Equity Initiative. With special focus on our
role in helping families financially, and the economy overall, we came
together in our shared commitment to expand access to financial
security and education, target investment in underserved communities,
and advance diversity and inclusion in the financial services industry.
One important policy that addresses economic empowerment and racial
equity is the nation's infrastructure. For the last few years, leaders
on both sides of the aisle have focused on the need to improve the
nation's infrastructure and investment in our local communities. As
investors who will play a critical role in the recovery ahead and as
financial security providers to families, we believe a bipartisan
approach to an infrastructure policy will be an important step in the
nation's economic recovery.
In the ongoing important work on the country's infrastructure needs, we
support policy initiatives that focus on broad economic growth, as well
as investments at the local level, including underserved communities,
through direct payment bonds. We also support the effort to address
affordable housing needs through the Low-Income Housing Tax Credit
(LIHTC) program.
Through the industry's $6.9 trillion investment into the nation's
economy, we have long played an important role to meet the
infrastructure needs in states and local communities. For example, our
industry invested more than one-third of the 2009 Build America Bonds
which allowed state and local governments to finance more than $150
billion of infrastructure investment. Life insurers also continue to
prioritize affordable housing with more than $5 billion in 2019 in the
LIHTC program. Investments like this help keep our long-term guaranteed
promises to our consumers and will continue to help with the nation's
economic recovery.
We also stand ready to partner with you to address our nation's
caregiving needs including paid family leave, a problem which has been
exacerbated by the pandemic. As providers of paid leave solutions for
workers, providing over 47 percent of policies in the market, we
believe there is an opportunity to build upon the current Family and
Medical Leave Act (FMLA) standards to include a paid component, drawing
from the experience and expertise we have built over decades of
providing paid leave benefits to America's workers.
Thank you for your consideration and for your continued service to our
nation. There are many difficult choices and opportunities in this
unique moment in our history. We ask you to keep in mind the vital role
that life insurers play through the industry's commitment to provide
financial security to Americans of all walks of life, through the
investments in our local communities, in our economy and our shared
commitment to our country. We welcome the opportunity to partner with
you as we meet the moment together for our country.
Sincerely,
Susan K. Neely
President and CEO
The American Council of Life Insurers (ACLI) appreciates the
opportunity to submit this statement for the record on ``Funding and
Financing Options to Bolster American Infrastructure.'' We thank
Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) for
holding this important hearing to help address our country's
infrastructure needs.
The American Council of Life Insurers (ACLI) is the leading trade
association driving public policy and advocacy on behalf of the life
insurance industry. 90 million American families rely on the life
insurance industry for financial protection and retirement security.
ACLI's member companies are dedicated to protecting consumers'
financial well-being through life insurance, annuities, retirement
plans, long-term care insurance, disability income insurance,
reinsurance, and dental, vision and other supplemental benefits. ACLI's
280 member companies represent 95 percent of industry assets in the
United States.
ACLI fully supports the critical work that Congress is undertaking on
the country's infrastructure needs (attached is ACLI's March 23rd
letter to the Administration and congressional leadership). As
investors who will play an important role in the recovery ahead, we are
keenly interested in broad economic growth that bolsters needed
investments at the local level, with an emphasis on assisting
underserved communities.
Life Insurance Companies' Investments in Infrastructure
Life insurers are a bedrock of financial and retirement security to
millions of Americans, paying out 2.1 billion dollars every day to
American families through our products. We provide peace of mind for
people who lose their spouses and we help people at all stages build
secure financial futures.
Life insurers make long-term promises and our liabilities stretch over
decades. Given this long-term perspective and commitment, we look for
stable, lengthy investments in projects whose duration and return
support the guarantees that are the hallmark of the financial security
and protection we provide.
In addition to investing prudently, stringent state-based insurance
regulation directs us to high-quality, long-term investments.
Infrastructure investments are understandably an excellent match for
the character of our investment needs. They deliver predictable returns
over decades.
Focusing on long-term value, and acting as patient investors, life
insurers serve policy holders and strengthen the nation and its
economy. In fact, the $6.9 trillion invested by our industry in the
U.S. economy makes us one of the largest sources of investment capital
in the nation.
We back up our guarantees, as required by state insurance regulators,
through ``asset-liability matching,'' meaning the investment duration
and returns need to be closely matched with the obligations we take on,
while we provide stability and liquidity in the U.S. marketplace. It is
a ``win-win'' situation.
Through the industry's $6.9 trillion investment into the nation's
economy to date, we have long played an important role in helping to
meet the infrastructure priorities in states and local communities. In
fact, life insurers invested in more than one-third of total Build
America Bonds issued in 2009 and 2010 to support infrastructure,
totaling nearly $60 billion by year-end 2010. Our industry also
continues to prioritize affordable housing. In 2019, we held more than
$5 billion in investments benefiting from the LIHTC program.
Investments like this help us keep our long-term guaranteed promises to
our consumers and will continue to help with ensuring the nation's
economic recovery.
Taxable Direct Payment Infrastructure Bond Programs
Based on this contribution to America's strength and well-being, we
encourage Congress in its work on infrastructure to consider our
industry's partnership in investing in infrastructure. Specifically,
Congress should prioritize taxable financing solutions to maximize
limited federal resources and reduce the debt burden on state and local
governments by authorizing a permanent taxable direct payment
infrastructure bond program, with a special focus on underserved
communities.
We were pleased to support the American Infrastructure Bonds Act, a
bipartisan measure recently introduced by Senators Michael Bennet and
Roger Wicker. The proposed legislation would create a taxable direct
bond program that will allow state and local governments to issue
taxable bonds for any public purpose expenditure that is eligible to be
financed with tax-exempt bonds, thereby supporting the unique needs of
all communities across the country--including underserved communities,
which aligns with ACLI's Board-led economic empowerment and racial
equity initiative (EERE).
Conclusion
The U.S. infrastructure challenge is real and meeting it will be
costly. Current levels of U.S. investment are falling short. Innovative
approaches to providing funding is essential to infrastructure
improvement that will help to fuel economic growth. A plan that
complements public dollars with taxable direct payment bonds would help
attract greater capital from long-term investors to narrow America's
infrastructure investment gap. This, in turn, would create investment
opportunity that would allow us to continue to do what we do best--
provide financial products that bring peace of mind to Americans and
their families.
We believe that the nation's infrastructure is key to advancing
economic empowerment and racial equity. Policymakers from both parties
have discussed the importance of improving our infrastructure while
investing in local communities, creating jobs and ensuring rewards are
shared fairly.
Helping people care for their loved ones--regardless of their race,
gender, or economic status--is our core mission. That mission has never
been more important. We welcome the opportunity to partner with
lawmakers and help our nation find a better, more equitable path to
prosperity for all Americans in the 21st century. We stand ready to
work together with Congress as an infrastructure proposal moves
forward.
______
American Public Gas Association (APGA)
201 Massachusetts Avenue, NE, Suite C-4
Washington, DC 20002
[email protected]
May 27, 2021
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Re: May 18, 2021 Hearing on ``Funding and Financing Options to Bolster
American Infrastructure''
Dear Chairman Wyden and Ranking Member Crapo,
APGA is the trade association for approximately 1,000 communities
across the U.S. that own and operate their retail natural gas
distribution entities. They include municipal gas distribution systems,
public utility districts, county districts, and other public agencies,
all locally accountable to the citizens they serve. Public gas systems
focus on providing safe, clean, reliable, and affordable energy to
their customers and support their communities by delivering fuel to be
used for cooking, clothes drying, and space and water heating, as well
as for various commercial and industrial applications.
APGA appreciates the Committee holding this important discussion
regarding how to pay for much needed investments in America's
infrastructure. Public natural gas utilities are good stewards of the
environment and their communities and take seriously their role in
providing safe, clean, reliable, and affordable energy. That requires
making important investments in keeping their pipeline infrastructure
modern and safe, which is why we would like to take this opportunity to
express our support for Senator Wicker and Senator Bennet's legislation
that would create a new class of American Infrastructure Bonds.
Infrastructure projects have, in many cases, been delayed or canceled
as state and local governments grapple with the economic effects of the
COVID-19 pandemic. This has been especially problematic in rural areas,
where many of our members are located, which are especially likely to
have aging infrastructure that requires more resources to maintain.
Because our members are municipally owned, they cannot turn to
shareholders for an infusion of capital when their infrastructure needs
to be upgraded. That is why we are strong supporters of Senator Wicker
and Senator Bennet's American Infrastructure Bonds Act that would
create a new class of taxable, direct-pay municipal bonds. As
communities continue to recover from the economic impact of the
pandemic, these bonds would provide an additional financial tool to
power investment in local infrastructure, including public natural gas
systems.
The bill would allow states and localities to issue debt via taxable
bonds in order to fund new projects, which could include things like
expanding or replacing utility infrastructure. Because the Treasury
Department would pay a certain percentage of the bond's interest, this
type of bond issuance has the advantage of keeping costs low for the
issuing state or local government. The other advantage of direct-pay
bonds is a larger pool of potential capital. The market for taxable
bonds is much larger than that for tax-exempt bonds, and it allows
state and local governments to attract capital from a wider range of
investors, such as large pension funds and international investors.
As the Chairman referenced in his opening statement, this type of
financing tool has a proven record of success. Senators Wicker and
Bennet have modeled their legislation on the popular, but now expired,
Build America Bonds (BAB) program. That program far exceeded
expectations, bringing in more than $180 billion of investment to help
aid in America's recovery from the last recession. This legislation
represents an excellent opportunity to learn from and build on our past
success with BAB.
A new funding stream like this would allow our members to do things
like expand their infrastructure and bring safe, clean, reliable, and
affordable energy to currently underserved communities. It would also
provide funding to help finance replacing older pipeline with newer
materials that could help reduce leaks and improve safety. The bottom
line is, if passed, the bill would create a funding tool that would
allow more investment in infrastructure without passing on the bill to
American taxpayers.
APGA supports the Committee's work to ensure America can make much
needed investments in modernizing and improving the country's aging
infrastructure. State and local governments can and should be
invaluable partners as the Committee considers how to best make those
investments. They are best positioned to know what infrastructure
improvements are most critical at a local level. Allowing them to have
access to the taxable bond market would empower them to attract the
capital they need to make infrastructure investments for the benefit of
their communities.
APGA members are proud to provide safe, clean, reliable, and affordable
energy to their communities. Advancing this legislation would allow the
state and local governments our members are a part of to continue to
invest in the infrastructure that makes that possible. We thank you
again for fostering this important conversation and for the opportunity
to submit this input. APGA stands ready to work together in this
effort.
Dave Schryver
President and CEO
______
American Securities Association (ASA)
1455 Pennsylvania Ave., NW, Suite 400
Washington, DC 20004
American/Securities.org
202-621-1784
ASA Priorities for Infrastructure Reform
The ASA is a trade association that represents the retail and
institutional capital markets interests of regional financial services
firms who provide Main Street businesses with access to capital and
advise hardworking Americans how to create and preserve wealth. The
ASA's mission is to promote trust and confidence among investors,
facilitate capital formation, and support efficient and competitively
balanced capital markets. The ASA has a geographically diverse
membership base that spans the Heartland, Southwest, Southeast,
Atlantic, and Pacific Northwest regions of the United States. Municipal
bonds, issued by state and local governments, provide funding for
hospitals, schools, bridges, highways, affordable housing, water and
energy facilities all across America. Municipal bonds provide jobs and
economic opportunities in local communities and enable upgrades to
failing facilities and investment in new, clean energy alternatives.
Support for municipal bonds is especially important as state and local
governments are facing unprecedented challenges due to the COVID-19
pandemic.
Maintain the municipal tax exemption.
Generally, the interest paid on municipal bonds is exempt from federal
taxes and sometimes state and local taxes as well. There is strong
economic justification for the tax exemption of municipal bonds as it
encourages state and local governments to invest in infrastructure
projects that create benefits for their communities. This exemption has
been in place for over 100 years.
Allow for infrastructure plans that can be customized at the state/
local levels, rather than a nationwide ``infrastructure bank.''
While infrastructure banks support long-term investments in
infrastructure projects, ASA believes that they take away the
opportunity for local and state governments to control their own
infrastructure projects. Instead of a federal infrastructure bank, ASA
strongly supports allowing local communities to decide how they want to
spend money in their own backyards.
Reinstate tax-exempt advance refundings for municipal bonds.
Tax-exempt advance refunding bonds allowed states and localities to
refinance existing debt with the greatest flexibility, resulting in
substantial reductions in borrowing costs. Advance refunding refers to
the withholding of a new bond issue's proceeds for longer than 90 days
before using them to pay off an outstanding bond's obligations.
Municipalities typically use advance refunding to lower borrowing costs
and to take advantage of lower interest rates. The elimination of tax-
exempt advance refundings in the 2017 Tax Cuts and Jobs Act (TCJA)
limited the options for state and local governments to refinance debt,
and has resulted in higher costs that trickle down to the taxpayers.
Ensure Municipal Bonds Continue to Promote Environmental and Social
Objectives.
Municipal bonds have always promoted sustainable development and the
public good by funding environmental and social projects in communities
across the country. Important examples of these financings include
public health, clean water, affordable housing, food security,
renewable energy, and public education, among other things. Municipal
bonds provide a gateway to local socially responsible investing for
long-term investors. Our members have played a leading role in the
financing of these projects and they will continue to support them as
America's infrastructure is modernized.
Congress should update the tax code to allow for more bank-qualified
bonds.
Historically, banks were the major purchasers of tax-exempt bonds.
Banks' demand for municipal bonds changed in 1986 with the passage of
the Tax Reform Act of 1986, which says banks may not deduct the
carrying cost of tax-exempt municipal bonds. For banks, this provision
has the effect of eliminating the tax-exempt benefit of municipal bonds
unless they are deemed as ``bank qualified'' bonds. In order to meet
the requirements for ``bank qualification,'' a municipal bond must meet
several criteria and the issuer must not expect to issue more than $10
million of bonds in the calendar year. ASA believes the $10 million
amount should be modernized to reflect the passage of time, as many
organizations support a minimum of a $30 million threshold.
Expand Private-Activity Bonds (PABs).
While tax-exempt municipal bonds are geared toward infrastructure
projects with a public benefit, PABs are directed at projects for
private entities that also serve some public purpose, such as an
apartment complex that may allow low-income housing. The 1986 Tax Act
imposed a limit on how many private-activity bonds can be issued in a
state each year and a number of eligibility restrictions dictate the
way public- and private-sector partners can work together. ASA strongly
supports expanding eligibility and state allowances for PABs.
Reinstate the Build America Bonds (BABs) Program (2009-2010).
Created during the 2009 financial crisis, Build America Bonds (BABs)
functioned like municipal bonds, except that BABs were taxable bonds
that gave either a 35 percent direct federal subsidy to the borrower or
a federal tax credit worth 35 percent of the interest owed to the
investor. From 2009-2010, over $180 billion BABs were issued, and the
program was extremely attractive to a wide range of investors. ASA
believes a new BABs program, that is not subject to sequestration
reductions, would be extremely beneficial for infrastructure
investment.
______
American Truck Dealers
412 First Street, SE, First Floor
Washington, DC 20003
(202) 547-5500
Chairman Wyden and Ranking Member Crapo, the American Truck Dealers
(ATD), a division of the National Automobile Dealers Association,
appreciates the opportunity to submit comments for the record regarding
our strong support for repeal of the federal excise tax (FET) on heavy-
duty trucks and trailers. ATD represents over 1,700 franchised
commercial truck dealerships who employ more than 122,000 people
nationwide and leads the Modernize the Truck Fleet coalition.\1\
---------------------------------------------------------------------------
\1\ The Modernize the Truck Fleet coalition is a broad coalition of
trade groups, equipment manufacturers and businesses representing broad
sectors of the trucking industry that have come together to repeal the
FET. There are six official members of the Modernize the Truck Fleet
Coalition: the American Truck Dealers, National Tank Truck Carriers,
National Trailer Dealers Association, The Association for the Work
Truck Industry, the Truck Renting and Leasing Association, and the
Truck and Engine Manufacturers Association.
As Congress considers comprehensive infrastructure legislation, ATD
respectfully requests that Congress repeal the 12% FET on new heavy-
duty trucks and trailers and replace it with a more consistent revenue
source for the highway trust fund (HTF). Repeal of the FET would
immediately spur the purchase of newer, safer and cleaner heavy-duty
trucks and trailers and help support the 1.3 million jobs related to
Class 8 truck and trailer manufacturing and the 7.95 million Americans
in
trucking-related jobs.\2\
---------------------------------------------------------------------------
\2\ Economics and Industry Data. American Trucking Associations,
https://www.trucking.org/economics-and-industry-data.
Repealing the FET and replacing it with a user-based revenue source
relevant to today's economy will help protect trucking-related jobs,
provide environmental benefits by replacing older trucks with newer
cleaner trucks, and speed the modernization of America's truck fleet.
FET First Imposed to Pay for World War I
The FET was first imposed in 1917 to help pay for World War I.
Originally 3%, the tax is 12% today,\3\ making the FET the highest tax
Congress imposes on a percentage basis on any product. This tax
routinely adds over $20,000 to the price of a new heavy-duty truck and
is imposed on top of the nearly $40,000 in recent federal emissions and
fuel-economy regulatory mandates. This tax coupled with recent
regulatory costs makes it more difficult for small businesses to afford
a new truck.
---------------------------------------------------------------------------
\3\ Since its inception at 3%, the tax has been briefly eliminated,
raised twice prior to World War II, increased again and rolled into the
highway trust fund in 1956, repealed by the Senate in 1975, and
increased to 12% in 1982. That was the last time Congress had any
substantive debate or made any changes to this tax. See attached The
History of the Federal Excise Tax on Heavy-Duty Trucks, American Truck
Dealers (January 2019), https://www.nada.org/WorkArea/
DownloadAsset.aspx?id=21474858078.
Congress has not revisited whether the FET is the most effective and
efficient way to raise revenue from the commercial transportation
sector since 1982. Since that time, the FET has been extended six
times, and will expire at the end of September 2022.\4\
---------------------------------------------------------------------------
\4\ Pub. L. 114-94.
---------------------------------------------------------------------------
Congressional Support Grows to Change the FET Last Year
When heavy-duty trucks sales plummeted in the second quarter of last
year due to the coronavirus pandemic, the trucking industry united
behind temporarily repealing the FET, which would have brought
immediate relief to the vital trucking industry. Rep. Chris Pappas (D-
NH) spearheaded a letter signed by 54 House Democrats to House leaders
requesting suspension of the FET through 2021. Included among the
signers were six Democratic members of the House Ways and Means
Committee. This effort was supported by ATD, the United Auto Workers,
the American Trucking Associations, and over 200 other trucking-related
organizations. In addition, FET suspension and repeal have received
bipartisan support in Congress.\5\
---------------------------------------------------------------------------
\5\ Last Congress, Reps. Doug LaMalfa (R-CA) and Collin Peterson
(D-MN) introduced H.R. 2381, the ``Modern, Clean, and Safe Trucks Act
of 2019,'' which would repeal the FET. The bill had 35 bipartisan
cosponsors, and a Senate companion FET repeal bill (S. 1839) was
introduced by Sen. Cory Gardner (R-CO). Additionally, Sen. Joe Manchin
(D-WV) sent a letter on December 21, 2019 to the leadership of the
Senate Finance Committee asking that FET repeal be considered as
infrastructure funding issues are deliberated in the context of
reforming the highway trust fund.
---------------------------------------------------------------------------
FET Discourages Modernizing America's Truck Fleet
More than half of the Class 8 trucks on the road are over 10 years old.
New trucks have made significant environmental gains due to recent
federal emissions and fuel-economy mandates and industry innovation.
For example, cleaner fuel and engines utilizing advanced technologies
have combined to reduce nitrogen oxide (NOx) emissions by
97% and particulate matter (PM) emissions by 98%. To put that in
perspective, it would take 60 new trucks to generate the same level of
emissions as a single truck manufactured in 1988. Since 2007, new
trucks have also achieved significant carbon dioxide reductions and
fuel-efficiency improvements, which have saved 296 million barrels of
crude oil.\6\
---------------------------------------------------------------------------
\6\ 43 Percent of U.S. Commercial Trucks Now Powered by Newest-
Generation Near-Zero Emissions Diesel Technology, Delivering
Significant Emissions Reductions and Fuel Savings. Diesel Technology
Forum, October 22, 2019.
However, the investments in new technologies required to fulfill new
environmental and regulatory mandates have added nearly $40,000 to the
price of a new truck, and these regulatory costs are also subject to
the FET.\7\ As a practical matter, the FET taxes the environmental
technologies the federal government has mandated, so its repeal would
benefit the environment by ensuring speedier deployment of cleaner and
more fuel-efficient trucks.
---------------------------------------------------------------------------
\7\ The FET is on top of the nearly $40,000 on average per truck
cost of these regulatory mandates, which include since the early 2000s
tailpipe emissions rules, greenhouse gas emissions standards and fuel
efficiency standards. The aggregate costs of these mandates result in
an additional $4,700 FET, on average.
---------------------------------------------------------------------------
FET Repeal Would Spur the Sale of New Safer Trucks and Increase
Highway Safety
Roadway safety and crash avoidance are top priorities for the trucking
industry. While new commercial trucks and trailers are the safest they
have ever been, deployment of new safety equipment can be delayed due
to the high cost of a new truck, which includes the 12% FET that
Congress levies on new trucks and trailers. New trucks and trailers
have several mandated safety features to help the driver maintain
control of the vehicle and prevent a collision, such as anti-lock
braking systems and electronic stability control. Additionally, new
truck buyers can choose from an array of innovative, new safety
technologies like adaptive cruise control, automatic emergency braking
systems, and other advanced driver assistance systems that help reduce
crashes.
The FET deters the selection of additional safety features that could
be purchased because the tax is applied to the cost of each safety
feature the customer may decide to add to the vehicle at the point of
sale. Repealing this 12% tax through 2021 will help spur the sale of
new trucks, which offer the latest safety options, such as: automatic
emergency braking; adaptive cruise control with braking; lane departure
warning, and lane-keeping assist (with intervention); forward collision
mitigation; blind spot warning; traction control; tire pressure
monitoring, automatic tire inflation; automatic wipers and headlamps;
and side airbags for rollovers.
FET repeal would also help the trucking industry accelerate the
purchasing cycle for heavy-duty truck fleets which will result in a
faster replacement rate that will improve highway safety. Since more
than half of the Class 8 trucks on the road are over 10 years old, many
trucks in service today lack the benefits offered by nearly a decade of
technological advancements in safety. Congress should encourage the
sale of new heavy-duty vehicles, which utilize the significant
improvements from earlier generations in safety technology and will
help reduce roadway crashes and related injuries and fatalities.
The FET Creates Considerable Administrative Burdens and Costs for
Small Businesses
The FET is a difficult tax to administer. Truck dealers, who are
responsible for collecting and remitting the tax, incur considerable
costs when navigating the complex IRS regulations that apply to this
tax. One challenge to administering the FET is that today's heavy-duty
truck, unlike a 1917 truck, is highly customizable.
As each modification or customized truck or trailer is made, dealers
must determine on a part-by-part basis whether FET applies and manage
assessment of the tax for every truck sold. These custom purchase
options require careful calculations when determining what is and what
is not exempt from FET. For example, one dealer with truck dealerships
in Alabama, Florida, and Georgia calculated that 2,820 employee-hours
are spent to administer and comply with the FET, along with $200,000 IT
costs annually.
As an excise tax, the FET should be a relatively straightforward levy
to collect. However, with customization and a complex and vague set of
rules, many truck sales need to be uniquely calculated, and it is often
unclear whether certain trucks or their components are subject to FET.
The complexity of this excise tax is such that one industry group, the
Association for the Work Truck Industry, produces a 165-page guide for
their members on how to comply with the FET.\8\ FET repeal would
eliminate the administrative burden of collecting the FET, eliminate
the significant financial risk if the IRS auditor disagrees with the
tax liability, and allow small business dealers to hire or retrain
employees for more productive pursuits.
---------------------------------------------------------------------------
\8\ Federal Excise Tax Guide for the Work Truck Industry 2011. The
Association for the Work Truck Industry, https://www.ntea.com/
ItemDetail?iProductCode=2266.
---------------------------------------------------------------------------
The FET Revenue Stream into the Highway Trust Fund Is Volatile
The FET has been the most inconsistent source of revenue to the HTF
over the past 20 years. Because FET revenue is dependent on volatile
annual truck sales, the tax has contributed to the overall instability
of the HTF. In 2008, FET receipts contributed 4.0% of total HTF. In
2017 FET revenue as a percentage of HTF revenue dropped from 11.2% in
2015 to 7.6% and increased to 12.2% in 2019.\9\ Revenues for 2020,
which are currently not public, are also likely to fluctuate as
trucking sales essentially came to a standstill in April and May due to
the pandemic.
---------------------------------------------------------------------------
\9\ See Attachment: Volatility in FET Revenue as a Percentage of
Total HTF Revenue 1957-2019. American Truck Dealers (American Truck
Dealers, Washington, DC) March 2021.
Because FET revenue, with an average annual revenue of $3.33 billion
from 2005-2019, is dependent on fluctuating annual truck sales, the
volatility of this revenue contributes to the instability of the
HTF.\10\ To establish long-term stability for the HTF, the FET should
be replaced with a more consistent revenue source.
---------------------------------------------------------------------------
\10\ See Attachment: Summary of highway trust fund (HTF) Revenues
2005-2019. American Truck Dealers (American Truck Dealers, Washington,
DC) March 2021.
Another drawback of the FET is that it is not equitable, as it is not
based on road usage. Unlike a fuel or vehicle miles traveled tax, the
FET is a flat rate, meaning the purchaser is taxed the same amount
whether the vehicle is driven 500 or 50,000 miles. Modernize the Truck
Fleet, a large nationwide industry coalition led by ATD, is working to
identify viable funding options to replace the FET with an equitable
revenue source, with a preference that the amount of the tax is based
on actual road usage.
Conclusion
We urge Congress to repeal the 12% FET on heavy-duty trucks and
trailers and replace it with a more consistent revenue source for the
highway trust fund to protect trucking-related jobs, provide
environmental benefits by replacing older trucks with newer cleaner
trucks, and modernize America's truck fleet. Over the past few decades,
the trucking industry has made significant strides in green technology
and safety that make new heavy-duty trucks cleaner and safer than ever
before. With an aging fleet, FET repeal would help speed the
replacement of older trucks with new green trucks.
Additionally, heavy-duty trucks and trailers are almost entirely made
in North America and these trucks and trailers are designed, tested,
and assembled across the U.S. Repeal of the FET would also help protect
the 1.3 million American manufacturing, dealership, supplier and heavy-
duty trucking and trailer-related jobs nationwide.
ATD stands ready to work with Congress to modernize our nation's truck
fleet, and to replace the FET with user-based funding options that will
provide long-term solvency for the highway trust fund. Thank you again
for the opportunity to submit testimony.
[GRAPHIC] [TIFF OMITTED] T1821.004
.eps[GRAPHIC] [TIFF OMITTED] T1821.005
ATTACHMENT A
Summary of highway trust fund (HTF) Revenues 2005-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Percentage of
HTF Federal Excise Taxes Tax Amount/Rate Applicability Revenue Average HTF Revenue (2005-
(2005-2019) 2019)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gasoline Excise Tax 18.4 cents per gallon \11\ Most gasoline except for fuel used by rail, or $24.75 billion 63.61% \12\
off-road equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Diesel Excise Tax \13\ 24.4 cents per gallon \1\ Most diesel except for fuel used by rail, or off- $9.27 billion 23.84% \2\
road equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Truck and Trailer Excise Tax 12% of retailer's sale price New trucks and tractors weighing greater than $3.33 billion 8.57%
(FET) 33,000 lbs. GVW
--------------------------------------------------------------------------------------------------------------------------------------------------------
Truck and Trailer Excise Tax 12% of retailer's sale price New trailers weighing greater than 26,000 lbs. $3.33 billion 8.57%
(FET) GVW
--------------------------------------------------------------------------------------------------------------------------------------------------------
Heavy Vehicle Use Tax (HVUT) $100 plus $22 per 1,000 lbs. Trucks weighing 55,000 lbs. GVW or greater $1.1 billion 2.84%
(in excess of 55,000 lbs.)
annually--$550 maximum
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tire Excise Tax 9.45 cents per 10 lbs. of Tires with a capacity over 3,500 lbs. $442.09 million 1.14%
tire load (in excess of
3,500 lbs.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
GVW = Gross Vehicle Weight
Source: Federal Highway Administration (https://www.fhwa.dot.gov/policyinformation/statistics.cfm) using latest available data.
\11\ Value represents total fuel excise tax. Of this amount, 2.86 cents per gallon are transferred to the Mass Transit Account.
\12\ Percentages and totals derived from money flowing solely to highway account and not to the mass transit account.
\13\ On average, $580 million dollars of diesel tax revenue is refunded annually to aviation users who pay diesel tax. This total reflects this refund
difference.
[GRAPHIC] [TIFF OMITTED] T1821.006
.eps[GRAPHIC] [TIFF OMITTED] T1821.007
.eps[GRAPHIC] [TIFF OMITTED] T1821.008
.eps__
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael Bindner
Chairman Wyden and Ranking Member Crapo, thank you for the opportunity
to submit our comments on this topic. We submitted comments to the Ways
and Means Committee in 2019, on ``Our Nation's Crumbling
Infrastructure'' and the House Budget Committee in January 2020
regarding ``Why Federal Investments Matter,'' as well as in recent
comments to the Appropriations, Ways and Means and Finance Committees.
Our recommendations on funding infrastructure with a motor fuel tax are
still valid. We could also use a carbon value-added tax to provide
receipt visibility for more informed consumer choice. The key to making
such taxes adequate, aside from recognizing the inelastic nature of
gasoline prices, is to bring back ``pork barrel'' spending.
We submitted testimony to the Energy and Water Projects Appropriation
regarding fusion power and electric vehicles on dedicated roads with
computer control. These are attached.
A key part of any infrastructure plan is to encourage household
spending, which is helped by government action and results in
industrial spending on plant and equipment.
As we commented to Ways and Means last month regarding Trade
Infrastructure:
Recent changes to the Child Tax Credit are the best (trade)
infrastructure we can hope for, although a higher minimum wage is even
more desirable. People need more money to buy imported goods and to go
back into the labor force. There are many discouraged workers, some of
which turn to less than legal means to earn an income. It is time to
allow them back into the light. Work does not meet the needs of many
workers. Now is the time to change this.
On the government side, the Internal Revenue Service has been tasked
with distributing the CTC before the end of this tax year. July is the
current goal. We can do better. Rather than relying on payments from
the IRS, families who already receive some form of government benefit
should receive a refundable CTC through their current benefit stream.
We can start this today. Computers can be programmed and cash
delivered.
Part of the need for economic infrastructure must be an immediate COLA
for Social Security beneficiaries. Of late, food prices have gone
through the rough. Now that stimulus payments have been spent, many of
us will be very hungry, very soon. We cannot even by cola without a
COLA.
Benefits to workers are even easier to set up. Simply promise employers
that they can take any additional credits paid due to refundability
(they can already manage adjusting normal withholding) as a credit to
their quarterly payments to the Internal Revenue Service. Easy.
Last month, I told my story as a stay at home parent who had gone back
to work, adding an analysis of sick leave and child care infrastructure
issues.
Not requiring sick leave has been justified by the reactionary sector
that claims that in the end, the market will sort everything out.
Keynes would respond that in the long run, we are all dead. Let me add
that one should not have to wait to die for a day off. Marx would
agree. For the market to work, there must be both perfect information
and no barriers to entry or exit, no black lists, no private salary
information. No such luck.
The perception that doing the right thing makes a business non-
competitive is the reason we enact minimum wage laws and should require
mandatory leave. Because the labor product is almost always well above
wages paid, few jobs are lost when this occurs. Higher wages simply
reduce what is called the labor surplus, and not only by Marx. Any CFO
who cannot calculate the current productive surplus will soon be
seeking a job with adequate wages and sick leave.
The requirement that this be provided ends the calculation of whether
doing so makes a firm non-competitive because all competitors must
provide the same benefit. This applies to businesses of all sizes. If a
firm is so precarious that it cannot survive this change, it is
probably not viable without it.
Childcare is best provided by the employer or the employee-owned or
cooperative firm. On-site care, with separate spaces for well and sick
children, as well as an on-site medical site for sick employees, will
uncomplicate the morning and evening routine. Making yet another stop
in an already busy schedule adds to the stress of the day. Knowing
that, if problems arise, parents can be right there, will help workers
focus on work.
Larger firms and government agencies can more easily provide such
facilities. Indeed, in the Reeves Center of the District Government,
such a site already exists. When the crisis is over, a staff visit
would prove illuminating.
Smaller firms could make arrangements with the landlord of the building
where offices or stores are located, including retail districts and
shopping malls. For security reasons, these would only serve local
workers, but not retail customers.
A tax on employers would help society share the pain for requiring paid
leave. Firms that offer leave would receive a credit on their taxes
(especially low wage firms). Tax rates should be set high enough for
that.
From January 2020 Comments to the House Budget Committee:
Our main tool in providing for human services is an employer-paid
subtraction value-added tax. This levy would be used more to channel
tax expenditures to employees rather than through categorical or block
grants. The most important feature is an expanded refundable child tax
credit, which would be distributed with pay and set to provide income
at middle class levels.
The S-VAT could be levied at both the state and federal levels with a
common base and tax benefits differing between the states based on
their cost of living (which would be paid with the state levy). The
federal tax would be the floor of support so that no state could keep
any part of its population poor, including migrants. It is time to end
the race to the bottom and its associated war on the poor.
The S-VAT will also facilitate human capital expenditures, with credits
to support tuition, wages and benefits for low-skill workers from ESL
and remedial education to apprenticeship. These benefits can be used in
cooperation with existing workforce investment boards, community
colleges and economic development agencies.
Private education providers should also be included in the mix,
including and especially the Catholic education system. Blaine
Amendments need repeal, opposition to unions ended and a focus on non-
college bound students encouraged.
Medicaid for senior citizens and the disabled is a huge contingent
liability for some states. In his New Federalism proposals, President
Reagan offered to assume these costs in exchange for state funding of
all other federal support. The first half of this proposal should be
implemented in the form of a new Medicare Part E with no requirement
for local funding.
The remainder of health costs would be paid through employer subsidies
to low-wage trainees, as described above through an S-VAT, with state
goods and services taxes (invoice VAT) covering cash, food and health
benefits for unattached non-workers until they can be placed in the
appropriate employment or disability program (including substance abuse
intervention).
Increasing the general wage level, through higher minimum wages, will
remove workers from poverty. The concept of being a member of the
working poor should be banished from the national conversation with an
eventual $18 (changed from $20) minimum wage for both employment and
training program participation, starting with $10 (changed from $15)
immediately. This wage level should adjust for inflation automatically.
The best support for state budgets is to make sure that everyone is
trained up to their potential.
Tax credit support for families is a better recession circuit breaker
than waiting for the Congress and state legislatures to act, although
increasing the child tax credit (which should be inflation adjusted) is
the best way to provide immediate stimulus, as do higher Food Stamps
(which would be mostly repealed by a higher CTC).
The other circuit breaker in a recession is increased income taxation
on the wealthy. Recessions do not happen, as Marx and Schumpeter
posited, from overproduction or a business cycle. They come about
because the wealthy have received tax breaks which encourage asset
inflation and questionable investment (often with an assist from the
Federal Reserve so that such investments may be migrated to Main
Street). Higher income tax rates take money from the savings sector so
that the consumption sector can recover (even without government
subsidies).
Higher taxes on the wealthy are beneficial to the economy, now and in
the next recession, because they take money out of asset inflation in
the savings sector and can then be used to increase spending on the
elements of GDP: government purchases, household consumption, net
exports and plant and equipment investment (which is not part of asset
speculation, as supply side economists falsely assert).
We submitted testimony on the Financial Services and General Government
Appropriation regarding our proposed asset value added tax, which
includes ending the exemption for mutual funds, and our current
analysis on an upcoming recession and how to deal with it. This is also
attached. Most of what we said in January 2020 is still current more
than a year later, including that a new financial panic and recession
is pending. The pandemic response by the federal reserve was a life
preserver for the speculation sector. This time, we need to go beyond
Wall Street.
Finally, we have attached our analysis of who owes and owns the
national debt as a form of class warfare. Claims that the deficit is a
vital issue are true, but the solution is not foregoing infrastructure,
it is taxing the holders of the debt. Interestingly enough, President
Biden identifies correctly those who are in that class. Their taxes
should go up, but not to fund infrastructure. We will get more traction
from the donor class once we demonstrate both who owns and who owes the
national debt.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff.
Attachment--Our Nation's Crumbling Infrastructure, March 6, 2019
For most states and localities, infrastructure is funded with federal
fuel taxes, state fuel taxes, tolls and property taxes for neighborhood
roads. Many states have increased their fuel taxes to fund
infrastructure deficits. States that belong to the Legislative Exchange
Council are less likely to take this step, which is perilous. Our
federal system allows states to mess themselves up, so we will not
address this problem except to say that states who do not charge
adequate taxes do not deserve an extra subsidy from federal funds
because of their folly.
In the short term, tolls could be considered for states who will not
responsibly increase their fuel taxes. The nature of these projects
precludes their adoption on a national basis. Their use is hardly
universal. Local High Occupancy Toll or HOT lanes are created using
local entrepreneurs, however are virtually empty most of the time.
HOT lanes have become transportation for the wealthy, leaving the
working class to deal with the crowded main highway system. While HOT
lane providers do upgrade the infrastructure to adjacent lanes as well,
their rush hour pricing and general disuse will not maintain public
favor for long. These roads may help fund immediate infrastructure
deficits, but their pricing structure may not return promised revenue,
which will end their usefulness.
For the present, the answer must be higher fuel taxes. They must also
remain a direct excise rather than a proportion of fuel prices because
prices vary from state to state. This would violate Article I, Section
8's prohibition requiring equal national excise taxes, although
individual states could explore the idea. Regardless, the coalition for
a higher national excise collapsed long ago, causing our infrastructure
crisis.
The reason for this collapse is the end of earmarking. The late Senator
John McCain (God rest his soul), was a driving force in the elimination
of this funding tool, while Congressman Bud Schuster was its champion.
Earmarks lost favor because of the bad publicity on Alaska's Bridge to
Nowhere, which was necessary to reach a vital airport destination.
Ironically, the road to the bridge was built and became the road to
nowhere because it was part of the overall plan. Governor Sarah Palin's
lack of courage in defending the project led to the downfall of
earmarks and the coalition for higher fuel excise taxes.
Earmarks simply codified agreements by the local members of Congress
and the Senate, the Federal Highway Administration and state and local
government to plan specific projects rather than leave their planning
solely up to the Department of Transportation. Without these
constituencies, the natural constituency for higher fuel taxes could
not hold out against general anti-tax sentiment. In essence, government
stopped doing its job to represent the interest of society rather than
its vocal anti-tax minority.
Bring back earmarks and projects will go forward and fuel taxes can be
raised with little heartburn.
Attachment--FY 2022 Energy and Water Development Appropriation
In 2007, I was employed as a contract administrator at the Department
of Energy. During this time, a new energy bill was signed. Soon after,
fusion research was cut. This was not our finest moment.
Fusion is a game changer and should be funded on a crash basis before
we have to turn out the lights to avoid treading water. Helium-3 is
promising and there is even some noise about cold fusion on a larger
scale. Energy companies like how cheap coal is and how much cheaper and
more popular natural gas is.
Utilities (and even coal producers) need to be offered a way to hedge
their bets. To move fusion, set up a public-private partnership to sink
in more money in exchange for the right of first use. Any practical use
of fusion will be big-industry. It was never going to be any other way.
Funds should be increased for fusion now, with a promise of ever
greater funding once industrial partnerships are created.
One use for such cheap power is a new transportation system. We can
pilot this now, in cooperation with the Departments of Commerce and
Transportation, automobile manufacturers, utility companies and
eventually selected local governments. I described the project in my
CJS testimony.
To best utilize clean energy (even natural) automated cars with central
control (rather than their own AI) and energy distribution (rather than
being hampered by economically damaging battery development). The
latter is old technology, i.e., electric trains and buses.
The same consortia that fund the project can be the backbone for
implementing it. Individuals could own cars, while some would be for
hire (with monitoring, but not drivers). Debit cards or a link to
checking accounts would pay for the car itself (either to rent or own),
the roadway and the use of energy and computer services.
Prices would vary based on congestion and vehicles could be taken to a
public transportation hub (which might be located at their children's
school), with the vehicle returning home empty or going to the next
fare. If congestion is low, it may be affordable to drive to work. If
it is high, prices for public transit and commuting would be adjusted
accordingly.
Energy infrastructure to power the system and facilitate communication
would also carry energy and data services, so add Xfinity and Cox to
the consortium.
This also gives us the incentive to improve the grid and to redesign
highways with driverless cars that won't crash into trees and explode.
We only need willingness to do this. The technology is already there.
Attachment--FY 2022 Financial Services Appropriation
Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes,
dividend taxes, and the estate tax. It will apply to asset sales,
dividend distributions, exercised options, rental income, inherited and
gifted assets and the profits from short sales. Tax payments for option
exercises and inherited assets will be reset, with prior tax payments
for that asset eliminated so that the seller gets no benefit from them.
In this perspective, it is the owner's increase in value that is taxed.
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will
fund the same spending items as income or S-VAT surtaxes. This tax will
end Tax Gap issues owed by high income individuals. A 26% rate is
between the GOP 24% rate (including ACA-SM and Pease surtaxes) and the
Democratic 28% rate. It's time to quit playing football with tax rates
to attract side bets.
Taxes on salaries can be collected by employers without having to file
because taxes on capital income and gains would be funded separately.
Rental and capital gains on real property would be collected by states
and capital gains and income from financial assets would be collected
by the federal government, with funds remitted by brokers or trading
platforms directly to the Securities and Exchange Commission. Our
proposed rate is 26%.
The biggest tax shelter is the use of money market funds to accumulate
capital gains and income without taxation. This practice must end if
salary surtaxes no longer include non-salaried income. 75% of such
funds are held by the top 10% of households as measured by the 2019
Survey of Consumer Finance by the Federal Reserve. I suspect the other
20% are held by high income retirees. The working class will not be
harmed.
This ratio affirms what Pareto found, except his ration was 80% of
wealth held by 20% of asset holders. Clearly, things have gotten worse
for the 80th to 89.9th percentile. If you apply the Pareto rule to
higher levels of income, and with Berkshire Hathaway there is no reason
not to, the top 1450 households hold roughly 30% of all wealth in
mutual funds. This ratio also applies to bond holdings, but this is a
topic for another day.
We have left a loophole on Asset Value-Added Taxes that some will be
able to fly a 757 through, which is trading stock overseas to avoid
taxation. The only way out of this is an internationally negotiated
asset VAT rate, or at least the same range. This ends the need for a
minimum tax on corporate income (note that corporate income taxes will
be discontinued under this proposal).
2021 Recession
A recession is inevitable because tax cuts and monetary policy are
fueling asset speculation while fiscal policy is not. The current
speculative toy is crypto-currency, especially Bitcoin. Bitcoin is
starting to attract poor people. Coin collection machines now allow
being paid in Bitcoin rather than in store credit or cash. Criminals
also love it too. It is being sold as a way to invest and grow rich.
There is even a fancy name for it: quantum finance. Even Goldman Sachs
is investing in Bitcoin. This is not a good sign.
Dealer claims that Bitcoin has big rises and smaller crashes simply
proves the point that we are dealing with a legal Ponzi scheme. When
the top of the food chain cashes out and everyone else realizes that
they own a worthless product.
In the current bond market, commercial properties and properties that
have been seized in foreclosure have been purchased with private equity
and are so heavily leveraged that they cannot be sold until the holding
company files for bankruptcy in the next Great Recession. See
Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates,
Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their
Homes and Demolished the American Dream by Aaron Glantz.
The long and short of it is that many now have to rent or own leveraged
properties. Our absentee landlords have cashed out and left others to
bled us dry. They essentially own us because we have to work harder and
longer to have a place to live while those who have cashed out live in
gated and high-end assisted living communities. Before the pandemic,
Exchange Traded Funds have been all the rage. Who wants to bet on where
the latest pool of junk is hiding?
The Dodd-Frank Act provides for liquidity when crashes, such as the
upcoming disaster, occur. However, neither the law nor the Federal
Reserve provide any relief to the renters, homeowners and credit card
customers whose debts are being purchased by the Federal Reserve and
remarketed.
In 2009, home values plummeted. Even borrowers (such as my family) who
did everything right (except buying at the top of the market), found
themselves unable to sell our homes. Bankruptcy and divorce followed.
Job loss in the 2011 debt deal did not help matters either. Had the
Federal Reserve or the Virginia Housing Development Agency marked these
properties to market, what can only be called an Economic Depression
would not have occurred.
When the Fed marks bonds to market, M3 is reduced. The money vanishes
in the same way it was created, with a keystroke. This also deflates
the financial markets. Experience has shown that simply throwing money
out of the window of the Central Banks did nothing to improve the
economy. Forgiving debt would have.
Let us not repeat (or rather continue to repeat) the bad practices that
left the economy in the doldrums. During the pandemic, the Federal
Reserve has purchased bad paper, but without benefit to those whose
debts are held in those bonds.
This time around, credit card balances and back rent should be forgiven
when the Federal Reserve buys the bonds that hold the debt. Loans could
also be written down, which would stop bondholders from benefiting from
issuing bonds that should never have been issued in the first place.
Renters of both commercial and residential property should be offered
the chance to purchase their locations and homes, with assistance from
Government Sponsored Enterprises, with their paper replacing the debt
paper that has been securitized in Exchange Traded Funds.
In 2009, the United States aided and abetted those who created the
crisis. We are currently repeating the mistake. When the inevitable
crisis occurs again, doing the right thing will also be the right
medicine for the economy. In 2008, the bill passed with the promise
that borrowers would be helped. Mr. Paulson lied. Let us act truthfully
this time around.
Attachment--Debt Ownership as Class Warfare, September 24, 2020
Visibility into how the national debt, held by both the public and the
government at the household level, sheds light on why Social Security,
rather than payments for interest on the public debt, are a concern of
so many sponsored advocacy institutions across the political spectrum.
Direct household attribution exists through direct bond holdings,
income provided by Social Security payments and secondary financial
instruments backed with debt assets. Using the Federal Reserve Consumer
Finance Survey and federal worker and Social Security payment and tax
information, we have calculated who owes and who owns the national debt
by income quintile. Federal Reserve and Bank holdings are attributed
based on household checking and savings account sizes.
Responsibility to repay the debt is attributed based on personal income
tax collection. Payroll taxes create an asset for the payer, so they
are not included in the calculation of who owes the debt. Calculations
based on debt held when our study on the debt was published,
distributed based on the latest data (2017) from the IRS Data Book show
a ratio of $16.5 of debt for every dollar of income tax paid.
This table shows a summary level distribution of income, national debt
and debt assets in three groupings based on share of Adjusted Gross
Income received, rather than by number of households. This answers the
perennial question of who is in the middle class.
[GRAPHIC] [TIFF OMITTED] T1821.009
.epsThe bottom 75% of taxpaying units hold few, if any, public debt
assets in the form of Treasury Bonds or Securities or in accounts
holding such assets. Their main national debt assets are held on their
behalf by the Government. They are owed more debt than they owe through
taxes.
The next highest 20% (the middle class), hold few bonds, a third of
bond-backed financial assets and a quarter of government held
retirement assets.
The top 5% (roughly 8.5% of households) own the vast majority of non-
government retirement holdings and collect (and roll-over) most net
interest payments. This stratum owns very little of retirement assets
held by the government, hence their interest in controlling these
costs. Their excess liability over assets is mostly attributable to
internationally held debt. Roughly $4 Trillion of this debt is held by
institutions, with the rest held by individual bond holds, including
debt held by members of this stratum in off-shore accounts.
Source: Settling (and Squaring) Accounts: Who Really Owes the National
Debt? Who Owns It? available from Amazon at https://www.amazon.com/dp/
B08FRQFF8S.
______
Global Infrastructure Investor Association
1 Chamberlain Square CS
Birmingham, B3 3AX, United Kingdom
28 May 2021
The Honorable Ron Wyden
Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Wyden,
On behalf of the members of the Global Infrastructure Investor
Association (GIIA), we write to provide our views for inclusion in the
hearing record of the United States Senate Committee on Finance/
Committee on Ways and Means (``the Committee'') in relation to its
Hearing on ``Funding and Financing Options to Bolster American
Infrastructure/Leveraging the Tax Code for Infrastructure Investment''
held on Tuesday, May 18, 2021/Wednesday, May 19, 2021.
GIIA's members represent many of the leading international investors in
infrastructure including a significant number of US-based fund managers
and retirement systems among others. Our members own or manage over
US$800bn worth of existing infrastructure assets around the world and
control substantial further sums ready for investment in infrastructure
across the U.S. economy. They are experts in deploying capital and
managing assets to deliver world class infrastructure--from transport
to energy, broadband to hospitals--across 55 countries on six
continents.
It has long been recognised that the US requires substantial investment
in its infrastructure: the challenge has always been how to get
investment moving. GIIA and its members believe that utilising private
capital represents the best means by which to help this element of the
economy get moving. Increasing the involvement of private capital
reduces the strain on federal and state budgets while leveraging the
private sector to deliver new infrastructure projects that can drive
employment and economic growth.
GIIA's member companies know well the benefits of private investment in
providing a wide range of infrastructure projects that are essential
for economic growth. With case studies ranging from the Northwest
Parkway in Colorado, the Oswegatchie River Hydroelectric Project in New
York, to Fullerton's FiberCity in California, to the Caruna energy
network in Finland, and the Port of Melbourne in Australia--we stand
ready to demonstrate how private investment can constructively augment
public investments to increase the value of infrastructure to
communities, cities and states.
Specifically, in the context of the Committee's recent hearing on
``Funding and Financing Options to Bolster American Infrastructure/
Leveraging the Tax Code for Infrastructure Investment'' we strongly
believe the following initiatives would drive growth in U.S.
infrastructure, both spurring economic growth and creating jobs:
1. Evaluate best practice programs from around the globe for
adoption in the United States to accelerate private investment and
leverage scarce public dollars. For example, in Australia, Provinces
and Premiers successfully used $3bn in federal incentives to support
lease programs that netted $20bn in additional infrastructure
investment.
We believe that a similar program could help state and local
governments in the U.S. generate new revenues for investing in
infrastructure. By entering into long term leases or concessions with
the private sector for the operation of existing assets, governments
could invest the proceeds from those arrangements into other
infrastructure. Contractual terms can be designed to provide certainty
to governments and reassurance to local communities, with ultimate
ownership remaining in public hands. Crucially, the lease proceeds
create a new revenue stream for governments which, when supplemented by
targeted federal incentive grants, provide a new infrastructure funding
mechanism without placing additional pressure on already stretched
federal, state or local budgets.
As a complement to federal investment incentives, regulatory and
statutory tax changes to expand the permitted use of tax-exempt debt
would further expand this opportunity to boost infrastructure
investment.
2. Implement targeted tax measures to incentivise new investment,
thereby creating jobs and enhancing sustainability. Making tax changes
allows for stimulus to be measured and focused where it will have most
impact. Examples of specific changes include:
(a) Amending the US business interest deduction limitations
under Section 163(j) such that they only apply a cap based on a
taxpayer's EBITDA for all future years. Current law will reduce the cap
to 30% of EBIT for tax years beginning on or after 1 January 2022.
Infrastructure assets generate substantial depreciation deductions
making the proposed amendment an important change to incentivise
financing for new and existing assets. This has immediate consequences
as without the change, the impact of applying Section 163(j) to EBIT in
the future would perversely disadvantage investors who make significant
capex investments now (as well as in the future).
(b) Encouraging new infrastructure investment by broadening the
scope of infrastructure businesses excluded from the business interest
limitation cap under Section 163(j).
(c) Introducing a (potentially transferable) credit for capex on
infrastructure projects spent within a certain ``COVID-19 economic
recovery'' time period. Such a credit already exists for railroad
maintenance. Having a similar credit apply more broadly to other
classes of infrastructure would spur capital investment and jobs
growth.
To summarise, there are highly investible assets in all US states
across multiple sectors, including transport (ports, airports, roads
railways), water/wastewater, renewables (particularly wind, solar and
biomass), and the roll out of high-speed broadband networks. Targeted
use of limited federal incentives, combined with thoughtful changes to
the Tax Code will unlock outsized investment at the state and local
level. A meaningful number of these projects may be accelerated to
offer positive near-term economic impact. However, as was experienced
after the 2008 financial crisis, achieving this requires significant
work and often takes longer than it should. Much good work has been
done to streamline permitting over recent years, but more is needed.
We believe the ideas outlined above can be swiftly brought to bear,
helping to deliver economic stimuli, with minimal call on the federal
purse, while creating jobs and spurring economic activity that will
have far-reaching benefits in local and national economic terms.
We would welcome the opportunity to discuss our thoughts with you and
would be happy to organise virtual meetings in the coming weeks to help
facilitate discussions.
Yours sincerely,
Lawrence Slade Naz Klendjian
Chief Executive hair, GIIA Tax Working Group
Global Infrastructure Investor
Association
______
Government Finance Officers Association
660 North Capitol Street, Suite 410
Washington, DC 20001
June 3, 2021
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Wyden, Ranking Member Crapo, and distinguished members of
the Committee:
Thank you for holding the hearing Funding and Financing Options to
Bolster American Infrastructure. The Government Finance Officers
Association (GFOA) represents over 21,000 public finance officers from
state and local governments, schools and special districts throughout
the United States.
GFOA is dedicated to the professional management of governmental
financial resources by advancing fiscal strategies, policies and
practices for the public benefit, including issues related to issuing
tax exempt bonds and investing public funds. Additionally, GFOA
supports a strong network of public sector issuers in Washington, DC,
called the Public Finance Network. Together with issuer organizations,
the public finance network is able to issue letters of support from
millions of public sector entities throughout the year. But on behalf
of the GFOA and its members, we appreciate the opportunity to provide
comments for this public hearing focusing on the tax tools that are so
critical at the local level.
Our system of federalism requires a strong federal, state and local
partnership to achieve our shared goals. One of the best examples
embodying that federal partnership is the tax-exempt municipal bond.
Tax-exempt bonds are the primary mechanism through which state and
local governments raise capital to finance a wide range of essential
public projects. The volume of municipal bond issuance for the period
from 2009 to 2019 amounted to $4.2 trillion.
Communities across the country depend on strong, substantive federal
tax policy for state and local governments to meet their capital needs.
For over 100 years, the municipal bond market has worked fairly and
efficiently to address these needs, whether it is in our largest states
and cities or the rural areas across the United States. We urge
Congress to not only protect this vital tool, but to act swiftly and
adopt a number of provisions to further enhance the effectiveness of
this tool.
As Congress deliberates the important topic of supporting
infrastructure investment, we wish to broadly outline a few key points
and recommendations for your consideration.
Preserve the Tax Exemption for all Municipal Securities: A top,
longstanding priority for the nation's state and local public finance
officers is the full preservation of the tax exemption on municipal
bond interest. Elimination, reduction or capping of the tax exemption
would pose immediate increased costs to the critical projects financed
by state and local issuers. Added costs to capital projects would force
state and local governments, already budget-strained by the ongoing
pandemic, to make difficult and pro-recessionary choices. Furthermore,
increased costs would ultimately be borne by the American taxpayer.
Reinstate the Tax Exemption for Advance Refunding Bonds: Before January
1, 2018, municipal issuers were able to issue single tax-exempt advance
refunding bonds prior to the 90 days before the call date. This
critical tool allowed state and local governments to effectively
refinance their outstanding debt in order to take advantage of more
favorable interest rate environments or covenant terms. Advance
refunding bonds frequently provided issuers with the flexibility to
lower debt servicing charges that would otherwise be a fixed cost. GFOA
found that between 2007 and 2017, there were over 12,000 tax-exempt
advance refunding issuances nationwide which generated over $18 billion
in savings for tax and ratepayers over the ten-year period.
Prior to their elimination in the Tax Cuts and Jobs Act (``TCJA'')
(Pub. L. 115-97), advance refunding bonds made up approximately 27
percent of issues in 2016. Restoration of this tax exemption would
require an act of Congress, but would be one of the most effective
actions to provide state and local governments with more financial
flexibility to weather downturns and increase infrastructure
investment. We strongly support bipartisan measures like S. 479, the
LOCAL Infrastructure Act, that seeks to restore this vital, cost-saving
tool.
Increase Access to Capital for Small Borrowers: For many thousands of
small issuers and governmental and nonprofit borrowers, increasing the
bank qualified borrowing limit from $10 million to $30 million, and
having it apply at the borrower level would provide access to low cost
capital to thousands of small local governments and non-profit
hospitals and healthcare systems for immediate project needs.
Bank qualified bonds are particularly useful to smaller governments, as
they have historically enabled these jurisdictions to finance
infrastructure at lower costs than traditional bond financing. Bank
qualified bond issuers save between 25 and 40 basis points on average.
For example, on a 15-year, $10 million bank qualified debt financing,
an issuer could expect to save between $232,000 and $370,000. Raising
the bank qualified debt limit to $30 million, would save issuers
between $696,000 and $1.1 million on a $30 million bank qualified bond
issue. This is a substantial savings for our nation's smaller
governments, which can be used to maintain and improve valuable
community services and finance other much-needed capital improvement
projects.
Restore and Expand the Use of Direct-Pay Bonds: While not currently
permitted to be issued, in the past, Congress authorized governments to
issue taxable direct subsidy bonds. These bonds allowed the government/
issuing entity to receive a payment from the Federal Government for the
life of the bond, covering a percentage of the interest costs. Bonds
under previous programs could be issued for most governmental purposes,
and the subsidy generally provided the issuer with a lower net interest
cost on the financing compared with conventional tax-exempt bonds.
Restoring and expanding the use of direct-pay type bonds and ending
their subsidy exposure to sequestration, would immediately create an
attractive investment option globally while funding thousands of state
and local projects, particularly while the municipal bond market is
recovering from the initial effects of the COVID-19 pandemic.
Accordingly, we support bipartisan measures like S. 1308, the American
Infrastructure Bonds Act, that would provide another important tool
among the resources available to state and local governments to address
our infrastructure needs.
GFOA will continue to support your efforts and appreciate your
attention as you begin this important conversation on the vital tools
that would provide substantial support to local governments in their
effort to build the infrastructure our country so desperately needs. We
look forward to working with you and supporting your efforts on this
and other public finance matters of mutual interest.
Emily Swenson Brock
Director of the Federal Liaison Center
Email: [email protected]
(p) 202-393-8467
INCOMPAS
1100 G Street, NW, Suite 800
Washington, DC 20005
May 17, 2021
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510
Re: May 18, 2021 Hearing on ``Funding and Financing Options to
Bolster American Infrastructure''
Dear Chairman Wyden and Ranking Member Crapo:
In representing many small broadband Internet access service and
communication providers across the United States, INCOMPAS, the
Internet and competitive networks association, believes that ``Internet
for All'' should be a call-to-action as a result of COVID-19 and the
digital divide in this country. As our lives continue to adapt and rely
more heavily on broadband services to meet the challenges of the
coronavirus pandemic and beyond, the commitment to reach all Americans
with better, faster, more affordable broadband connectivity must be
embraced.
We applaud the work of Congress and the Biden Administration in
recognizing with the American Rescue Plan Act that, despite our
nation's best efforts and significant investment by the public and
private sectors, we still face serious challenges in connecting all
Americans. This includes homes and businesses of all sizes to reliable
high-speed broadband. We also commend the efforts of Congress and the
FCC to address the needs of low-income Americans through the Emergency
Broadband Benefit program and of school children, teachers, and library
patrons through the Emergency Connectivity Fund. While competition is
the key to affordable service, many Americans need financial assistance
to get connected.
Many Americans have faced significant challenges during the COVID-19
pandemic due to the fact they do not have broadband network
availability in their communities. Achieving universal broadband
availability is an ambitious but essential goal. The American Rescue
Plan tackles head-on the deployment needs by allocating $10 billion
specifically for broadband infrastructure investment by the states. In
addition, it also permits states and localities to use the State and
Local Recovery Funds for broadband infrastructure, among other
projects. It is important that states and localities consider their
communities' broadband needs today as well as in the future. However,
that funding is not sufficient to address all of the nation's broadband
needs.
COVID-19 has exposed deep gaps in Americans' ability to access the
Internet, and it is time for our nation's leaders and for Congress to
take action. Millions remain disconnected--either because they do have
a broadband network available to them or they cannot afford the
service. Now more than ever, our communities want and need universal
broadband coverage for their students, small businesses, and heath care
workers. Unfortunately we hear too often about kids doing homework in
parking lots because they lack access to fast, affordable broadband at
home. This is a national tragedy. To meet this challenge, we ask the
federal government to help enable solutions that will make a
significant difference in the lives of all Americans. It is very
important that robust broadband capability be deployed to government
agencies, residences, businesses, and town centers.
Congress should prioritize building new, faster networks that can meet
our nation's needs today and in the future. INCOMPAS supports a
significant investment in broadband infrastructure deployment so we can
compete with other nations who have 1 gigabit speed and fiber goals. To
enable more scalable, robust, and reliable networks to be deployed in
areas that are lacking adequate service, investment in backbone, middle
mile, and/or last mile networks may be necessary. New network builders
can deliver 1 gigabit and above speeds today that will be able to scale
as demand increases, and Congress should require that funding be used
for such capability as much as possible. We believe fiber is a critical
component in delivering reliable broadband infrastructure and 1 gigabit
speeds. Everyone in the broadband ecosystem needs access to fiber--
including fixed broadband, cable, cellular (mobile), and satellite
companies.Building more fiber helps all, and fiber densification
throughout the U.S. is critical for winning the race to 5G.
In addition, funding assistance should be directed to local
jurisdictions to help hire, train, and/or expand their capability to
process broadband infrastructure permitting and approval processes. We
urge you to incentivize state and local governments to adopt speedy
review processes of those projects when broadband providers seek
authorization to access public rights-of-way and obtain construction
permits and to charge cost-based fees for those processes. These
actions will spur faster and more efficient deployment which will
benefit consumers who are desperately waiting for new networks to reach
them. We also urge you to build upon the FCC's Emergency Broadband
Benefit and Emergency Connectivity Fund programs and extend assistance
to every American household that cannot afford a home connection so
that they are not left behind in the digital economy.
We have the ability and responsibility as Americans to go big and bold
on broadband. To harness the power of an Internet for All that powers
the streaming and cloud-driven economy. Now is the time to take steps
toward achieving a future of connectivity, faster speeds, and
affordable prices in the U.S. We are looking to your leadership and
Congress for creating new infrastructure goals and urging your
colleagues to have targeted broadband policies that enable all
Americans to access high-speed Internet, and we hope to have your
continued support.
Thank you for your consideration.
Sincerely,
Chip Pickering
CEO
______
Municipal Bonds for America
1909 K Street, NW, Suite 510
Washington, DC 20006
202-204-7900
www.bdamerica.org
U.S. Senate
Committee on Finance
Introduction
The Municipal Bonds for America Council (MBFA) appreciates this
opportunity to offer its views regarding the critical issue of
municipal bond financing in the context of infrastructure investment.
MBFA commends the Committee for its work to address the massive and
growing infrastructure deficit our country is currently facing. We
believe expanding the use of municipal bonds to finance state and local
investment in infrastructure must be a key component of a comprehensive
infrastructure initiative.
The MBFA is a coalition of municipal market leadership working together
and in concert with state and local governments to promote and advance
the $4 trillion municipal bond market in the context of infrastructure.
The coalition is committed to advancing initiatives that improve the
municipal securities market while protecting the interests of
taxpayers, investors, and issuers.
As the Committee continues work on details of a federal infrastructure
plan, we urge you to ensure bond financing is a cornerstone to any
federal infrastructure package. This includes maintaining the tax
exemption for municipal bonds, utilizing green bonds for state and
local governments to invest in sustainable infrastructure, and
restoring the ability of issuers to refinance their debt, among other
provisions.
We call on the Committee to follow guidance provided in H.R. 2632, the
Local Infrastructure Financing Tools Act, and H.R. 2, the Moving
Forward Act of the 116th Congress. That legislation included provisions
that would allow the federal government to further invest in
infrastructure at little cost to the tax-payer.
These include:
Restoring the ability of state and local governments to save
taxpayer dollars and generate additional funds for infrastructure and
other key initiatives by restoring tax-exempt advanced refundings
(ARs);
Expanding the use of tax-exempt private-activity bonds (PABs);
Raising the Bank Qualified debt limit from $10 million to $30
million and tie to inflation;
Creating a direct pay bond similar to the former Build America
Bond (BAB) program exempt from sequestration; and
Expanding the use of environmental, social and governance (ESG)
and green bonds.
The Role of Municipal Bonds in Infrastructure Finance
Borrowing by state and local government in the capital markets is the
single biggest and most important source of funding for infrastructure
investment in America. Approximately 75 percent of the infrastructure
in the US is financed, maintained and owned by state and local
governments. Approximately 75 percent of state and local infrastructure
was financed in whole or part with municipal securities. And more than
90 percent of that borrowing was using tax-exempt bonds.
The tax-exemption for municipal bond interest is the single most
important federal infrastructure investment program. Because investors
know they will not face a tax liability for the municipal bond interest
they earn, they accept a lower rate of return on their investment. This
translates into huge interest cost savings for state and local
governments who issue tax-exempt bonds and provides accessible
infrastructure at the lowest cost for all Americans that they
represent. The tax-exemption has existed in federal law since the very
first income tax after the 16th Amendment was ratified.
Depending on market conditions and the specifics of the transaction,
state and local governments save around two percentage points on their
borrowing relative to what they would pay if they issued taxable bonds.
Applied to the municipal market overall, state and local governments
save around $80 billion per year in interest cost as a result of the
federal tax- exemption for municipal bond interest.
Bonds finance a wide variety of projects including schools, water and
sewer systems, highways and roads, bridges and tunnels, airports,
public buildings, public and nonprofit colleges, universities and
hospitals, and many more.
In addition to cost savings for bond issuers, tax-exempt finance for
infrastructure provides several other benefits.
It is an effective, three-way partnership between the state or
local issuer, the federal government providing the tax-exemption, and
investors providing capital.
Bond financing imposes a market test on infrastructure projects.
Investors need to know that the projects they finance are viable and
sustainable in order to ensure the return of their investment.
The tax-exempt bond market attracts capital from a wide variety
of investors, including individuals, mutual funds, commercial banks,
property and casualty insurance companies, and others.
Municipal bonds are very safe investments. The default rate for
municipal bonds issued for infrastructure projects is near zero.
Tax-exempt bonds ``leverage'' the federal contribution towards
the cost of infrastructure. Every dollar in federal cost results in
around four dollars of infrastructure investment.
Despite the success of tax-exempt finance for over 100 years, there are
steps Congress can take to expand the market and provide additional
opportunities for state and local infrastructure investment. We are
pleased to present some options.
Restore Advance Refundings
State and local governments routinely refinance their outstanding debt
obligations just as corporations and homeowners do. The advance
refunding (AR) technique allows state and local government issuers to
refinance, and thus benefit from lower interest rates, when the
outstanding bonds are not currently callable.
While a municipal refunding transaction is analogous to refinancing a
mortgage, a key difference is that a homeowner typically can refinance
a mortgage at any time. Most tax-exempt bonds are issued with a call
option that allows the issuer to redeem bonds at face value only after
a lock-out period, typically ten years. But what happens when interest
rates fall before the old bonds are callable? An advance refunding
occurs when interest rates have fallen sufficiently that an issuer can
achieve their targeted debt service savings but before the outstanding
high interest bonds are callable.
In advance refundings that were permitted before 2018, issuers would
sell new, low interest bonds and invest the proceeds in an escrow.
Those escrow investments would cover debt service on the old, high
interest bonds until they become callable and would cover the cost of
redemption at that time.
The Tax Reform Act of 1986 imposed significant restrictions on ARs.
Before 1986 state and local governments could advance refund their
bonds as many times as they liked. There were examples of issuers
conducting ARs when interest rates had fallen just a bit and having
multiple refunding bonds outstanding at the same time for the same
project, all generating tax-exempt interest. Congress responded by
restricting ARs to one per bond issue. ARs became a limited option for
state and local governments, and most devised debt service savings
targets they must have been able to achieve in order to justify using
their single AR opportunity. The restrictions imposed in 1986 represent
a reasonable balance between offering refunding opportunities and
protecting the federal government's fiscal interest.
As interest rates currently rise from historic lows, state and local
governments will acutely feel the effects of the loss of advance
refunding. The inability to lock in lower interest rates when they are
available will result in increased costs to these governmental entities
and increased tax burdens on their residents. Moreover, at a time of
relatively low, but steadily increasing, interest rates, state and
local governments have lost an important means of restructuring their
outstanding debt to respond to short- or long-term fiscal issues (which
can include both paying off their debt more quickly or restructuring
debt to deal with short term financial difficulties).
There are no alternatives to advance refundings that are as effective
in terms of cost or risk. State and local governments are sometimes
hesitant to use interest rate swaps or other derivates to ``simulate''
the benefits of advance refundings. Similarly, other alternatives are
more costly than ARs and will not be able to provide an effective
replacement for advance refunding bonds. In 2020 interest rates for
taxable municipal securities were so low that it was possible for some
issuers to advance refund outstanding tax-exempt bonds with taxable
bonds. However, market movements in recent months have begun to close
those opportunities. Tax-exempt advance refundings will soon be the
only option for issuers.
In the House Representative Terri Sewell (D-AL) has introduced the
Local Infrastructure Financing Tools (LIFT) Act (H.R. 2634), which
would, among other provisions restore tax exempt advance refundings to
their pre-2018 status, allowing state and local governments to
refinancing outstanding debt at the current lower interest rates. In
the Senate Senators Roger Wicker (R-MS) and Debbie Stabenow (D-MI)
recently introduced the Lifting Our Communities through Advance
Liquidity for Infrastructure (LOCAL) Act (S. 479) with strong
bipartisan support. The MBFA calls on the Committee to ensure this tool
is reinstated fully to its pre-2018 status.
Expand the Use of Private Activity Bonds
Sometimes it makes sense for a state or local government to partner
with private infrastructure investors or operators on a project. These
public-private partnerships can often result in efficient financing
plans for complex projects.
Bonds issued by state and local governments may be classified as either
governmental bonds or Private Activity Bonds (PABs). Governmental bonds
are bonds where there is no significant involvement of private entities
in a project. PABs are bonds where more than ten percent of the
proceeds of an issue are used by a private entity and more than ten
percent of the debt service on the bonds is paid or secured by a
private entity. The Internal Revenue Code significantly restricts the
use of PABs, since the subsidy provided by the tax-exemption is
intended to be directed to projects which have a discernable public
benefit.
There are two general restrictions on PAB issuance. The first imposes
overall limits on the volume of PABs that can be issued in each state.
Although some very big-ticket projects like airports are exempt from
the volume caps, states must treat their annual volume allocation of
PABs as a scarce resource and allocate it to only the most worthy
projects. The second restriction is on which types of projects are
eligible for PAB financing. In general PABs are limited to
infrastructure projects such as water and sewer systems, airports,
transit system, solid waste disposal facilities and others. There is a
separate, nationwide volume cap on PABs issued for highway projects
which is administered by the Department of Transportation. Other uses
of PABs include single- and multi-family housing for targeted
populations and financing for small manufacturing companies and first-
time farmers.
PABs are an important tool for public-private partnerships in
infrastructure finance and development, since that is often the only
way to obtain tax-exempt financing for projects with equity investors.
Public-private infrastructure partnerships can often deliver projects
faster, more efficiently, and at a lower cost than purely public
projects.
Towards that end, MBFA strongly supports expanding PABs. For projects
defined as publicly accessible infrastructure, the Tax Code should be
indifferent as to whether the project is public, private, or some mix.
If a state or local government determines that the best approach to
building a new airport terminal, sewage treatment plant, or other
infrastructure project is to work with a private developer, they should
not lose access to tax-exempt financing. The benefits to taxpayers are
the same whether the project is public or private.
Raise the Bank Qualified Debt Limit
Small state and local governments sometimes have more difficulty
accessing the capital markets than bigger governments. Not as many
banks ``cover'' small issuers, and they may not be as well known among
investors. In recognition of these issues, Congress in the Tax Reform
Act of 1986 provided a special means for small communities to place
their bonds with commercial banks.
Section 265 of the Internal Revenue Code generally prohibits banks from
taking an interest deduction on borrowing to finance investments in
tax-exempt bonds. However, as a way to encourage banks to buy the bonds
of small communities, Congress permitted banks to continue to deduct 80
percent of the interest cost associated with buying bonds issued by
local governments who issue less than $10 million per year, now known
as ``bank qualified'' (BQ) bonds. Since 1986, inflation has eroded the
value of the $10 million BQ exemption. The exemption is worth only $4.2
million in 1986 dollars.
Representative Sewell's LIFT Act includes provisions to expand BQ
bonds. The legislation would raise the annual BQ limit to $30 million
while tying increases to inflation, something that the 1986 tax law
failed to implement. The legislation also applies the bank qualified
debt limit on a borrower-by-borrower basis, rather than aggregating all
bank qualified bonds issued by a conduit issuer, so that schools,
hospitals and other community organizations can more easily access
capital. This legislation is an effective solution to make rural
municipal debt a more attractive investment, in turn, lowering the cost
to issuers. We call on the Committee to include this provision in any
infrastructure draft. Representatives Sewell and Tom Reed (R-NY) in the
previous Congress introduced the Municipal Bond Market Support Act
(H.R. 3967) which would have made the same changes.
Reinstate Direct Pay Bonds
The MBFA calls on the Committee to pass legislation that would create a
new
direct-pay taxable bond, but ensure the new bond is exempt from
sequestration. This new tool, much like BABs, would be an effective way
to drive infrastructure investment at the state and local level.
The American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5),
enacted in response to the 2008 financial crisis, provided authority
for Build America Bonds (BABs). BABs gave state and local governments
an alternative to tax-exempt financing. Instead of issuing tax-exempt
bonds, issuers were able to issue bonds where the interest was taxable
to investors and then receive a reimbursement from the federal
government for a portion of their interest expense. During the 2009-
2010 period before BABs authority expired, state and local governments
issues $181 billion to finance infrastructure investment. BABs were
successful in part because they attracted investors like pension funds
and foreigners who, because they pay little or no federal income tax,
have no use for federally tax-exempt income. By drawing issuance volume
away from the tax-exempt market, direct-pay bonds can lower tax-exempt
yields and provide benefits to state and local issuers who do not even
use them. However, the usefulness of BABs was limited by the Budget
Control Act of 2011 (Pub. L. 112-25), which imposed sequestration on
the interest reimbursement payments that state and local governments
were promised at the time the bonds were issued.
According to a recent House Transportation and Infrastructure Committee
report titled ``Moving America and the Environment Forward: Funding Our
Roads, Transit, Rail, Aviation, Broadband, Wastewater and Drinking
Water Infrastructure,'' the $181 billion in Build America Bonds that
were issued in the two years they were available supported nearly 2,300
projects around the country. This influx of capital helped ensure a
prosperous recovery from the devastation of the great recession.
Importantly, the existence of a direct pay bond option for issuers will
act as a borrowing rate ``governor'' of sorts for them. They will have
an option to issue potentially less costly taxable bonds if in the
future if tax-exempt borrowing rates spike to levels above historic
relative spreads to taxable debt. This will serve to lower their
borrowing cost and reduce the annual sum of lost revenue to the
Treasury resulting from the existence of the tax-exempt expenditure.
Legislation in both the House and Senate has been introduced this
Congress that would create a new direct-pay bond program. The American
Infrastructure Act in the Senate and the LIFT Act in the House both
create a new direct-pay bond the American Infrastructure Bond (AIB).
The AIB is styled after the prior generation BAB, but there are several
key differences in the House and Senate packages. The Senate AIB calls
for a direct pay bond, exempt from sequestration, with a flat federal
reimbursement rate to issuers set at a revenue neutral 28 percent. The
House companion, while offering a tiered, more generous descending
reimbursement schedule, is subject to sequestration.
When Congress revives direct-pay bonds, continuing to apply
sequestration to interest subsidy payments would me a major
discouragement for issuers to adopt the product. It is essential that
when Congress revives direct-pay bonds, the interest subsidy payments
no longer be subject to sequestration.
ESG and Green Bonds
It is essential that climate and environmental considerations be a
central component of any infrastructure initiative. Here again, tax-
exempt finance can help. We ask that as you look at these important
issues, consider Environmental, Social and Governance (ESG) or ``green
bond'' financing to support these endeavors to ensure they can
withstand current and future changes due to change in climate, and
additional needed mitigation efforts at low cost to the federal tax-
payer.
State and local governments have an important role to play in
addressing climate change. States and localities own and operate
virtually all the nation's water, sewer and solid waste disposal
facilities. Power authorities owned by states and localities generate a
significant portion of the nation's electricity. State and local
governments own and operate many thousands of cars, trucks and other
equipment that run on fossil fuels. State and local governments have
been turning to tax-exempt bonds to finance decarbonization efforts.
While ESG and green bonds continue to be a growing portion of public
finance issuance, enactment of new tax-exempt financing authority by
Congress would address this issue effectively.
Some potential ESG bond federal policy remedies include:
Private Activity Bonds (PABs) for electric vehicle
infrastructure: A proposal included in last year's H.R. 2 would permit
PAB financing for facilities ``used to charge or fuel zero-emissions
vehicles.''
Remove PABs for water and sewer facilities from volume cap
requirement. Currently private activity bonds issued for water and
sewer facilities must obtain volume cap allocation. They would be
exempt from the volume cap under a proposal included in last year's
H.R. 2.
Conclusion
For over 100 years, municipal bonds have served as the primary
financing mechanism for public infrastructure. Three-quarters of the
nation's core infrastructure is built and financed by state and local
governments. Restrictions such as prohibiting advance refundings and
limiting the use of PABs for infrastructure ties the hands of local
governments and discourages capital investment in new infrastructure
projects.
As your Committee continues work on details of a federal infrastructure
plan, we ask that you work to ensure bond financing is a cornerstone to
any federal infrastructure package. This includes maintaining the tax
exemption for municipal bonds, the utilization of green bonds for state
and local governments to invest in resilient infrastructure and
restoring the ability for issuers to refinance their debt amongst other
provisions.
The MBFA appreciates the Committees work on addressing the
infrastructure needs of the country, and reaffirming support for the
cornerstone of infrastructure financing, tax-exempt municipal bonds.
______
NAFA Fleet Management Association
180 Talmadge Road, IGO Bldg., Suite 558
Edison, NJ 08817
www.nafa.org
609-720-0882
Chair Wyden, Ranking Member Crapo, and members of the Committee, thank
you for providing the opportunity to submit a statement for the record
of the hearing entitled ``Funding and Financing Options to Bolster
American Infrastructure.''
NAFA Fleet Management Association (NAFA) appreciates the Committee on
Finance's efforts to examine the current state of our nation's
infrastructure and discuss methods of federal involvement to bring
about infrastructure improvements and funding stability.
NAFA has more than 2,000 individual fleet manager members from
corporations, universities, government agencies (federal, state, and
local), utilities, and other entities that use vehicles in their
operations. NAFA members control more than 4.2 million vehicles and
manage assets in excess of $92 billion. These vehicles travel more than
84 billion miles each year.
The fleets managed by NAFA's Members run the gamut from light- to
heavy-duty vehicles. Depending on the employer's mission, these fleets
may be contained to one specific geographic area, dispersed among
multiple regions or states, or be in multiple countries. In addition,
NAFA is supported by more than 1,000 associate members who represent
companies that support fleet managers in their jobs. These include
vehicle manufacturers, leasing companies, aftermarket equipment
suppliers, telematics firms, service providers, etc.
Comments
NAFA shares your concern about the current state of U.S.
infrastructure, especially regarding the future challenges of funding
the maintenance, repair, and expansion of our nation's highway system.
The highway trust fund (HTF) has faced repeated projected funding
shortfalls due to its reliance on revenues from the federal motor fuel
excise tax. These past shortfalls are underscored by the Congressional
Budget Office's recent report predicting the HTF's highway account's
insolvency in 2022.\1\
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\1\ Congressional Budget Office. (February 2021). highway trust
fund Accounts--CBO's February 2021 Baseline. Retrieved from https://
www.cbo.gov/system/files/2021-02/51300-2021-02-highwaytrustfund.pdf.
NAFA recognizes that transfers from the U.S. Treasury's general fund
may be the most practical method to resolve the near-term solvency
issues facing the HTF. However, NAFA believes that innovative
alternative funding solutions are also necessary to provide for the
---------------------------------------------------------------------------
long-term stability of the HTF.
Establishing a national vehicle-miles-traveled (VMT) pilot program to
test alternative user-based funding mechanisms would provide invaluable
insights into the feasibility of a national VMT fee as an alternative
to the federal motor fuels excise tax. As you know, the federal-level
VMT pilot program concept has been included in several past legislative
proposals but has yet to be realized.
While a VMT fee may be a part of the long-term changes needed in the
HTF's funding structure, there are still hurdles regarding equity,
payment evasion, technology, administration, and public acceptance that
could be addressed using the results generated from the federal pilot
program. NAFA believes a federal pilot program is a necessary first
step for determining whether a VMT fee is a viable future funding
solution.
NAFA offers the following comments regarding the potential structure
and implementation of a federal VMT pilot program.
Federal VMT Pilot Program Scale & Participation--A representative
cross-
section of vehicles must be recruited to participate in the program.
Nonfreight commercial and government fleet participants are one key
sector of roadway users, alongside the motor freight community and,
most importantly, the motoring public. These roadway user
classifications should be well represented in a federal pilot program.
Congress should consider incentives or other benefits that may be
needed to encourage pilot participation.
VMT Fee Rate Setting Processes & Equivalency to Current User Fees--
Pilot program fee rates should be set at levels that would be revenue-
neutral to current excise taxes based on average driver mileage and
other relevant metrics. Imposing a rate-setting scheme that increases
tax burdens will disincentivize organizational and individual pilot
participation.
Data Collection Systems & Costs Associated with a Federal VMT Pilot
Program--The program should be open to the spectrum of technologies
available for VMT data collection. Permitting a multitude of data
collection technologies in the pilot will help determine which
mechanisms are most effective in achieving the goals of a future VMT
program. Giving participants a choice in how they transmit VMT data
will attract a larger pool of participants. This will help ensure that
the results of a pilot program are representative of the nation's
fleet.
Fleet vehicles can generate highly detailed and granular-level data,
which could be extremely useful in a federal VMT pilot program.
However, collecting and analyzing this data does come at a cost to
fleets who often rely on third-party vendors as partners in their
business operations.
While larger fleets may already have vehicles equipped with appropriate
data collection systems that could facilitate the application of a VMT
fee, many smaller sized fleets do not utilize these technologies.
Additionally, they do not have the resources to acquire and implement
these tools into their operations. Fleet size thresholds or exemptions
should be considered in applying any VMT fee program as well as any
associated data collection technology requirements.
Accounting for Varied Driving Environments--A federal VMT pilot program
should be structured to consider the varied driving environments U.S.
drivers encounter--urban, suburban, and rural. A mile driven on a rural
road should not be regarded as equivalent to a mile driven on an urban
road, and NAFA believes VMT fee rates should be adjusted accordingly.
Provisions should be included in a federal pilot program to allow a
segment of the study participants who utilize more advanced VMT
tracking systems to pay variable VMT fee rates based on location or
road congestion levels.
Conclusion
NAFA appreciates your leadership in ensuring the maintenance and
improvement of the country's infrastructure by looking forward at the
future of funding highway programs. The interstate highway system
enables the free flow of goods and people across the nation. The
country's crumbling roadway system not only endangers the safety of
drivers but imposes a significant economic burden by slowing the flow
of goods and services throughout the country. The cost of inaction on
infrastructure only grows greater by the day, so we look forward to
Congress seizing this window of opportunity to act on behalf of the
American people.
While there have been discussions regarding a near-term imposition of a
federal VMT tax on certain commercial vehicles weighing over 10,000
lbs., NAFA urges caution and does not support these proposals. Nor do
we support suggestions to impose a VMT tax on certain commercial
vehicles based on fleet size thresholds. There are numerous unresolved
issues related to implementing such a tax and pushing ahead before a
federal-level evidence base is established threatens to create a half-
baked system.
Thank you again for your consideration of this critical issue. If you
or your staff have any questions or need additional information, please
feel free to contact me or Patrick O'Connor, NAFA's U.S. Legislative
Counsel, at 703/351-6222 or [email protected].
Sincerely,
Bill Schankel
Chief Executive Officer
______
National Association of Health and
Educational Facilities Finance Authorities
U.S. Senate
Committee on Finance
May 18, 2021
Respectfully submitted by:
Charles A. Samuels
R. Neal Martin
NAHEFFA Advocates
ML Strategies, LLC
701 Pennsylvania Avenue, NW, Suite 900
Washington, DC 20004
(202) 434-7311
[email protected]
[email protected]
The National Association of Health and Educational Facilities Finance
Authorities (NAHEFFA) respectfully submits this statement to the Senate
Finance Committee for the hearing ``Funding and Finance Options to
Bolster American Infrastructure'' held on May 18, 2021.
NAHEFFA is the national association representing conduit issuers of
federally tax-exempt bond debt on behalf of nonprofit institutions for
health care, education, cultural and other charitable purposes.
Federally tax-exempt conduit bond financing for not-for-profits is a
proven private-public financing tool, an established delivery system
for quantifiable economic and social benefits under the federal tax
code with decades-long record of success of lowering the cost of
essential public benefits and strengthening communities.
Bond issuance for charities, such as nonprofit hospitals and
universities, is the function of a government bond conduit issuer,
generally an authority, which is authorized by state law. Under the
conduit structure, a discrete federal economic tax benefit, exemption
of interest from federal income tax on long-term debt, is delivered
through a state or local governmental conduit issuer accountable to
local voters and local public officials. The nonprofit borrowers, not
the governmental issuers or state/local taxpayers, are obligated to
repay this conduit debt and use conduit bond proceeds to finance and
refinance mission-critical capital infrastructure and improvements such
as medical clinics, sheltered workshops, hospitals, and academic
buildings including research and STEM buildings, residence halls,
modern energy plants as well as other energy efficiency improvements,
and museums.
The conduit lenders are either funds or individuals that buy conduit
bonds through the capital markets or banks so that conduit lending is
subject to market discipline as well as federal and state regulation.
The lower the cost of funds, the more money is available for front-line
purposes and workers such as medical professionals, teachers, and STEM
researchers. Due to their longstanding success, federally tax-exempt
conduit bonds have traditionally enjoyed decades of bipartisan support.
NAHEFFA and our member authorities support the following policy changes
to improve and restore American infrastructure.
Restore Advance Refunding Municipal Bonds
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated tax-exempt advance
refunding bonds which had allowed states, localities and 501(c)(3)
entities to refinance existing debt with the greatest flexibility,
resulting in substantial reductions in borrowing costs. Prior to the
TCJA, governmental bonds and 501(c)(3) bonds issued by state and local
governments were permitted a single advance refunding. This allowed
borrowers to take advantage of favorable market conditions and reduced
interest rates, leading to billions of dollars in savings, which
ultimately benefitted taxpayers and the millions of users of charities,
including students, patients, as well as ordinary citizens protected by
our police and fire first responders.
NAHEFFA supports the restoration of advance refunding as outlined in
bipartisan legislation recently introduced by Senators Stabenow (D-MI)
and Wicker (R-MS), S. 479, the Lifting Our Communities through Advance
Liquidity for Infrastructure (LOCAL Infrastructure) Act of 2021. As the
nation continues to recover from the economic challenges of the past
year of the COVID-19 pandemic, the restoration of advance refunding
would enable state and local governments and nonprofits to manage bond
debt and reduce borrowing costs for sorely needed public and charitable
projects. By reducing the cost of capital for public and nonprofit
borrowers, restored advance refunding would also free up scarce dollars
to support essential workers such as doctors, nurses, researchers, and
teachers, as well as police and fire first responders.
Enhancement of Small Borrower Rules
We also support enhancing the small borrower, also referred to as
``bank qualified'', rules which will benefit many small nonprofit
health and educational institutions and other small charities, as well
as many small local governments. We support increasing the maximum bond
issuance of eligible bonds to $30 million from the current level of $10
million. Further, applying the cap to the borrower instead of the
issuer will allow our governmental conduit issuers to issue these
conduit bonds on behalf of small institutions. The point of the cap is
to limit the benefits of the small borrower/bank qualified bonds to
smaller governments and charities. The limitation should not apply to
the governmental conduit issuer, which is not the borrower and does not
benefit from the financing, but rather to the small charitable
borrower.
In addition to also restoring advance refunding, legislation recently
introduced in the House of Representatives by Representative Sewell (D-
AL)--H.R. 2634, the Local Infrastructure Financing Tools (LIFT) Act--
would enhance bond financing opportunities for state and local
governments and nonprofit organizations through increased limits on
bank qualified debt and by applying the maximum dollar limit to the
borrower.
Direct Subsidy Bonds
The LIFT Act also includes the creation of a new American
Infrastructure Bond similar to the previous Build America Bonds
program. The previous Build America Bonds were limited to governmental
bonds and did not apply to nonprofit institutions. There is interest in
the nonprofit and charitable sectors to include these vital
institutions in this program.
If 501(c)(3) entities are included, it is critical that appropriate
legislative language be used so that their inclusion is effectively
implemented at both the federal and state level as well as to allow for
local decision-making consistent with basic precepts of federalism.
There are federal tax and securities requirements that will apply,
similar to those that apply to conduit tax-exempt financings, and
numerous state and local legal and policy considerations. This would be
accomplished by making clear that, just as with federally tax-exempt
conduit bonds, a state law authorized issuer for these financings is
required. The following language provides this result:
``c) AMERICAN INFRASTRUCTURE BOND.--
``(1) IN GENERAL.--For purposes of this section, the term
`American infrastructure bond' means any obligation if--
``(A) the interest on such obligation would (but for this
section) be excludable from gross income under section 103,
``(B) the obligation is not a private activity bond unless the
obligation is a qualified 501(c)(3) bond, and
``(C) the issuer makes an irrevocable election to have this
section apply.
Therefore, in order for a bond to be a qualified 501(c)(3) bond
excludable from income under section 103, it would need to have a
governmental conduit issuer accountable to state and local voters,
would need to have the opportunity for local concerns to be raised
through a TEFRA hearing, and would need to meet the other requirements
for tax exemption. NAHEFFA's members, government conduit issuers
created by state and local law, are accountable to their legislators
and executives, including governors, under their respective state
constitutions. Local decision making through the local issuer and TEFRA
process has long been integral to the issuance of federally tax-exempt
conduit bonds. Local decision making in the existing conduit bond
sector has worked very well for decades. The same federalist template
should also be applied to any new direct subsidy bonds for nonprofits
if Congress makes this policy choice.
NAHEFFA applauds Chair Wyden and Ranking Member Crapo for convening
this important hearing to discuss funding and financing options for
infrastructure, and thanks the Committee for its consideration of our
views. On behalf of all of our members, NAHEFFA looks forward to
continuing to work with the Chair, the Ranking Member, and all of your
congressional colleagues to develop and implement an effective
infrastructure plan that our nation so desperately needs.
______
National Association of Manufacturers
733 10th Street, NW, Suite 700
Washington, DC 20001
P 202-637-3178
F 202-637-3182
https://www.nam.org/
Robyn M. Boerstling
Vice President
Infrastructure, Innovation and Human Resources Policy
June 1, 2021
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Wyden and Ranking Member Crapo,
The National Association of Manufacturers (NAM), the largest
manufacturing association in the United States representing
manufacturers in every industrial sector and in all 50 states,
appreciates your Committee's leadership and recent efforts to support
much-needed infrastructure investment. Manufacturers are particularly
appreciative of your committee's work to advance vital infrastructure
funding needs. The recent hearing held on May 18, 2021, titled,
``Funding and Financing Options to Bolster American Infrastructure''
set the stage for next steps to advance broad, bipartisan
infrastructure investment legislation this year.
Manufacturers want bold federal action to rebuild and rejuvenate
America's aging infrastructure because the benefits and the competitive
advantages to be gained from these improvements are well-documented and
well-understood by workers, plant managers and other manufacturing
leaders. The NAM has long advocated for policies that identify new
funding resources for these projects and programs, and for the
expansion of federal opportunities that could promote private
investment into our nation's roads, bridges, airports, water
infrastructure and other physical systems. The NAM's Building to Win
plan highlights many of the areas where investment is needed and offers
funding options for the Finance Committee to consider as sources of
future revenue. The funding proposals in Building to Win would not
require new taxes that could lead to diminishing competitiveness for
American manufacturers.
We hope that you will continue to review alternative funding
options for infrastructure investment and consider reforms to user fee
programs that can still successfully generate infrastructure revenue.
We note that when tax reform was enacted in 2017, manufacturers
responded by hiring more workers, increasing wages and investing more
in their business. For example:
In 2018, manufacturers added 263,000 new jobs. That was the
best year for job creation in manufacturing in 21 years.
In 2018, manufacturing wages increased 3% and continued going
up--by 2.8% in 2019 and by 3% in 2020. Those were the fastest rates of
annual growth since 2003.
Manufacturing capital spending grew by 4.5% and 5.7% in 2018
and 2019, respectively.
Overall, manufacturing production grew 2.7% in 2018, with
December 2018 being the best month for manufacturing output since May
2008.
A shift to a less-competitive tax code would reverse these gains
and result in significant job losses and great harm to the economy. A
recent NAM-commissioned analysis by economists from Rice University
found that adopting tax policy changes such as increasing the corporate
tax rate to 28% and raising the tax burden on pass-through businesses
(which includes many small and medium manufacturers) would cost the
United States 1 million jobs in the two years after enactment and
result in an average loss of 600,000 jobs each year over the next
decade with wages, investment and GDP all declining.
Moreover, additional analysis calculating the effects of raising
the corporate tax rate to 25% along with other harmful tax increases
shows that these policies would shrink the U.S. economy and cost 1
million jobs in the first two years after implementation, plus a loss
of 500,000 jobs on average each year over the next decade. These tax
changes would run counter to the productive benefit of renewing federal
infrastructure investment for the betterment of the nation.
The recent hearing on the future of American infrastructure
investment and serious discussions around alternative financing options
instead of tax increases will help support the needed momentum to get
infrastructure legislation accomplished this year. Manufacturers are
proud of their footprint in American communities, representing millions
of American workers and $2.35T in contributions to the U.S. economy. As
the manufacturing industry prospers, so does the nation and
infrastructure investment is key to our long-term prosperity. We look
forward to continuing to work with you and your colleagues to achieve
bold, transformative investment in our nation's infrastructure and urge
you to continue your bipartisan efforts into the weeks ahead.
Sincerely,
Robyn M. Boerstling
______
Owner-Operator Independent Drivers Association
1 NW OOIDA Drive
Grain Valley, MO 64029
Tel: (816) 229-5791 Fax: (816) 427-4468
May 18, 2021
The Honorable Ron Wyden The Honorable Mike Crapo
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Building 219 Dirksen Senate Building
Washington, DC 20510 Washington, DC 20510
RE: Funding and Financing Options to Bolster American Infrastructure
Chairman Wyden and Ranking Member Crapo,
Since 1973, the Owner-Operator Independent Drivers Association (OOIDA)
has been advancing and protecting the rights of small-business motor
carriers and professional drivers. OOIDA is a critical stakeholder for
all issues affecting trucking, with a unique focus on those directly
impacting small-business truckers. We have over 154,000 members, all of
whom make their living on America's highways.
Robust investment in our nation's infrastructure is naturally a
priority for our members. A modern, reliable, and efficient highway
system not only supports their businesses, but also ensures their
safety. With the nation's roads and bridges deteriorating and
congestion increasing, truckers are willing to contribute more to the
expansion and preservation of this system, so long as user fees remain
equitable among all highway users. However, they will not accept
funding mechanisms that are discriminatory towards our industry.
Due to the vast resources needed to adequately update and maintain our
highways, OOIDA supports efforts to increase dedicated highway trust
fund (HTF) revenues. Professional drivers continue to favor the current
user fee structure and prefer reasonable increases to the federal
gasoline and diesel fuel taxes. These user fees are the most equitable
and efficient means for supporting our nation's highway needs. We
understand many elected officials believe increasing fuel taxes is
politically untenable, but this approach remains the most sensible and
effective option for funding our infrastructure in the near-term.
Transitioning from the traditional user fee structure to a vehicle
miles traveled (VMT) program has recently gained significant attention
among lawmakers in Washington. However, truckers have many unanswered
questions about the implementation and administration of a national VMT
program. Our members, who have experienced excessive operating costs in
states that currently levy VMT taxes, also have serious concerns about
the equity of a national program. OOIDA is open to further discussion
about VMT and other possible alternative HTF funding methods, but any
proposed system must be fair and efficient.
Most importantly, any VMT proposal to fix the HTF must not be limited
to commercial motor vehicles (CMVs). Truckers already pay more than
their fair share into the HTF and any VMT system must not single out
truckers. Not only is our industry currently paying more than its fair
share, a report by the Congressional Budget Office found HTF revenues
derived from motor carriers through the heavy-vehicle and tire taxes
will increase from 2019 to 2029.\1\ Between the current diesel tax and
these supplemental taxes that other highway users do not pay, the
trucking industry is estimated to increase its contributions to the HTF
over the same period of time.
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\1\ CBO, Issues and Options for a Tax on Vehicle Miles Traveled by
Commercial Trucks (2019).
Implementing a truck-only VMT is also nowhere near as simple as some
proponents have claimed. Current law prohibits the use of Electronic
Logging Devices (ELDs) for anything other than monitoring hours of
service. Furthermore, many trucks are not required to use ELDs because
of either industry or operational exemptions--some put in place by
Congress. To implement a truck-only VMT, Congress would need to
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dramatically increase the mandated use and scope of ELDs.
OOIDA has also consistently opposed any federal expansion of tolling
policies. Research has shown that tolling is an extremely wasteful
method of funding compared to fuel taxes. Additionally, toll roads
consistently fail to meet revenue projections, creating unanticipated
funding shortfalls, inevitable rate increases, and traffic diversion to
non-tolled routes. As the Committee considers options to fund our
highways, it must avoid any expansion of tolling, including congestion
pricing.
Congestion pricing would lead to the tolling of existing highways,
which amounts to double taxation for truckers who have already paid in
to the HTF through the diesel fuel tax and other industry-specific
fees. Because truckers often have very little control over their
schedules, congestion pricing is also particularly problematic for
owner-operators and independent drivers. Due to the rigidity of current
federal hours of service requirements, truckers routinely have no other
choice than to drive through metropolitan areas during periods of high
congestion. Shippers and receivers also have little regard for a
driver's schedule, frequently requiring loading and unloading to occur
at times when nearby roads are most congested.Additionally, unlike
other highway users, truckers often lack the ability to choose
alternate routes to avoid congestion due to size and weight
restrictions, heavy vehicle prohibitions, and other limitations on
ancillary roads.
Congress must recognize that conditions beyond the control of
professional drivers, including federal and state rules, often
contribute to their inability to avoid areas or times of high
congestion. Without changes to these conditions, congestion pricing may
have little to no effect on CMVs other than to squeeze even more
revenue out of small-business truckers. If Congress takes steps to
expand congestion pricing, accommodations must be made for the trucking
industry.
We appreciate your interest in exploring funding and financing options
to bolster American infrastructure. A modern, reliable, and efficient
highway system is critically important to the success and safety of our
nation's small-business truckers. We hope the Committee will consider
the views of owner-operators and professional drivers when determining
how to invest in the roads and bridges where they work.
Thank you,
Todd Spencer
President and CEO
______
The Real Estate Roundtable et al.
The Nation's commercial real estate industry welcomes the
opportunity to provide input on proposals put forward by the
Administration to finance infrastructure investment. New investments
that seek to rebuild our physical and social infrastructure could
greatly improve U.S. competitiveness and create more-inclusive economic
opportunities for all Americans. As Congress considers options to pay
for these investments, however, we urge policymakers not to erode
longstanding tax rules that support job creation, capital formation and
productive risk taking. Real estate--which directly supports 13 million
jobs in the United States and generates three quarters of local tax
revenue--is taxed primarily through the tax code's individual and pass-
through provisions. Tax reforms should be undertaken with caution, with
a focus foremost on supporting the nascent economic and jobs recovery
and the capital investment that will drive our economic growth for
years to come.
Several of the tax proposals in the Administration's infrastructure
and human capital initiatives, unfortunately, would reduce real estate
investment and diminish opportunities for startup businesses and those
less advantaged. These proposals include:
Limiting taxpayers' ability to defer gain that is reinvested
in property of a like-kind;
Doubling the tax rate on long-term capital gains;
Limiting capital gains treatment to invested cash and
disregarding other forms of risk taken by partners; and
Making death a taxable event at far lower levels of income and
potentially taxing the unrealized gain on appreciated assets not once
but twice when an individual dies.
Collectively, these proposals will undermine the very goals the
Administration seeks to achieve by reducing opportunities and economic
rewards for cash-poor business owners. They will undercut the tax base
in localities throughout the country that rely on real estate taxes to
finance schools, police, and other first responders. Moreover, they
will diminish the incentive for private investment of capital in
riskier projects, such as affordable housing and redevelopment in
struggling communities.
To be clear, our industry supports bold actions to invest in
infrastructure needs. The quality of infrastructure is one of the most
important factors that influences real estate development decisions.
Real estate and infrastructure have a synergistic, two-way relationship
as growth in one of these asset classes spurs growth in the other. Safe
and reliable infrastructure enhances the value of the properties it
serves. A holistic approach to expand and modernize our aging
infrastructure and increase the supply of affordable housing will
create well-paying American jobs, help address climate threats, and
improve the quality of life in all regions of the country.
We agree on the importance of developing revenue streams that can
sustain the highway trust fund, the nation's main funding source for
roads, bridges, and mass transit, for the long term. At the same time,
taxpayers alone cannot foot the entire bill for all of the country's
infrastructure needs. Policies that encourage appropriate public-
private partnerships (P3s) can unleash private investment, improve
budget certainty, accelerate project delivery, and achieve greater
efficiencies and innovations in project design and construction.
Policies to encourage P3 deployment for infrastructure include
restoring the federal tax exemption for certain state and local
construction incentives (section 118); streamlining and improving the
underwriting process for low-interest TIFIA loans; and raising the
federal ``volume cap'' on private activity bonds issued by state and
local governments for surface transportation. We recommend that
Congress updates the real estate investment trust (REIT) rules to allow
REITs to invest in and operate more types of infrastructure
investments, including renewable energy. We also recommend modernizing
outdated tax rules, such as the Foreign Investment in Real Property Tax
Act, that prevent U.S. businesses from partnering with sources of
foreign capital for infrastructure investments. Policymakers can help
mobilize private capital to increase the supply of affordable housing
by: enacting incentives for states and localities to streamline
permitting and regulatory processes that discourage development and
rehabilitation efforts, enhancing the low-income housing tax credit
(LIHTC), and establishing a middle income housing tax credit (MIHTC).
Additionally, Congress should consider potential tax incentives to spur
reinvestment in properties so they can be repositioned for the most
productive use in their communities
As the Committee examines how best to finance these long-term
needs, however, we encourage you to carefully consider both the current
state of the real economy, as well as the role that tax provisions
serve in promoting long-term investment and encouraging the private
sector to put capital at risk. Many businesses and communities are
still straining to emerge from the COVID-19 pandemic. In the case of
real estate, throughout the pandemic, property owners, managers,
investors and lenders have focused on mitigating the impact of the
crisis on their residential and business tenants. The industry has: (a)
restructured leases with tenants under stress; (b) advocated for
federal rental and other assistance; (c) helped educate tenants on how
to access relief; (d) encouraged much needed troubled-debt
restructuring relief that allowed lenders to provide borrowers with
mortgage relief; and (e) implemented new building protocols, invested
in health-related improvements (ventilation systems, etc.), and issued
detailed guidance to ensure a safe building reentry process. Real
estate lenders and owners have undertaken these actions at the same
time that they have had to call in lines of credit, use their reserves,
cut their personal and employee compensation, provide mortgage relief,
and restructure debt.
Today, major questions and challenges remain for America's
commercial real estate. What will the demand for retail space be in the
future? Will more individuals work from home and will employers shrink
their office needs? Has the pandemic permanently changed the need for
business travel, and what are the implications for urban hotels? Will
apartment property owners be forced to write off substantial portions
of rental arrearages due to protracted eviction moratoriums and overly
burdensome state and local requirements that impede access to emergency
rental assistance funds? Will lenders be required to write down loans,
reposition properties, or provide further relief to borrowers.
It is with this backdrop and context squarely in mind that
policymakers should evaluate any new and potentially disruptive tax
increases. Tax changes often have unintended consequences--the
commercial real estate depression and economic recession that followed
the Tax Reform Act of 1986 is a clear case in point. Well-
intended provisions went too far and led to an exodus of capital from
real estate markets, which reduced property values and threatened the
solvency of real estate lenders. Optimism regarding the underlying
economy is clearly rising throughout the country, and policymakers
should tread carefully to avoid suffocating the nascent recovery and
job boom with anti-growth tax increases that discourage risk taking,
investment, and capital formation.
Below are specific comments regarding certain individual and pass-
through tax proposals in President Biden's American Families Plan.
Limiting businesses' ability to defer gain reinvested in property of a
like kind
Since 1921, the tax code has recognized that it is appropriate to
defer capital gain when real property used in a trade or business, or
held for investment, is exchanged for another property of a like kind.
The American Families Plan proposes to limit the deferral of gains
greater than $500,000. Seeking to raise revenue or modify the
distribution of the tax burden by putting a cap on like-kind exchanges
would be counterproductive to the Administration's own stated goals. It
would eliminate an engine of job creation, reduce state and local
taxes, and create new headwinds for the economic recovery. The proposed
cap would remove a ladder of economic opportunity for small and
minority-owned businesses, reduce the supply of affordable housing, and
undercut the environmental conservation of land and resources.
In short, like-kind exchanges, now codified under section 1031,
should be preserved in their entirety without new limitations.
The rules for like-kind exchanges are narrowly tailored and well-
designed. Over the last four decades, Congress has thoughtfully
modified and improved section 1031. Since 1984, laws have eliminated
potential abuses, created strict and uniform rules and procedures for
an exchange, and tightened section 1031 to avoid unintended results. As
a result of these efforts, like-kind exchanges are now a deeply
ingrained and beneficial feature of commercial real estate markets.
Research by Professors David Ling (Univ. Fla.) and Milena Petrova
(Syracuse U.) estimates that 10 percent to 20 percent of commercial
real estate transactions involve a like-kind exchange.
Like-kind exchanges are an engine of job creation. Research by EY
estimates that like-kind exchanges support 568,000 jobs generating over
$55 billion of annual value added, including $27.5 billion of labor
income. Employment directly and indirectly supported by exchanges
includes jobs for skilled tradesmen, architects, designers, building
material suppliers, movers, building maintenance and cleaning staff,
security, landscapers, qualified intermediaries, real estate brokers,
title insurers, settlement agents, attorneys, accountants, lenders,
property inspectors, appraisers, surveyors, insurers, and contractors.
By encouraging the reinvestment of capital and stimulating property
improvements, exchanges create a more dynamic, job-creating real estate
market.
Like-kind exchanges help small and minority-owned businesses expand
and grow. Veteran-owned, women-owned, and minority-owned businesses use
like-kind exchanges to expand and build equity in their companies
without having to rely on bank loans and other third-party lending that
can be difficult to obtain. Small firms and entrepreneurs lack access
to the deep capital markets that finance the activities of large
corporations. Like-kind exchanges help small and minority-owned
businesses grow organically, without overreliance on unsustainable
levels of debt and leverage. Because owners are able to reinvest their
proceeds on a tax-deferred basis, properties acquired in a like-kind
exchange carry less overall debt--30 percent less than similar real
estate acquired outside of a like-kind exchange.
Increasing the supply of affordable rental housing requires like-
kind exchanges. Like-kind exchanges can fill gaps in the housing supply
not covered by other incentives for the development of affordable
housing. Multifamily housing transactions represent nearly 40 percent
of the dollar volume of like-kind exchanges. Expanding workforce
housing will require significant investment of private capital.
However, tax incentives like the low-income housing tax credit do not
apply to land acquisition costs. Investors can use section 1031 to
acquire land for the development of new housing. New limits on like-
kind exchanges would increase the cost of rental housing, meaning
owners would have to raise rents significantly on tenants to offset the
tax consequences of repealing section 1031.
Like-kind exchanges promote land conservation and environmental
protection. Land conservation organizations rely on like-kind exchanges
to preserve open spaces for public use or environmental protection.
Land conservation transactions often involve the exchange of
environmentally sensitive areas for other less-sensitive privately held
property, which can be put into production. These transactions protect
environmentally significant land and open space for the future while
enabling private landowners to preserve capital for expansion or
diversification of existing operations, retirement, or other needs.
States and localities depend on like-kind exchanges for tax
revenue. The more frequent turnover of real estate attributable to
section 1031 generates property transfer and recording fees, as well as
property reassessments that increase the tax base. Significantly,
because of lower debt and greater capital investment rates, the taxes
paid on the subsequent sale of these properties are appreciably
greater.
Real estate businesses that engage in a like-kind exchange begin
repaying the federal government for the tax deferral benefit on day
one. Real estate owners typically pay some federal tax at the time of
the exchange due to differences in the value of the relinquished
property and replacement property (``boot''). In addition, the basis of
the relinquished property is carried over and reduces the taxpayer's
basis in the replacement property. The result in smaller depreciation
deductions on the property--these reduced depreciation deductions are
less than the actual rate of economic depreciation for the asset.
Perhaps most importantly, like-kind exchanges are accelerating the
economic recovery from the pandemic by preventing real properties from
languishing, underutilized and underinvested. Like-kind exchanges
helped stabilize commercial real estate markets during the COVID-19-
induced economic crisis, and they will continue to do so in its
aftermath. During periods of economic stress, exchanges stimulate
commerce and facilitate needed price discovery when buyers, sellers, or
lenders are otherwise reluctant to engage in market transactions. By
allowing property owners to defer capital gain when one property is
exchanged for another, like-kind exchanges help get real estate into
the hands of new owners with the time, resources, and desire to restore
and improve them. This is particularly critical given the need to
repurpose or renovate many properties, particularly in the office,
retail and hotel sectors, to meet post-pandemic needs.
Doubling the long-term capital gains tax rate
In 105 of the 108 years since Congress created the modern federal
income tax, the United States has taxed long-term capital gains at a
lower rate than ordinary income. The only exception was a brief three-
year period following enactment of the Tax Reform Act of 1986. The
American Families Plan proposes to raise the top long-term capital
gains rate to 39.6 percent, establishing parity with the proposed top
tax rate on ordinary income. Including the 3.8 percent net investment
income tax pushes the tax rate on investments to 43.4 percent. If
successful, the rate would be over 40 percent higher than it was the
last time there was tax parity between ordinary income and capital
gains at a rate of 28 percent. Policymakers should preserve a
meaningful, reduced tax rate on long-term capital gains income.
The return on risk capital is a demonstrably different type of
income than wages and other forms of guaranteed compensation. Treating
the return on risk taking the same as salary income, or the same as the
interest payment on a government bond, would undermine a fundamental
tenet of the American economic system. The United States values,
celebrates, and rewards people who take chances and risks, embrace
opportunities, create new businesses, and aspire to achieve great
economic accomplishments that advance our Nation's collective well-
being.
On a macroeconomic level, the lower tax rate on capital income
reduces the cost of capital, drives patient, long-term investment, and
encourages productive entrepreneurial activity. In the case of real
estate, the reduced tax rate on capital gains partially offsets the
higher risk associated with illiquid, capital-intensive projects.
A low tax burden on capital can help draw investment from around
the world, increase the productivity of the American workforce, and
improve U.S. competitiveness. Relative to our peers, the United States
levies a heavy tax burden on capital income. According to the Tax
Foundation, 30 of the 36 developed countries in the OECD have a lower
maximum tax rate on individual capital gain than the United States.
Congress should be taking steps to encourage and reward risk-taking
and investment--particularly in communities where it is most needed--
not punishing it. Opportunity Zones, for example, were created just a
few years ago and have mobilized $85 billion in new investment in low-
income communities. The capital is being deployed to create new and
vibrant commercial centers, rental housing, office space and job
opportunities for local residents. The entire premise of the
Opportunity Zone idea is that those taking the risk will be rewarded
with a lower capital gains tax. The popularity of Opportunity Zones is
clear and convincing evidence that real estate capital responds to
incentives related to capital income.
Many of our country's great cities are facing significant
challenges. They have aging infrastructures that can only be
regenerated with a sustained infusion of capital investment. Public
spending alone will be insufficient. Real and sustainable
infrastructure modernization is going to require partnering with the
private sector and private capital. If policymakers raise taxes on
capital income, it is going to make it much harder to attract the
private investment we need to rebuild our urban centers.
The return on risk capital differs in meaningful ways from wage
compensation. The entrepreneur who foregoes a traditional job with a
salary in favor of starting a business and building a capital asset
forfeits most protections and benefits offered to employees. These
benefits include nontaxable employer-provided health care, tax-favored
and employer-provided retirement contributions, workers compensation,
the accumulation of Social Security benefits, and most importantly the
comfort and security of a pre-negotiated salary. The entrepreneur, in
contrast, enjoys none of these benefits, just risk, uncertainty, and
the potential of a complete loss on the investment of their time and
capital. The reduced tax rate on capital gains only partially offsets
the many advantages that favor the salaried employee.
Two structural features of the tax code further penalize risk
capital over wages. First, a significant share of long-term capital
gains liability does not relate to actual economic income, but rather
reflects the effects of inflation. For example, assuming an asset is
purchased for $100 and sold five years later for $110, but inflation
rises 15 percent during the same five-year period, the taxpayer has
actually lost money on his or her investment. He or she would need $115
just to maintain their original purchasing power. Nonetheless, the
taxpayer will still owe capital gains tax in year five on the $10 of
nominal appreciation. The individual is paying tax on ``noneconomic''
income. The capital gains preference partially offsets this unfair
taxation of noneconomic income that otherwise results. Second, unlike
ordinary losses, such as casualty or net operating business losses,
losses on capital assets are generally nondeductible and must be
carried forward to future years (with a small $3,000 exception). In
other words, the government collects tax immediately on capital gains,
but does not allow taxpayers to apply their capital losses against
their ordinary income. It is unclear whether taxpayers would be able to
deduct their capital losses against their ordinary income in a system
with rate parity.
Limiting capital gains treatment to invested cash and disregarding
other forms of risk taken by partners
The American Families Plan calls on Congress to permanently change
the tax treatment of carried interest, presumably by treating all
carried interest as ordinary income and subjecting it to self-
employment taxes. If enacted, the proposal would result in a huge,
retroactive tax increase on countless Americans who use partnerships in
businesses of all types and sizes. It would discourage individuals from
pursuing their business vision, encourage debt rather than equity
financing, tax sweat equity invested in businesses, and slow economic
growth. The proposal would limit capital gains treatment to invested
cash, creating additional economic barriers for cash-poor
entrepreneurs, and it would reduce the propensity to take on projects
with the greatest risk, such as affordable housing and new commercial
developments in struggling neighborhoods. Policymakers should preserve
the current and longstanding tax treatment of carried interest.
A carried interest is the interest in partnership profits a general
partner receives from the investing partners for managing the
investment and taking on the entrepreneurial risk of the venture.
Carried interest may be taxed as ordinary income or capital gain
depending on the character of the income generated by the partnership.
The carried interest is not compensation for services. General partners
receive fees for routine services like leasing and property management.
Those fees are taxed at ordinary tax rates. The carried interest is
granted for the value the general partner adds to the venture beyond
routine services, such as business acumen, experience, and
relationships. It is also recognition of the risks the general partner
takes with respect to the general partnership's liabilities. These
risks can include funding predevelopment costs, guaranteeing
construction budgets and financing, and exposure to potential
litigation over countless possibilities.
In the Tax Cuts and Jobs Act of 2017, Congress created a three-year
holding period requirement for carried interest to qualify for the
reduced long-term capital gains rate.
Taxing all carried interest as ordinary income would limit capital
gain treatment only to taxpayers who have cash to invest. Those who
invest entrepreneurial innovation, risk taking, and sweat equity would
no longer receive capital gain treatment. This would reduce economic
mobility by increasing the tax burden on less-advantaged entrepreneurs
who want to retain an ownership interest in their business. Perversely,
the proposal would encourage real estate owners to borrow more money to
avoid taking on equity partners.
The American Families Plan asserts the change is needed ``so that
hedge fund partners will pay ordinary income tax rates on their income
just like every other worker.'' The proposal reinforces the false
narrative surrounding the carried interest issue--that it targets only
a handful of hedge fund billionaires and Wall Street executives. The
carried interest legislation is far broader and would apply to real
estate partnerships of all sizes--from two friends owning and leasing a
townhome to a large private real estate fund with institutional
investors. The reality is that the majority of carried interest is
likely earned by general partners in the nation's two million real
estate partnerships.
Eliminating capital gains treatment for carried interest would have
profound unintended consequences for main streets of cities all across
our country. A 2013 study by Douglas Holtz-Eakin, former director of
the nonpartisan Congressional Budget Office, found that carried
interest legislation could result in reduced construction activity,
lower property values, and decreased wages in the real estate industry.
The main carried interest legislative proposal, the Carried
Interest Fairness Act, would apply retroactively to transactions after
December 31, 2020--unfairly raising taxes on sales that have already
occurred. Moreover, the legislation would capture and apply to
partnership agreements executed years--often decades--earlier. These
negotiated agreements between the partners were based on well-
established tax law as it existed at the time. By changing the tax
results years later, the bill would undermine the predictability of the
tax system and discourages the long-term, patient investment that moves
our economy forward.
Taxing the unrealized gain on appreciated assets not once but twice
when an individual dies
The American Families Plan proposes to tax unrealized capital gains
at death. The plan would exclude up to $2.5 million per couple when
part of the unrealized gain is attributable to a principal residence.
Additional, undefined rules would defer taxes to protect heirs who
continue to run family-owned businesses and farms.
The proposal would have extremely negative, unintended consequences
for taxpayers, the real estate industry, and the economy. The tax
system already levies a tax on appreciated gains when an individual
dies through the estate tax. The estate tax has an economic effect
similar to imposing income tax on appreciated gains at death--it
actually reaches further than potential income tax liability by
applying the tax to both the appreciated amount and the underlying,
adjusted basis of an asset. The President's proposal would double-tax
appreciated gains that exceed the estate tax exemption amount.
Two principles should guide any change to the taxation of assets at
death. First, stepped-up basis should continue to apply to family-owned
businesses, particularly when the gains relate to highly illiquid
assets like real estate where the burden of the tax otherwise could
force the dismantling of a family's livelihood. Second, policymakers
should avoid imposing two layers of tax on the same income. Unrealized
gains should not be subject to both income tax and estate tax at death.
Effect on Taxpayers. At the taxpayer level, death would become a
taxable event at $1.25 million for single filers with a primary
residence (assuming there is at least $250,000 of unrealized gain in
the home) and at $2.5 million for married taxpayers with a primary
residence (if there is at least $500,000 of gain in the home). Contrast
this to the far higher asset levels ($11.7 million for single filers
and $23.4 million for married filers) at which the estate tax is
currently imposed. The last year estate taxes were imposed at an asset
level of less than $1.25 million for a single filer or $2.5 million for
a married filer was 2003. There is little reason to make death a
taxable event at the lower asset levels contemplated by the American
Families Plan.
The American Families Plan also includes a proposal to nearly
double the capital gains tax rate for those with income above $1
million per year. When combined with the net investment income tax of
3.8 percent, which the Plan also proposes to apply to more taxpayers,
the top rate would be 43.4 percent, not including any state tax.
In the case of taxpayers subject to the taxation of unrealized
gains at death and the estate tax, the combined marginal tax rate would
rise from the top current law estate tax rate of 40 percent to 66.04
percent (provided the tax on unrealized capital gains is deductible
from the estate tax). The last time estates were taxed at such high
levels was 1981.
Effect on Real Estate Industry. By making death a taxable event at
far lower asset levels than under current law, the American Families
Plan potentially imposes capital gains tax before an asset is actually
sold by the heir. This is a reversal of a tax policy principle that
dates to the beginning of the modern Internal Revenue Code. If tax on
unrealized gains is imposed on the decedent's estate, many estates will
likely not have the cash to pay the tax due. This could force an estate
to sell the property the decedent desired to be left to an heir just to
pay the tax. In some cases, if a partnership interest is inherited
representing a property interest, such a sale may not even be possible
without the consent of other partners. Even if the funds to pay the tax
are available, little might be left over to improve and upgrade the
property. This could have negative consequences for many commercial
real estate assets, including apartments and affordable rental housing,
office buildings, and shopping centers. The bottom line is that
property owners should decide when it is the right time to sell, not
the government.
Consider the following example to illustrate this point: Joe, a
single individual, purchased an apartment building with 150 units in
1995 for $5 million before passing away in 2022, leaving the property
to his nephew, Bryan. At the time of Joe's death, the property is worth
$15 million and, due to depreciation of $6 million and improvements of
$2 million, has a tax basis of $1 million. The property has annual
operating net income of $1.05 million. Assume this is the only capital
asset in Joe's estate. However, Joe also has unrelated debts of $5
million.
Under current law, when Bryan inherits the apartment building, the
$1 million in tax basis would be stepped-up to $15 million. Tax would
only be imposed when Bryan sells the asset and would be based on the
difference between the value of the property at time of sale and the
$15 million in tax basis (plus any post-
inheritance adjustments).
Under the proposal, a capital gain of $13 million would be
recognized, presumably by Joe's estate. (This is calculated as $15
million in fair market value, less $1 million in basis, less a $1
million exclusion). The taxpayer would face a sizable tax liability
that depends on the capital gains rate (two assumptions are presented
given that Congress could choose to consider proposals in the American
Families Plan on an individual basis):
Assumption 1: Present-Law Capital Gains Rate: Under current
law, the maximum rate on capital gains is 20 percent. Thus, Joe's
estate would face a tax of $2.9 million assuming a capital gains rate
of 20 percent, which would exceed the annual operating income of the
underlying property by $1.85 million. (This is calculated as .20
(capital gains tax rate under present law for taxpayers managing an
active trade or business) $7 million plus .25 (depreciation recapture
tax rate) $6 million.)
Assumption 2: Capital Gains Taxed at Top Ordinary Income Tax
Rate: Under the American Families Plan, the maximum rate on capital
gains would rise to 39.6 percent. Joe's estate would be subject to this
increased tax rate given that the net income of his multifamily
property exceeds $1 million. Under this scenario, Joe's estate would
face a tax of $5.148 million, which would exceed the annual operating
income of the underlying property by $4.098 million. (This is
calculated as .396 (capital gains tax rate under the American Families
Plan for taxpayers managing an active trade or business) $13 million
(depreciation recapture is assumed to be taxed at 39.6 percent)).
Finally, should Congress choose to apply the 3.8 net investment income
tax to active capital gains, Joe's estate could instead be subject to a
tax of $5.642 million, which would exceed the annual operating income
of the underlying property by $4.592 million. The American Families
Plan alludes to imposing the current-law 3.8 percent Medicare tax
``consistently to those making over $400,000,'' but the exact extent of
this proposal is unclear.
These examples illustrate that Joe's estate would face a tax increase
of at least $2.9 million if the capital gains tax rate remains
unchanged and as much as $5.148 million if the capital gains tax rate
increases to 39.6 percent. Both amounts far exceed the annual operating
income of the underlying asset, likely forcing its sale just to pay the
tax. Even if Bryan had the necessary funds available, far less money
would be available to upgrade and improve the property.
The American Families Plan contemplates enabling family-owned
businesses to defer the payment of tax until an inherited asset is
sold. This approach is also be problematic. An heir could inherit a
property with little or no basis and sizeable debt. If it is
subsequently sold, the heir will face significant depreciation
recapture and capital gains taxes. This would discourage heirs from
investing further capital to maintain it. Ultimately, housing and
especially affordable housing, office buildings, and shopping centers
will languish, underinvested and unimproved, eventually becoming
obsolescent and unproductive. Moreover, the proposal does not address
situations where the heir may wish to diversify into other business
assets or when there are multiple heirs who wish to go separate ways
with their businesses.
Effect on the Economy: On a macroeconomic level, an April 2021 EY
study prepared for the Family Business Estate Tax Coalition estimates
that imposing tax on transferred assets at death would cost 80,000 jobs
in each of the first 10 years and 100,000 jobs each year thereafter.
Gross Domestic Product relative to the U.S. economy would also fall by
$10 billion annually and $100 billion over 10 years. Workers' wages
would decline by $32 for every $100 collected in tax.
Taxing capital gains at death would pull long-term capital
investment out of the economy at a time when it is most needed. Even
more so than many industries, commercial real estate has been hard hit
by the pandemic. Structural changes are underway related to how retail,
hospitality, and office space is used. In the next few years, buildings
throughout the country will need to be reimagined, repurposed, and
converted to a new use. This is going to demand extraordinary amounts
of new capital. Yet this proposal pulls capital out of private real
estate markets just at the moment when we should be mobilizing capital
and investment for future needs.
The American Jobs Plan and American Families Plan offer credible
initiatives to address many of our Nation's most pressing needs, such
as a modernized infrastructure, a more comprehensive approach to
climate-related matters, and increased investments in housing,
education, and childcare. We support aggressive steps to finance
infrastructure needs, increase the supply of affordable housing, expand
the economy, and promote job growth. Regrettably, some of the tax
proposals accompanying the plans would reduce economic activity and
opportunities and be completely counterproductive to the goals of the
President's initiatives. As this process moves forward, we will
continue to share our data, research, and recommendations with you to
advance sound tax policy that is fair, productive and provides equal
opportunities for all Americans.
Sincerely,
The Real Estate Roundtable
American Hotel & Lodging Association
American Resort Development Association
American Seniors Housing Association
Building Owners and Managers Association (BOMA)
International
CCIM Institute
CRE Finance Council
Institute of Real Estate Management
International Council of Shopping Centers
Manufactured Housing Institute
Mortgage Bankers Association
NAIOP, Commercial Real Estate Development Association
National Apartment Association
National Association of Home Builders
NATIONAL ASSOCIATION OF REALTORS
National Multifamily Housing Council
REALTORS Land Institute
______
Reinsurance Association of America
1445 New York Avenue, NW, 7th Floor
Washington, DC 20005
Tel: 202-638-3690
Fax: 202-638-0936
The Reinsurance Association of America (RAA) appreciates Chairman Ron
Wyden, Ranking Member Mike Crapo, and other Committee on Finance
(Committee) members' interest in the U.S. property casualty
(re)insurance industry. Thank you for holding today's hearing entitled,
``Funding and Financing Options to Bolster American Infrastructure.''
The RAA is the leading trade association of property and casualty
reinsurers doing business in the United States. RAA membership is
diverse, including reinsurance underwriters and intermediaries licensed
in the U.S. and those that conduct business on a cross border basis.
The RAA also has life reinsurance affiliates and insurance-linked
securities fund managers and market participants that are engaged in
the assumption of property/casualty risks. The RAA represents its
members before state, federal and international bodies.
The RAA supports improving America's community resilience in the face
of climate and natural disaster risks. We specifically recommend that
infrastructure legislation establish Community Disaster Resilience
Zones (CDRZ) and direct public and private sector resources to help
improve infrastructure resilience, including housing resilience, for
CDRZ communities that are the most in need and most at risk of natural
disaster(s). Our CDRZ proposal is described in more detail below.
Climate Change and Natural Disaster Risks
The RAA has had a longstanding policy on climate change and is
committed to working with policymakers, regulators, and the scientific,
academic and business communities to assist in promoting awareness and
understanding of the risks associated with climate change. A copy of
RAA's policy can be found on our website.\1\ It is especially critical
that at the federal, state, and local levels, the public sector in
partnership with the private sector address significant natural
disaster risks well in advance of the next significant flood,
earthquake, or other devastating natural disaster event. Addressing
these risks urgently is particularly important as the frequency,
severity, devastation, and costs of many natural disasters continue to
increase due to climate change.
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\1\ https://www.reinsurance.org/Advocacy/RAA_Policy_Statements/.
In the financial services sector, property casualty insurers are the
most exposed to natural disasters, especially those impacted by climate
and weather. Within the insurance sector, reinsurers have the greatest
financial stake in appropriate risk assessment. The industry is at
great financial risk if it does not understand global and regional
climate impacts, variability and developing scientific assessment of a
changing climate. Integrating this information into the insurance
system is an essential function. Insurance is a critical component for
economic and social recovery from the effects of extreme weather and
climate driven events. Open market insurance pricing is also a
mechanism for conveying the consequences of decisions about where and
how we build and where people chose to live. In this regard, it must be
proactive and forward looking in a changing climate/weather
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environment.
Our industry is science based. Blending the actuarial sciences with the
natural sciences is critical to providing the public with the financial
resources needed to recover from natural catastrophic events. As the
scientific community's knowledge of climate change continues to
develop, it is important for our communities to incorporate that
information into the exposure and risk assessment process and that it
be conveyed to stakeholders, policyholders, the public and public
officials that can or should address adaptation and mitigation
alternatives. Developing an understanding about climate and its impact
on various risks--for example, droughts, heat waves, the frequency and
intensity of tropical hurricanes, thunderstorms and convective events,
rising sea levels and storm surge, more extreme precipitation events
and flooding--is critical to our role in translating the
interdependencies of weather, climate risk assessment and pricing.
Climate-related and natural disaster risk exposure is broad-ranging.
These risks are widespread, geographically diverse, and include a range
of natural disaster perils impacting homeowners and renters, property
owners, servicers, mortgage investors, taxpayers, and communities. It
is important to ensure that these risk exposures are addressed and
mitigated. Mitigation includes physical enhancements and insurance to
better protect residential properties and other infrastructure against
damage caused by natural disasters. For government programs,
government-sponsored enterprises, private sector financial
institutions, and taxpayers, financial mitigation also is important to
protect against any mortgage credit default risk associated with
natural disaster risk.
The RAA believes a variety of solutions should be used to improve
community resilience to the benefit of all those in the value chain of
climate and natural disaster risk exposure. The RAA also believes that
it is important to address geographic, natural disaster peril, and
socioeconomic diversity. Some traditional solutions, like property
insurance protections for homeowners certainly can and should be
utilized, but new analytical capabilities that increasingly and
intelligently can help reduce risk and direct resources to achieving
that goal also should be pursued.
Investing in Resilience for America's Communities is Critical,
Logical, and Smart
In December 2019, the National Institute of Building Sciences issued
its ``Natural Hazard Mitigation Saves'' report, which was funded by the
U.S. Department of Housing and Urban Development.\2\ The report
describes that federal disaster mitigation has saved $6 for every $1
invested since 1995 and other mitigation-related activities, such as
updating building codes to ensure resilient structures, and investments
can save between $4 and $11 for every $1 spent. According to NOAA,
``Each state has been affected by at least $1 billion-dollar disaster
since 1980.''\3\ There is demand, but the supply is inadequate.
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\2\ https://www.nibs.org/projects/natural-hazard-mitigation-saves-
2019-report.
\3\ https://www.climate.gov/news-features/blogs/beyond-data/2010-
2019-landmark-decade-us-billion-dollar-weather-and-climate.
Reducing the impact of climate and natural disaster risk in the first
place, followed by other protections like traditional insurance and
risk transfer, particularly to benefit low-income and minority
homeowners and renters should be the top public and private-sector
priority for climate and natural disaster resilience and risk
management. That can be achieved by, first, identifying the communities
that are most in need and most at risk of significant natural
disasters. And second, it can be achieved by creating statutory and
regulatory structures and incentives that direct public and private
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sector investments in infrastructure resilience.
This Committee and other committees in Congress are considering ideas
to direct more public and private sector funds toward infrastructure
resilience, which includes housing, in this way. The Federal Emergency
Management Agency's (FEMA) Building Resilient Infrastructure and
Communities (BRIC) program, U.S. Department of Housing and Urban
Development housing programs, the U.S. Department of the Treasury's
Capital Magnet Fund, and other federal programs should direct funding
resources toward achieving housing climate and natural disaster
resilience for ``extremely low- and very low-income households'' that
face significant natural disaster risk and particularly that expose
taxpayer-backed federal housing programs to climate and natural
disaster risks.\4\ In general, RAA recommends that the Financial
Stability Oversight Council (FSOC) and all of its members prioritize
climate and natural disaster resilience efforts for federally funded
and federally-backed residential properties in these most in need and
most at risk areas.
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\4\ https://www.hudexchange.info/programs/htf/; https://
www.cdfifund.gov/programs-training/programs/cmf.
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The RAA's Community Disaster Resilience Proposal
Low-income and minority neighborhoods are disproportionately impacted
by natural disasters.\5\ This fact should be a priority consideration
for policymakers and the public and private sectors as we work to
understand and address the climate and natural disaster-related risks
facing communities across America. The RAA has developed an innovative
approach to addressing climate and natural disaster resilience,
specifically to improve infrastructure resilience in the face of
natural disasters and address socio-economic disparities. The RAA urges
Congress to include our proposal as part of the infrastructure
legislation and other legislation that may be under consideration by
this Committee and other committees in Congress.
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\5\ https://www.americanprogress.org/wp-content/uploads/2013/08/
LowIncomeResilience-2.pdf.
The RAA developed an analytical tool and legislative proposal that
aligns with the President's plan \6\ and congressional interests to
rebuild America's infrastructure, enable green initiatives and smart
building to address the impact of climate change, create needed jobs
and fuel the economic recovery, support historically underserved
communities where the need is often greatest, and provide sources of
much-needed resilience project funding to states and localities. The
RAA's data analytics tool utilizes publicly available data to very
clearly, by county, congressional district, and census tract in each
state, understand where natural perils, older housing stock, and
disadvantaged populations converge. The data in RAA's analytical tool
is from FEMA's National Risk Index (NRI) supplemented with data from
the U.S. Census Bureau's American Community Survey (ACS). We urge
policymakers to use the same information, particularly to understand
the U.S. landscape and pinpoint and prioritize communities that are
most in need and most at risk of significant natural disasters,
diversified by state, congressional district, and natural disaster
peril.\7\
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\6\ https://www.whitehouse.gov/briefing-room/statements-releases/
2021/03/31/fact-sheet-the-american-jobs-plan/.
\7\ https://hazards.geoplatform.gov/portal/apps/MapSeries/
index.html?appid=ddf915a24fb24
dc8863eed96bc3345f8; https://www.census.gov/programs-surveys/acs.
Appendix A of this statement includes examples from RAA's tool,
visualizing how FEMA's NRI and data from the Census Bureau's ACS can be
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used to understand vulnerability and risk for the:
State of Oregon, represented by Chairman Wyden; and
State of Idaho, represented by Ranking Member Crapo.
In general, the RAA's proposal would create a federal structure that
directs public and private-sector funding for resilience projects to
communities most in need and most at risk from significant natural
disaster(s). More specifically, it would:
(1) Address the impact of climate change through data-driven
analysis;
(2) Establish community disaster resilience zones, or CDRZ, for
communities most in need and most at risk of significant natural
disaster(s); and
(3) Direct and incentivize public and private-sector investment in
the CDRZ to improve infrastructure resilience.
RAA's legislative proposal has a few core components to help achieve
these objectives:
I. The first generally would codify, enhance, and utilize the FEMA's
NRI data to find the intersection of risk, vulnerability, and low
community resilience scores, as the basis to identify and establish the
CDRZ that reflect diversity among the states by geography and type of
peril, such as fire storm/wildfire, tornado, hurricane, flooding, ice
storms, earthquake, wind, hail, and drought.
II. The second would, within CDRZ, coalesce a variety of funding
mechanisms, providing a menu of financing enhancements and tax
incentives that can focus federal, state, local, charitable, and
private-sector investment in resilience projects. For example, to help
fund resilience projects in CDRZ the proposal would establish:
CDRZ taxable direct pay bonds, like Recovery Zone Economic
Development Bonds, which were one of three types of Build America Bonds
that Congress created in 2009 as part of financial crisis economic
recovery legislation;
CDRZ tax-exempt facility private activity bonds subject to a
separate volume cap, like Recovery Zone Facility Bonds (also in the
2009 recovery legislation), and provide for life and property/casualty
insurers' exclusion from proration for investments in these CDRZ bonds;
Federal transferrable tax credits for individuals for
resilience improvements to housing in CDRZ;
Federal tax credits for charitable contributions for
resilience projects in CDRZ; and
Federal tax credits for community-level projects in CDRZ that
are tradeable, transferrable, and do not expire, and allow proceeds
from the sale of certified tax credits to be used to, for example, meet
matching requirements for federally funded resilience projects.
III. The third would prioritize, set aside, and unlock federal program
funding to invest in resilience projects in CDRZ. This could include
waiving, reducing, or allowing other forms of financing, such as the
proceeds from the sale of tax credits mentioned above and in-kind and
charitable donations, to qualify for matching funds for resilience
projects in CDRZ. Allowing a variety of resources to contribute to and
invest in resilience projects in CDRZ, as they relate to federal
program matching fund requirements, could significantly unlock
resources for CDRZ resilience projects. For example, with more
flexibility to meet matching fund requirements, CDRZ resilience
projects could more likely benefit from FEMA's BRIC program funding and
funding from other programs that fall under the jurisdiction of this
Committee.
In addition, the RAA's proposal has been favorably mentioned during
three recent congressional hearings:
May 19, 2021, House Committee on Ways and Means hearing on
``Leveraging the Tax Code for Infrastructure Investment,'' during which
the proposal was mentioned by Congresswoman Gwen Moore;\8\
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\8\ https://waysandmeans.house.gov/legislation/hearings/ways-and-
means-committee-hearing-leveraging-tax-code-infrastructure-investment.
May 18, 2021, Senate Committee on Banking, Housing, and Urban
Affairs hearing on, ``Reauthorization of the National Flood Insurance
Program, Part I,'' during which the witness representing The Pew
Charitable Trusts mentioned the proposal specifically, and witnesses
representing Taxpayers for Common Sense and the Association of State
Floodplain Managers mentioned it in concept;\9\ and
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\9\ https://www.banking.senate.gov/hearings/05/11/2021/
reauthorization-of-the-national-flood-insurance-program-part-i.
March 18, 2021, House Transportation and Infrastructure
Subcommittee on Economic Development, Public Buildings, and Emergency
Management hearing on ``Building Smarter: The Benefits of Investing in
Resilience and Mitigation,'' in which the proposal was mentioned by
witnesses representing the Insurance Institute for Business and Home
Safety and The Pew Charitable Trusts.\10\
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\10\ https://transportation.house.gov/committee-activity/hearings/
building-smarter-the-benefits-of-investing-in-resilience-and-
mitigation.
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Housing is Infrastructure
Congress also has an important leadership role to play in prioritizing
and directing federal program funding toward housing resilience.
Housing, especially affordable housing, that can withstand the most
significant disaster(s) that communities across the country face is an
investment in critical infrastructure. To that end, the RAA supports
language that House Financial Services Committee Chairwoman Maxine
Waters included in her ``Housing is Infrastructure Act of 2021''
discussion draft legislation that was noticed by the House Financial
Services Committee for its April 14, 2021, legislative hearing that:
prioritizes applications for the $70 Billion authorized for public
housing that include ``climate and natural disaster resilience and
water and energy efficiency'' plans and authorizes nearly $17 billion
for ``climate and natural disaster resilience and water and energy
efficiency'' for each of eleven federally funded housing programs. The
discussion draft also prioritizes public housing applications and sets
aside federal grant funds for housing in areas of persistent
poverty.\11\ The RAA is continuing to work on this and other
legislation that committees may consider as part of the forthcoming
infrastructure package so that it most impactfully can help communities
that are most in need and most at risk of natural disaster(s) to become
more resilient.
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\11\ https://financialservices.house.gov/calendar/
eventsingle.aspx?EventID=407532.
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Conclusion
The RAA looks forward to continuing to work with Chairman Wyden,
Ranking Member Crapo, and other members of the Committee on legislation
to improve America's housing and community resilience in the face of
climate and natural disaster risks by prioritizing and directing public
and private sector resources to communities that are the most in need
and most at risk of natural disaster(s). Thank you for your
consideration of our recommendations.
APPENDIX A
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.eps__
Securities Industry and Financial Markets Association
120 Broadway, 35th Floor
New York, NY 10271
https://www.sifma.org/
Chairman Wyden, Ranking Member Crapo:
We applaud your leadership of the Senate Finance Committee. Your
direction in making infrastructure investment, including municipal bond
financing, a priority for the committee is timely and prudent during
these challenging times. We thank you for convening this important
hearing and our members stand ready to continue their supporting role
as the economy recovers.
Introduction
The Securities Industry and Financial Markets Association
(``SIFMA'')\1\ and its member firms \2\ strongly support increased
investment in this country's infrastructure, which will help spur job
creation and economic growth. To that end, we believe it is critical to
support the great work states and localities do in building and
maintaining our infrastructure. A partnership among federal, state, and
local governments and private investors will ease the burden on the
cash-strapped federal government by leveraging our capital markets to
create expanded financing options. We believe that this partnership is
especially important during this difficult fiscal environment as states
and local governments seek to lower their costs and also finance much-
needed infrastructure such as schools, roads, and hospitals.
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\1\ SIFMA is the leading trade association for broker-dealers,
investment banks and asset managers operating in the U.S. and global
capital markets. On behalf of our industry's nearly 1 million
employees, we advocate for legislation, regulation and business policy,
affecting retail and institutional investors, equity and fixed income
markets and related products and services. We serve as an industry
coordinating body to promote fair and orderly markets, informed
regulatory compliance, and efficient market operations and resiliency.
We also provide a forum for industry policy and professional
development. SIFMA, with offices in New York and Washington, DC, is the
U.S. regional member of the Global Financial Markets Association
(GFMA). For more information, visit http://www.sifma.org.
\2\ In 2020, SIFMA members underwrote over 90% of the volume of new
issues of municipal securities.
At SIFMA, we believe it is critical to close the infrastructure
financing gap by restoring and creating additional vehicles to assist
in resolving these needs. We hope that you agree that increased
investment in our infrastructure has a critical role to play as our
nation will continue to grapple with the economic impact of the COVID-
19 pandemic for years to come. Further, the provisions outlined in this
testimony will facilitate the more efficient leveraging of our capital
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markets for the benefit all Americans.
After decades of underinvestment, the U.S. faces an extraordinary
infrastructure deficit. In their most recent report card,\3\ The
American Society of Civil Engineers (ASCE) estimates a $2.59 trillion
investment gap over 10 years between what we are currently projected to
spend on infrastructure and what must be spent to fully address the
deficiencies in our aging infrastructure. They also estimate that by
2039, a continued underinvestment in our nation's infrastructure at
current rates will cost $10 trillion in GDP, more than 3 million in
American jobs, and $2.4 trillion in exports over the next 30 years.
With existing federal infrastructure programs failing to meet current
demand, the U.S. is continuing the troubling trend of underinvestment
in this area and risks substantially adding to the financial burdens of
state and local governments. This will only lead to further delays of
investment in and maintenance of critical public projects, including
highways, bridges, hospitals, airports, schools, water, and sewer
systems.
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\3\ https://infrastructurereportcard.org/.
Specifically, SIFMA strongly supports providing incentives to rebuild
our nation's infrastructure including: (1) preserving the tax exemption
for interest earned by investors on state and local bonds; (2)
reinstating the tax exemption on the advance refunding of municipal
bonds; (3) expanding private activity bonds (PABs); (4) reinstating a
direct pay bond program; and (5) expanding the small issuer exception
so that states and municipalities have a variety of additional tools to
finance their local projects. It is important to note that all of these
priorities were included in some form in H.R. 2, the Moving Forward
Act, which SIFMA publicly supports.
Preserve Tax Exemption for Interest Earned by Investors on State and
Local Bonds
State and local governments bear responsibility for financing and
building a significant portion of the nation's public infrastructure,
including schools, roads, water and sewer systems, transportation
facilities and other public projects. The bulk of these projects have
been financed using tax-exempt bonds, wherein the interest earned by
investors is generally exempt from federal income tax. As a result, the
state or local government pays a significantly lower interest rate to
investors than other borrowers in the capital markets. The tax-
exemption on state and local bond interest is one of the most important
forms of federal assistance for infrastructure investment, and the tax-
exempt bond market has successfully provided trillions of dollars of
financing for public works over decades.
Recommendations
Preserving the tax-exemption for interest earned by investors on state
and local bonds, which is the financing mechanism for the clear
majority of infrastructure projects that state and local governments
undertake, is crucial.
Reinstate the Tax Exemption on Advance Refunding Municipal Bonds
Advance refundings provided states and localities with an important
tool for refinancing outstanding debt at lower rates and have generated
many billions of dollars of interest savings over decades. By reducing
their debt service expenses through advance refundings, states and
localities were able to free up their borrowing capacity for new
investments in infrastructure and other important public projects, in
turn boosting their local economies with the creation of new jobs and
making public services more affordable. This tool operates much like
homeowners refinancing mortgages to a lower interest rate.
State and local governments can no longer access cost savings through
this valuable financial tool. The Tax Cuts and Jobs Act of 2017
eliminated the ability of state and local governments to execute tax
exempt advance refundings of outstanding municipal bonds by making the
interest on advance refunding bonds taxable.
Tax-exempt bonds were first written into the tax code in 1913 and have
since then remained an important financing tool. Eliminating advance
refundings removed an important financial management tool that allowed
state and local governments to save billions on interest costs. When
interest rates fall, states and localities seek to take advantage of
lower rates. However, bonds can only be paid off early on or after
certain specified times known as ``call dates.'' Before 2018, if an
issuer wanted to refund their bonds before 90 days prior to the call
date, they needed to issue new advance refunding bonds and hold the
proceeds in escrow until the call date of the original bonds, then pay
off the original bonds on the call date. Now, issuers must wait until
the bonds can be refunded on a current basis, 90 days prior to the call
date, to issue tax exempt refunding bonds, which potentially reduces
their savings.
Advance refundings were already restricted and regulated. The
limitation of one advance refunding per bond issue was put in place in
1986 to correct the perception of too many bonds being outstanding at
the same time for a single project. Limiting governments to a single
advance refunding was a compromise that recognized how important
advance refundings are for states and localities while respecting the
interest of the federal government to limit the number of tax-exempt
bonds outstanding.
Recommendations
SIFMA supports reinstating the tax exemption for interest on advance
refunding bonds, which would allow local governments to invest in
additional infrastructure projects by saving local taxpayer dollars.
Senators Roger Wicker (R-MS) and Debbie Stabenow (D-MI) introduced S.
479, the LOCAL Infrastructure Act \4\ and Reps. C.A. Dutch
Ruppersberger (D-MD) and Steve Stivers (R-OH) introduced identical
legislation in the form of H.R. 2288, the Investing in Our Communities
Act.\5\ If enacted, these bipartisan pieces of legislation would
restore the tax exemption for interest on advance refunding bonds.
Further, this reinstatement is also provided for in Section 90102 of
the Moving Forward Act.
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\4\ https://www.congress.gov/bill/117th-congress/senate-bill/
479?q=%7B%22search%22%3A%5
B%22s.+479%22%5D%7D&s=1&r=1.
\5\ https://www.congress.gov/bill/117th-congress/house-bill/
2288?q=%7B%22search%22%3A%5
B%22ruppersberger%22%5D%7D&s=8&r=1.
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Direct Pay Bonds
In 2009 and 2010, the federal government authorized a direct payment
``Build America Bond'' program whereby states and localities could
choose to issue bonds with taxable interest instead of tax-exempt
interest and receive a partial reimbursement for their interest expense
in the form of a refundable tax credit, which generated new investment
in public infrastructure in all 50 states. During the time in 2009 and
2010 that direct pay bonds were authorized, state and local governments
financed more than $150 billion of infrastructure investments using
this tool. Reinstating a direct pay program could be designed to be
revenue neutral, with a lower subsidy to the issuer than the 35 percent
reimbursement for Build America Bonds.
Recommendations
SIFMA supports the authorization of a new direct payment bond program
by Congress on a permanent basis as a supplement to, not a replacement
for, tax-exempt bonds so long as the program ensures reimbursements to
borrowers will not be affected by budget sequesters. In addition to S.
1308, the American Infrastructure Bonds Act,\6\ legislation introduced
by Senators Roger Wicker (R-MS) and Michael Bennet (D-CO) which
authorizes a new direct pay bond program, Section 90101 of the Moving
Forward Act would also permanently implement a direct pay bond program.
In sum, any comprehensive expansion of federal investment in
infrastructure should include the authorization of a new direct payment
bond program.
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\6\ https://www.congress.gov/bill/117th-congress/senate-bill/1308/
cosponsors?q=%7b%22
search%22:%5b%22wicker%22%5d%7d&r=7&s=3&searchResultViewType=expanded.
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The Small Issuer Exception
Our national infrastructure challenges are so complex and large that a
single solution is not enough. An expansion of the ``small issuer
exception'' for tax-exempt bonds would support infrastructure
investment in small and rural communities that may have difficulty
accessing the capital markets. Under current law, small issuers can
issue up to $10 million or less in bonds per calendar year to be sold
directly to local banks at a cost savings for local taxpayers. This $10
million limit was set in 1986 under the Tax Reform Act of 1986. This
limit was briefly raised in 2009 as part of the American Recovery and
Reinvestment Act of 2009.
Recommendations
Congresswoman Terri Sewell (D-AL) introduced H.R. 2634, the Local
Infrastructure Financing Tools (LIFT) Act,\7\ which includes several
modifications to the small issuer exception as well as reinstates the
tax exemption for interest on advance refunding bonds and establishes a
permanent direct pay bond program. This legislation would increase the
annual limit for the small issuer exception from $10 million to $30
million and this limit would be adjusted by inflation in future years.
This legislation would also apply the small issuer exception debt limit
on a borrower by borrower basis, rather than aggregating all qualified
loans of an issuer. SIFMA strongly urges the Congress to include this
legislation in any comprehensive infrastructure legislation. Section
90103 of the Moving Forward Act would also permanently increase the
limit for the small issuer exception.
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\7\ https://www.congress.gov/bill/117th-congress/house-bill/
2634?s=1&r=5.
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Private Activity Bonds
State and local governments are permitted under the tax code to issue
bonds on behalf of private borrowers for a limited list of public
purposes, including infrastructure. However, these bonds come with
significant restrictions such as volume limitations and, for some
purposes, the application of the individual Alternative Minimum Tax,
which raises the cost of financing.
State and local governments are eligible to issue bonds in the capital
markets where the interest earned by investors is exempt from federal
income tax, which can significantly reduce the interest cost for the
borrower compared to other forms of debt. However, if more than 10
percent of the proceeds of a state or local bond issue are used by a
private business and more than 10 percent of the debt service on a bond
is paid or secured by a private business, the bond is deemed by the IRS
to be a Private Activity Bond (PAB) and cannot be tax-exempt unless it
meets one of the exceptions specified in law.
These exceptions were included in the tax code to promote the use of
bonds to finance targeted categories of facilities and include, among
others:
Bonds where the project being financed is ``exempt facility''
infrastructure such as airports, docks and wharves, mass commuting
facilities, water and sewer facilities, solid waste disposal
facilities, and others;
Bonds where the borrower is a 501(c)3 organization;
Bonds used to finance qualified home mortgages for low- and
middle-income families that meet certain criteria; and
Bonds issued for the benefit of very small manufacturing
companies.
Recommendations
State and local governments should be able to issue tax-exempt bonds
for infrastructure projects with private participation in the same
manner that they issue bonds for purely public projects. In addition,
Congress should permit the sale or lease of infrastructure assets
financed with governmental tax-exempt bonds to private parties without
threatening the tax status of the interest on the bonds. A
comprehensive expansion of federal investment in infrastructure should
also include an increase in the volume cap for private activity bonds.
SIFMA supports increasing the volume cap for private activity bonds,
particularly by:
Increasing the volume cap for PABs;
Efforts to create a National Reallocation Pool so that unused
volume cap can be redistributed among states; and
Expanding the permissible uses for PABs to activities such as
rural broadband, amongst others.
Importantly, Section 90104 of the Moving Forward Act would expand the
volume cap for private activity bonds.
Conclusion
In conclusion, we applaud the Committee for holding this critical
hearing on infrastructure financing, and we encourage lawmakers to use
this opportunity to consider the proposals suggested in this submission
that will help expand the ability of municipalities to finance their
infrastructure needs.