A complete audio recording of this event is available for listening.
Fifty-five years ago President Eisenhower signed the first federal transportation bill into law, spurring an unprecedented era of transportation construction. Today, most of that infrastructure has reached beyond its useful life, and returning it to a state of good repair – much less expanding it to serve a growing population and new economic realities – will require hundreds of billions of dollars. What’s more, as consumers continue to choose fuel-efficient vehicles over gas guzzlers, less frequent trips to the pump mean even fewer dollars to replenish the nation’s bankrupt Highway Trust Fund.
To fight gridlock and keep our cities and regions competitive, the U.S. needs a new approach to transportation planning and investment, one that maximizes the use of existing infrastructure, documents and captures the value of new investments, and taps creative financing tools. On Oct. 3, MPC invited a panel of speakers to join us for a lunchtime discussion focused on how innovative financing tools can transform how the U.S. funds and maintains infrastructure projects.
Rob Puentes, senior fellow and director of the Metropolitan Infrastructure Initiative at the Brookings Institution, kicked off the roundtable with sage advice for elected officials and policy makers: “We’ve run out of money. It’s time to start thinking!” he said.
Puentes pointed out that while infrastructure investment was a significant part of the American Recovery and Reinvestment Act (ARRA) – transportation infrastructure received $54 billion--the focus on shovel-ready, short-term projects that put unemployed people to work did not do much to advance a critical discussion our nation needs to have on where and how we ought to invest to garner true, long-term economic recovery. Indeed, two years post-ARRA, Congress remains deadlocked on how to raise revenues for and implement programmatic changes to our federal transportation program. This, despite the fact that the Congressional Budget Office has reported the federal highway account will be unable to meet obligations sometime before the end of fiscal year 2012, and the transit account will be drained by fiscal year 2013 -- and by law, it’s worth noting, neither account can have a negative balance. President Obama has proposed a larger, long-term transportation plan that streamlines programs and includes a national infrastructure bank, and economists have argued that a strategic long-term funding program can spark an economic turnaround. Senate Dems also want a larger bill, while House Republicans have offered a small, six-year plan that cuts funding by more than $30 billion. The bottom line: There is no agreement on how to fund long-term surface transporation program, and in September, Congress punted the revenue conversation by passing the eighth stop-gap funding extension of SAFETEA-LU (Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users), a four-year program passed in 2004 that was supposed to be revisited by 2008.
A question that continues to stump all parties is how to pay for a new bill. One thing is clear: The federal gas tax is expected to bring in $240 billion over the next six years, which wouldn’t even cover full reauthorization of 2005’s six-year SAFETEA-LU, a $286 billion program. Puentes agreed it will be politically difficult to raise the gas tax; he also noted that while we need reforms to get more from each dollar spent, the dollars saved will not be enough. One real option that has received much attention is a national infrastructure bank, which could be a mechanism to provide merit-based funding to projects of national significance as well as demand return on investment, similar to a bank. Puentes pointed to the Windsor Bridge in Detroit as an example of a project a national infrastructure bank could fund. The Detroit-Windsor border is the busiest in North America and carries a quarter of all U.S. trade with Canada, estimated at $130 billion. It is congested every day, resulting in lost economic potential. A new bridge would be in the interest of not just Michigan, but the nation as a whole because it would boost the economies of many states.
Puentes also discussed the role public-private partnerships (PPPs) can play in reducing costs and shortening the delivery time of transportation investments, while effectively allocating risk to the private sector. He suggested the technology sector as a case study: Public entities already buy technology from private companies and share their data with those companies to develop new technologies, such as bus or train tracker programs.
Puentes’ final revenue solution, “leveraging metro sources,” proposes to align federal resources to metropolitan areas around the country. To create jobs and build the next economy, Puentes said the federal government would be wise to support our nation’s economic engines, i.e., metropolitan regions. Many metropolitan areas have realized that state and federal funding will continue to decrease, so they have begun to dedicate substantial local funding to transportation construction. Puentes talked about Phoenix, Ariz., where voters approved Proposition 400 in 2004 to extend a half-cent sales tax for regional transportation for another 20 years, generating $11 billion to expand regional transit, including light rail. Puentes notes that voters in other metro areas, such as Charlotte, St. Louis, Oklahoma City, Seattle, Denver, Los Angeles, and Milwaukee have approved new taxes and fees to fund a mix of light rail and bus lines, highway projects, commuter rail, and corridor preservation. Puentes recommends the federal government provide incentives to metropolitan areas that secure long-term and substantial regional funding sources; this might include more direct funding to metropolitan planning organizations, more flexible funding, and a more streamlined planning process. He did note that policy safeguards would need to be put in place to avoid an over-reliance on sales tax funding sources.
The second panelist to speak was Ill. Sen. Heather Steans (D-Chicago), who discussed how the state’s transportation investment program is taking shape. Sen. Steans remarked that while Illinois’ $31 billion Jobs Now state capital program does provide some funding for public transit, the state has the ability to bond $1.75 billion for transit and has gone to market for $600 million of that authorization; and commitments have already been made. That means projects like the CTA’s Red Line extension on the South Side of Chicago, recommended by the Chicago Metropolitan Agency for Planning as one of the five major capital projects in the region, will need a new revenue stream. Steans noted that state funding is drying up for future transportation projects and the ongoing maintenance that accompanies them. The state hasn’t increased the gas tax or indexed it to inflation since 1991, and Sen. Steans thinks it will be impossible to do so in this political climate. Steans thinks one of the answers is PPPs in Illinois. She was lead sponsor of the Illinois Public-Private Partnership for Transportation Act, enacted Aug. 22, 2011. MPC has been a lead advocate for this new law, which allows the Illinois Dept. of Transportation to explore PPPs for new transportation projects, such as the Elgin-O’Hare Express, West Loop Transportation Center, a bus rapid transit corridor, or the CTA Red Line extension. Read more about the details of Public Act 97-0502 here.
Paul Hanley, director of the Transportation Policy Research Program at the University of Iowa, spoke last about his recently completed study on the potential for a mileage-based road user charge. Funded by the Federal Highway Administration, the study used 12 cities, including Chicago, as test sites to examine how a mileage-based road user charge would perform and received by users. The goals of the project were to design and test a program that would charge users enough per mile to replace what the U.S. currently takes in with gas tax revenues (not to increase revenues), be flexible enough to allow for changes in technologies, support national and environmental goals, and gauge public acceptance. On-board GPS units were installed in study participant’s vehicles to determine when and how many miles they drove. The study employed cellular technology to convey vehicle information to a billing center, which in turn delivered invoices to participants (who for the sake of the study did not actually pay the bill).
Almost 2,500 people participated, driving nearly 22 million miles between January 2009 and April 2010. Hanley identified that an average benchmark to replace the gas tax (federal and state) would be 1.6 cents per mile (assuming 24 miles per gallon and users driving an average of 12,500 miles per year). Study results show that perception was positively impacted by experience and exposure. The longer individuals participated in the study, the more positive attitude they had toward a road user charge. Initially, 42 percent of participants viewed a road user charge as favorable, which grew to 70 percent after the 10-month study ended. Nineteen percent had a negative attitude toward a road user charge, mostly due to privacy concerns; 70 percent of users said this type of system was accurate and fair and a viable replacement of the federal motor fuel tax. Current technology allows for easily recording miles driven and identifies when a vehicle crosses state lines, important for calculating differences in individual state rates as gas taxes differ by state. One issue that arose was difficulty installing the GPS device. Installation took an average of 90 minutes and 25 percent of participants had issues with the unit that required follow-up servicing.
If a mileage based road user fee were implemented nationwide, Hanley recommends the government reserve two percent of total revenues for administration and enforcement and identify a low-cost mechanism for data communication, for example by negotiating lower cellular rates. User buy-in is also key, and could be improved by creating additional user benefits, for example allowing them to opt-in to travel related services. (Note: these recommendations are solely of the Public Policy Center at the University of Iowa and are not the findings of the U.S. Dept. of Transportation.)
The experts all highlighted that there is no one single fix to funding our transportation infrastructure. Instead, the U.S. needs a new transportation program that focuses more on competitive investment and less on formula grants; includes performance measures; leverages private investment; funds investments in a flexible way; combines a mix of congestion pricing and road user charges; and promotes technology. Such a national infrastructure investment program would maximize the current infrastructure we’ve already built, spend dollars more efficiently, and reduce the demand for costly new spending.
“Innovative Financing for Transportation” is the second in a three-part series of innovative infrastructure financing roundtables. The next, “All Systems Go: Engineering Sustainable Utility Solutions,” is Nov. 17, from noon to 1:30 p.m., at MPC offices. It will feature J. Tyler Anthony, Senior Vice President, Distribution Operations, ComEd; Mark Radtke, Executive Vice President – Chief Strategy Officer, Integrys Energy Group, Inc. (People’s Gas); and Karla Olson Teasley, President, Illinois American Water. Register online now.