July | August 2017







State and Federal Officials Weigh Options to Fund Infrastructure Plan

By Jack Cobb, senior policy analyst, CSG Washington, D.C., Office
In an outline of his 100-day plan in October, President Donald J. Trump laid out a vision for an infrastructure investment program that “leveraged public-private partnerships and private investments through tax incentives to spur $1 trillion in infrastructure investment over the next 10 years.” During a joint address to Congress Feb. 28, Trump doubled-down on this proposal, stating, “To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States—financed through both public and private capital—creating millions of new jobs.”
House Speaker Paul Ryan has supported this approach, indicating in January that he believes $40 of private financing should be leveraged for every federal dollar. This means that only 2.5 percent of the proposed $1 trillion would come in the form of direct federal spending.
The development, repair and funding of infrastructure is a significant area of state and federal collaboration with many federal agencies providing funding for airports, inland waterways, highways, local roads and harbors. In recent years, insufficient funding has resulted in “a significant backlog of overdue maintenance across our infrastructure systems,” according to the American Society of Civil Engineers’ 2013 evaluation, which awarded the nation’s infrastructure a D+ rating. ASCE’s 2017 quadrennial report card will be released on March 9.
During a U.S. Senate Committee on Environment and Public Works hearing on Feb. 8, state transportation officials voiced their concerns about the financing proposals advocated by the Trump and Ryan. During the hearing, Colorado Department of Transportation Executive Director Shailen Bhatt said, “Congress can’t fix a funding problem through financing. …Financing mechanisms cannot correct what is essentially a funding problem due to insufficient investment.” State transportation officials from Idaho, Montana, North Dakota, South Dakota and Wyoming supported Bhatt’s message about funding, not financing, programs.
Federal officials have suggested public-private partnerships, or P3s, to address infrastructure repair and development. In P3s, a private company bids to build a piece of infrastructure that they believe they can derive a profit from usage fees, such as tolls or availability payments made by the state when the contractor achieves certain benchmarks. P3s have had some successes in the United States over the last decade and are authorized under legislation in 37 states. The model can be particularly helpful in projects such as managed lanes that increase capacity on congested roads and provide options to drivers. P3s can sometimes be a cost effective mechanism for states to finance infrastructure development compared to direct spending or taking out traditional bonds. The significant reliance of current federal infrastructure proposals on P3s, and other financing tools, concerns many state leaders who feel that direct federal spending is necessary and that these financing tools have limited applicability to the nation’s broad infrastructure needs.
Virginia Secretary of Transportation Aubrey Layne champions the use of P3s in a specific set of circumstances. Virginia’s experience is informative as the state’s transportation needs include the Washington, D.C., metro area with hundreds of thousands of daily commuters, as well as significant rural areas and medium-sized communities. While P3s have been deployed on projects that have helped increase capacity in high-density areas, Layne does not believe that a federal infrastructure plan heavily dependent on them would be the best fit nationwide.
Layne said his department “will certainly evaluate P3 options, but they usually cannot be used as a funding mechanism outside of large-scale urban projects. Additionally, P3s are best used as an option to increase capacity and not to finance regular repairs.” Layne supports the inclusion of P3s as one piece of a comprehensive plan, but he said a comprehensive federal package should include three characteristics.
“It must be sustainable and consistent in the long term… should focus on multimodal options in order to increase the efficiency of existing infrastructure … (and) long-term funding should be indexed to inflation,” he said.
Layne’s first and third points articulate the concerns of many states with any federal infrastructure investment plan. With P3s not well-suited for the majority of projects and the Highway Trust Fund unable to keep up with demand, due to the gas tax not adjusting for inflation and increased fuel efficiency decreasing revenues, states will not be well served by the current federal financing-based proposals. While a large federal investment, through direct funding, would be helpful in the short-term in order to support states’ infrastructure development and repair work, funding must be consistent and predictable in the years ahead, state officials say. To achieve this, many believe the Highway Trust Fund must have a sufficient funding mechanism that is indexed to inflation so that it can support states decades into the future.
Virginia has found that there is no silver bullet. “A comprehensive approach is necessary and should include P3s, direct state general funds, dedicated state and federal tax revenue, and predictable and consistent federal funding,” Layne said.
As the federal government continues considering infrastructure financing, state leaders have been joined by CEOs in working toward plans that will include greater direct funding in the short term but also reforms necessary to improve the sustainability of long-term funding. These include efforts to ensure the long-term sustainability of the Highway Trust Fund by updating the gas tax, last adjusted in 1993, and indexing it to ensure long-term viability. On Feb. 1, FedEx CEO Fred Smith testified before the House Transportation and Infrastructure Committee hearing on 21st Century Infrastructure Issues.
“We, at FedEx and virtually every entity in the… surface transportation business that I know of support an increase in gasoline and diesel taxes,” Smith said. He further voiced support for indexing the tax rate to inflation and for congestion fees and other reforms to address the reduction and potential elimination of gasoline- and diesel-powered vehicles.
Reforms that ensure the long-term viability of the Highway Trust Fund and other direct spending sources would allow states to plan projects that require funding over six to eight years. Additionally, regulatory streamlining that maintains strong environmental and quality standards, but reduces the amount of time it takes to start and therefore complete a project, would significantly improve the efficiency of funds by reducing delays and hurdles for projects, according to state officials.
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