Experts Urge User Fees, P3s Over Gas Tax

WASHINGTON — Lawmakers need to embrace user fees and public-private partnerships to finance the country's transportation infrastructure needs because the national gas tax cannot sustain the trust fund that currently helps finance those needs, market participants told members of the House Transportation and Infrastructure Committee at a hearing yesterday.

Mark Florian, managing director and head of infrastructure banking at Goldman, Sachs & Co., said that tolls and public-private partnerships should be the alternative to gas tax revenues for financing infrastructure needs.

Currently, federal highway and transit construction funds come from the gas tax revenues, which are put into the highway trust fund and distributed to states annually. Officials expect the trust fund to be about $3.7 billion short at the start of fiscal 2009, which begins Sept. 30.

While some lawmakers and the National Surface Transportation Policy and Revenue Study Commission report floated increasing the 18.4-cent federal gas tax as a remedy to the shortfall, congressional aides have since said that will not be an option because consumers are already squeezed by skyrocketing gas prices.

"I believe it is imprudent to rely primarily on a funding source that is tied principally to fuel consumption, given the reality of Americans reducing their consumption of gas with more efficient cars, or cars that don't even use gas at all, in the coming years," Florian said in his opening statement.

He added that reducing the transportation infrastructure deficit "will require tapping all sources of capital tax-exempt debt, federal government funding tools, and private-sector funds."

Florian's testimony follows last week's announcement of a newly formed "coalition" that is also pushing for a national discussion to create a mosaic of financing mechanisms for the country's much-needed transportation funds.

The Transportation Transformation Group, or T2, brings together public and private sector organizations, such as financial institutions, investment banks, state departments of transportation, and think tanks, according to spokeswoman Julie Hillrichs.

"Essentially, we're seeking fundamental reform of transportation funding and policy," Hillrichs said. "The goal is really to help policy makers develop a national transportation policy that focuses squarely on defined national priorities."

Some of the group's 20 members include: Banc of America Securities LLC, Goldman Sachs, JPMorgan, Morgan Stanley, Northeastern University, the Florida, Indiana, Texas, and Utah departments of transportation, and Indiana Gov. Mitch Daniels and Texas Gov. Rick Perry, among others.

"One of the things that we think we need to do is allow the private sector to play a bigger role in funding and building and managing transportation," Hillrichs said. "We think that's one of the most promising options that we have available."

According to Joe Giglio, a professor of strategy at Northeastern University and member of T2, the coalition's goal is also to manage all modes of transportation, whether light rail, highways, or air travel, in an integrated way.

T2 joins a growing list of transportation lobbying groups that have been calling for efforts to mend the nation's broken transportation infrastructure and expand it to compete globally with countries that have been pumping billions of dollars into transportation improvements, such as China and India.

According to an Urban Land Institute report released in late April, vehicle miles traveled in the U.S. have increased 95% since 1980, but road capacity has increased only 3%. At the same time, traffic congestion has increased dramatically. Washington, D.C., for example, experienced an increase in annual delays from 10 hours to 60 hours between 1982 and 2005.

The report also warned that about 24% of the country's roads are in poor to mediocre condition, and that more than 25% of bridges are "structurally deficient" or "functionally obsolete."

At yesterday's hearing, panelists and lawmakers said innovative solutions are necessary.

Everett M. Ehrlich, a member of the Center for Strategic and International Studies' Commission on Public Infrastructure, said that tolls are "inescapable" and that private money is "itching" to enter the P3 arena.

"There are no new places to build roads to solve downtown rush hour congestion," Ehrlich said during his opening statement. "There are no new ways to expand dramatically the capacity of airports. We have two alternatives we can impose congestion charges for peak uses, as we do for electricity use, or we can resolve the issue by having people sit in their cars or on airport tarmacs and waste their time."

Goldman's Florian said miles traveled-based revenue streams should be implemented to fix congestion.

"That is, user fees for a given transportation system can be directly linked to the traffic on that asset," he said. "As long as there are viable alternatives to tolled routes, having users pay for the use of a facility makes sense."

Ehrlich also pointed to a national infrastructure bank as proposed by Sens. Christopher Dodd, D-Conn., and Chuck Hagel, R-Neb. as a way to direct state and local governments into building an integrated transportation system.

Dodd and Hagel proposed S 1926, the National Infrastructure Bank Act, which would create an infrastructure bank that would be able to issue up to $60 billion of taxable tax-credit bonds to help states and their public authorities to finance mass transit, roads, bridges, and other projects.

Rep. Keith Ellison, D-Minn., who spoke to the committee yesterday, proposed a similar infrastructure bank bill, HR 3401, the National Infrastructure Bank proposal, co-sponsored by Rep. Barney Frank, D-Mass.

"A national infrastructure bank is attractive not just because it would better lever federal resources, but also because it would allow us to put in place a project selection process that evaluated our investment opportunities coherently and set priorities based on those evaluations," Ehrlich said.

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