[Congressional Record Volume 145, Number 30 (Thursday, February 25, 1999)]
[Senate]
[Pages S2015-S2017]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CHAFEE (for himself, Mr. Moynihan, Mr. Warner, Mr. Bond, 
        Mr. Graham, and Mr. Gorton):
  S. 470. A bill to amend the Internal Revenue Code of 1986 to allow 
tax-exempt private activity bonds to be issued for highway 
infrastructure construction; to the Committee on Finance.


              the highway innovation and cost savings act

  Mr. CHAFEE. Mr. President today, I am introducing legislation which 
will allow the private sector to take a more active role in building 
and operating our nation's highway infrastructure. The Highway 
innovation and Cost Savings Act will allow the private sector to gain 
access to tax-exempt bond financing for a limited number of highway 
projects. I am pleased that my distinguished colleagues, Senators 
Moynihan, Warner, Bond, Graham, and Gorton have agreed to join me in 
this effort.
  In the United States, highway and bridge infrastructure is the 
responsibility of the government. Governments build, own, and operate 
public highways, roads and bridges. In many other countries, however, 
the private sector, and private capital, construct and operate 
important facilities. These countries have found that increasing the 
private sector's role in major highway transportation projects offers 
opportunities for construction cost savings and more efficient 
operation. They also open the door for new construction techniques and 
technologies.
  It is incumbent upon us to look at new and innovative ways to make 
the most of limited resources to address significant needs. To help 
meet the nation's infrastructure needs, we must take advantage of 
private sector resources by opening up avenues for the private sector 
to take the lead in designing, constructing, financing and operating 
highway facilities.
  A substantial barrier to private sector participation in the 
provision of highway infrastructure is the cost of capital. Under 
current Federal tax law, highways built and operated by the government 
can be financed using tax exempt debt, but those built and operated by 
the private sector, or those with substantial private sector 
participation, cannot. As a result, public/private partnerships in the 
provision of highway facilities are unlikely to materialize, despite 
the potential efficiencies in design, construction, and operation 
offered by such arrangements.
  To increase the amount of private sector participation in the 
provision of highway infrastructure, the tax code's bias against 
private sector participation must be addressed.
  The Highway Innovation and Cost Savings Act creates a pilot program 
aimed at encouraging the private sector to help meet the transportation 
infrastructure needs for the 21st Century. It makes tax exempt 
financing available for a total of 15 highway privatization projects. 
The total face value of bonds that can be issued under this program is 
limited to 15 billion dollars.
  The fifteen projects authorized under the program will be selected by 
the Secretary of Transportation, in consultation with the Secretary of 
Treasury. To qualify under this program, projects selected must: serve 
the general public; assist in evaluating the potential of the private 
sector's participation in the provision, maintenance, and operation of 
the highway infrastructure of the United States; be on publicly-owned 
rights-of-way; revert to public ownership; and, come from a state's 20-
year transportation plan. These criteria ensure that the projects 
selected meet a state or locality's broad transportation goals.
  This proposal was included in the Senate's version of last year's 
transportation reauthorization bill. Unfortunately, it was dropped 
during the conference with the House.
  The bonds issued under this pilot program will be subject to the 
rules and regulations governing private activity bonds. Moreover, the 
bonds issued under the program will not count against a state's tax 
exempt volume cap.
  This legislation has been endorsed by Project America, a coalition 
dedicated to improving our nation's infrastructure, the American 
Consulting Engineers Council, the Bond Market Association, the American 
Road and Transportation Builders Association, the Institute of 
Transportation Engineers, and the ITS America.
  I hope that this bill can be one in a series of new approaches to 
meeting our substantial transportation infrastructure needs and will be 
one of the approaches that will help us find more efficient methods to 
design and to build the nation's transportation infrastructure.
  I encourage my colleagues to join me as cosponsors of this important 
initiative.
  Mr. President, I ask unanimous consent that the text and a 
description of the bill be printed into the Record.
  There being no objection, the items were ordered to be printed in the 
Record, as follows:

                                 S. 470

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Highway Innovation and Cost 
     Savings Act''.

     SEC. 2. TAX-EXEMPT FINANCING OF QUALIFIED HIGHWAY 
                   INFRASTRUCTURE CONSTRUCTION.

       (a) Treatment as Exempt Facility Bond.--A bond described in 
     subsection (b) shall be treated as described in section 
     141(e)(1)(A) of the Internal Revenue Code of

[[Page S2016]]

     1986, except that section 146 of such Code shall not apply to 
     such bond.
       (b) Bond Described.--
       (1) In general.--A bond is described in this subsection if 
     such bond is issued after the date of enactment of this Act 
     as part of an issue--
       (A) 95 percent or more of the net proceeds of which are to 
     be used to provide a qualified highway infrastructure 
     project, and
       (B) to which there has been allocated a portion of the 
     allocation to the project under paragraph (2)(C)(ii) which is 
     equal to the aggregate face amount of bonds to be issued as 
     part of such issue.
       (2) Qualified highway infrastructure projects.--
       (A) In general.--For purposes of paragraph (1), the term 
     ``qualified highway infrastructure project'' means a 
     project--
       (i) for the construction or reconstruction of a highway, 
     and
       (ii) designated under subparagraph (B) as an eligible pilot 
     project.
       (B) Eligible pilot project.--
       (i) In general.--The Secretary of Transportation, in 
     consultation with the Secretary of the Treasury, shall select 
     not more than 15 highway infrastructure projects to be pilot 
     projects eligible for tax-exempt financing.
       (ii) Eligibility criteria.--In determining the criteria 
     necessary for the eligibility of pilot projects, the 
     Secretary of Transportation shall include the following:

       (I) The project must serve the general public.
       (II) The project is necessary to evaluate the potential of 
     the private sector's participation in the provision, 
     maintenance, and operation of the highway infrastructure of 
     the United States.
       (III) The project must be located on publicly-owned rights-
     of-way.
       (IV) The project must be publicly owned or the ownership of 
     the highway constructed or reconstructed under the project 
     must revert to the public.
       (V) The project must be consistent with a transportation 
     plan developed pursuant to section 134(g) or 135(e) of title 
     23, United States Code.

       (C) Aggregate face amount of tax-exempt financing.--
       (i) In general.--The aggregate face amount of bonds issued 
     pursuant to this section shall not exceed $15,000,000,000, 
     determined without regard to any bond the proceeds of which 
     are used exclusively to refund (other than to advance refund) 
     a bond issued pursuant to this section (or a bond which is a 
     part of a series of refundings of a bond so issued) if the 
     amount of the refunding bond does not exceed the outstanding 
     amount of the refunded bond.
       (ii) Allocation.--The Secretary of Transportation, in 
     consultation with the Secretary of the Treasury, shall 
     allocate the amount described in clause (i) among the 
     eligible pilot projects designated under subparagraph (B), 
     based on the extent to which--

       (I) the projects use new technologies, construction 
     techniques, or innovative cost controls that result in 
     savings in building or operating the projects, and
       (II) the projects address local, regional, or national 
     transportation needs.

       (iii) Reallocation.--If any portion of an allocation under 
     clause (ii) is unused on the date which is 3 years after such 
     allocation, the Secretary of Transportation, in consultation 
     with the Secretary of the Treasury, may reallocate such 
     portion among the remaining eligible pilot projects.
                                  ____


           Summary of Highway Innovation and Cost Savings Act

       The U.S. Department of Transportation estimates a 
     substantial shortfall in funding for meeting our highway and 
     bridge infrastructure needs, even with the increased 
     investment levels under TEA 21. Closing the gap will require 
     full access to private capital as well as government 
     resources.
       Existing tax laws discourage private investment in highway 
     infrastructure by making lower cost tax-exempt financing 
     unavailable for projects involving private equity investment 
     and private sector management and operating contracts.
       Today, U.S. companies, which have invested billions of 
     dollars in foreign infrastructure projects, have participated 
     in only a few such projects in the United States. This pilot 
     program will demonstrate the benefits of bringing the full 
     resources of the private sector to bear on solving our own 
     nation's transportation needs for the 21st century.
       Increasing the private-sector's role in major highway 
     transportation projects offers opportunities for construction 
     cost savings and more efficient operation, as well as opening 
     the door for new construction techniques and technologies.
       A substantial barrier to private-sector participation in 
     the provision of highway infrastructure is the cost of 
     capital. Under current Federal tax law, highways built and 
     operated by government can be financed using tax exempt 
     financing but those built and operated by the private sector 
     cannot. As a result, public/private partnerships in the 
     provision of highway facilities are unlikely to materialize, 
     despite the potential efficiencies in design, construction, 
     and operation offered by such arrangements.
       To increase the amount of private-sector participation in 
     the provision of highway infrastructure, the tax code's bias 
     against private-sector participation must be addressed, or 
     the benefits that the private-sector can bring to 
     infrastructure development will never be fully realized.
       Highways, bridges, and tunnels are the only major category 
     of public infrastructure investment where projects involving 
     private participation (commonly referred to as private-
     activity bonds) are denied access to tax-exempt debt 
     financing. See Attachment.


                       pilot program under hicsa

       Tax-exempt financing for up to 15 projects is made 
     available under this pilot program. The aggregate amount of 
     bonds issued under this program is limited to $15 billion.
       Pilot projects are to be selected by the Secretary of 
     Transportation, in consultation with the Secretary of the 
     Treasury, based on the following criteria: the project must 
     serve the general public; the project must be necessary to 
     evaluate the potential of the private sector's participation 
     in the provision of highway transportation infrastructure; 
     the project must be located on a publicly-owned right-of-way; 
     the project must be publicly owned or the ownership of the 
     project must revert to the public; and the project must be 
     consistent with transportation plans developed under Title 23 
     U.S.C.
       Benefits resulting from the private sector participation 
     include those resulting from using alternative procurement 
     methodologies (including design-build and design and design-
     built-operate-maintain contracting), shortening construction 
     schedules, reducing carrying costs, transferring greater 
     construction and operating risk to the private sector, and 
     obtaining from contractors long-term warranties and operating 
     guaranties.
       Private investors and operators are encouraged under this 
     program to achieve efficiencies in design, construction, and 
     operation by affording them a share in the project's net 
     returns.
       Projects will be subject to applicable environmental 
     requirements, prevailing state design and construction 
     standards and applicable state and local labor laws similar 
     to any other transportation facility financed with tax-exempt 
     bonds.
       In the absence of this program, state and local governments 
     could still build these projects with conventional tax-exempt 
     financing, but at greater cost, on delayed time schedules, 
     without contribution of private equity capital and without 
     transferring to the private sector long term operating and 
     maintenance risk.

                   TAX-EXEMPT BONDS FOR INFRASTRUCTURE
------------------------------------------------------------------------
                                                               Private
                                              Governmental    activity
                                                  only          bonds
------------------------------------------------------------------------
Facility:
  Airport...................................          Yes           Yes
  Docks, Ports..............................          Yes           Yes
  Highways & Bridges........................          Yes            No
  Mass Transit..............................          Yes           Yes
  High Speed Rail...........................          Yes           Yes
  Water Facilities..........................          Yes           Yes
  Sewage Facilities.........................          Yes           Yes
  Solid Waste Facilities....................          Yes           Yes
  Hazardous Waste...........................          Yes           Yes
------------------------------------------------------------------------

  Mr. GRAHAM. Mr. President, I am pleased to join my colleagues to 
introduce the Highway Innovation and Cost Savings Act of 1999. As you 
know, last year on June 9, President Clinton signed into law, the 
Transportation Equity Act of 1998. TEA 21 established many new 
programs, and a new budget treatment for highways. Throughout the 
debate on TEA 21, I always focused on one goal: to be able to promise 
my constituents that by 2003, the last year of TEA 21, our roads and 
bridges would be in better shape than they are today. In 1991, when 
ISTEA passed, I was not able to make that pledge, because I knew that 
the United States Department of Transportation had already estimated 
that the level of funding in the ISTEA bill would not close the gap 
between highway needs and money to meet those needs.
  TEA 21 was a landmark piece of legislation. TEA 21 established a new 
budget category for funding the highway program which calls for funding 
levels each year to match the intake of gas taxes the year prior. This 
will be the first year we test the philosophy that we can commit to 
spending user fees exclusively to keep up the system. Unfortunately, 
this amount of funding is still not enough to maintain the quality of 
roads in Florida or any other state. Traditional grant programs will 
not be able to ever meet the infrastructure needs of the nation. We 
must look at innovative solutions to our congestion problems. We need 
to use innovative methods to finance construction projects. We need to 
get the private sector involved in transportation improvements.
  The distinguished Chairman of the Environment and Public Works 
Committee and I worked very hard to develop and implement an innovative 
financing program called transportation Infrastructure Finance and 
Innovation Act (TIFIA). TIFIA was incorporated into TEA 21 and is now 
being implemented by the United States Department of Transportation. 
The program

[[Page S2017]]

will extend federal credit to major, high cost transportation projects 
so as to enhance the project's ability to acquire private credit. The 
TIFIA program authorizes $530 million to be extended in federal credit 
over six years. The $530 million can be used to leverage up to $10.6 
billion in private loans and lines of credit. The TIFIA program offers 
the sponsors of major transportation projects a means to amplify 
federal resources up to twenty times. The objectives of the program are 
to stimulate additional nonfederal investment in our Nation's 
infrastructure, and encourage private sector participation in 
transportation projects.
  Mr. President, I am very excited about the prospects for the TIFIA 
program. I believe that Congress must continue to look for new and 
innovative ways to meet our nation's infrastructure needs. I believe 
the bill we are introducing today, the Highway Innovation and Cost 
Savings Act of 1999 (HICSA), will be another tool in the financing 
toolbox. HICSA creates a pilot program which allows tax-exempt 
financing for up to 15 transportation projects. The amount of bonds 
issued under the pilot will be limited to $15 billion. The projects for 
the pilot will be selected by the Secretary on Transportation based on 
numerous criteria.
  HICSA will encourage more private sector investment in highway and 
bridge construction by making lower cost, tax-exempt financing 
available. Under current law, other forms of public infrastructure, 
such as airports and seaports, are eligible for tax-exempt debt 
financing for projects with private capital. Highway, bridge, and 
tunnel projects are not eligible for this type of financing. Increasing 
the private sector's role in major highway projects will not only help 
to close the needs gap, but will also open the door for new cost saving 
techniques in construction and the use of new technologies.
  U.S. companies continually invest billions of dollars in foreign 
infrastructure projects, but have only participated in only a few 
projects in the United States. Why should American companies feel the 
need to invest their money overseas, when the United States is in such 
desperate need of funds for roads. American companies want to invest in 
American infrastructure. HICSA will demonstrate the benefits of private 
sector involvement in infrastructure projects, and will finally 
establish the private sector as an honored partner in building the road 
to the 21st century.
  Mr. President, I want to be able to travel to Florida and tell my 
constituents that in 2003, their roads and bridges will be in better 
shape than they are today. I believe with the combination of TEA 21 
traditional grant funding, new programs like TIFIA, and clearing 
hurdles in the tax code with HICSA, we will be well on our way. I look 
forward to working with my colleagues on the Senate Finance Committee 
to pass this much needed legislation.
                                 ______