DOT Plan Includes Provision to Eliminate $15B PAB Cap

A federal plan to revamp the national transportation system would remove the $15 billion cap on private-activity bonds used to finance construction of highways and rail-to-truck freight transfer facilities, withhold federal monies for some large projects unless public-private partnerships have been considered, and encourage use of state infrastructure banks.

The plan, which also calls for more use of rail freight and the consolidation of more than 100 programs into eight intermodal programs, was unveiled earlier this week by Secretary of Transportation Mary E. Peters as a set of reforms to be incorporated into long-term highway legislation that Congress will develop by the end of fiscal 2009.

The Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, or SAFETEA-LU, expires at the end of fiscal 2009, with a projected shortfall of more than $3 billion due in part to declining gasoline tax revenues that have provided 90% of funding for federal surface transportation.

The America Moving Forward coalition, founded by Macquarie Group, Transurban, Cintra, and Goldman, Sachs & Co. applauded the plan while others criticized it.

The plan outlined six tenets for rebuilding the nation's crumbling infrastructure system, without giving dollar amounts. It essentially would give states and municipalities easier access to private deals but remove some public-funding flexibility.

The plan would eliminate the volume cap on private-activity bonds - now at $15 billion, which the Bush administration expects to be exhausted in early 2009 - and allow backloaded structures and accelerated depreciation schedules for private toll projects.

Unlimited access to PAB volume would "encourage private sector investment," the plan stated.

The $15 billion allocation for transportation PABs does not count against state volume caps that limit total private-activity bond issuance. The PABs are awarded by the U.S. transportation secretary.

The administration also said it wants to promote state infrastructure banks, allowing states to capitalize their infrastructure banks with up to their full share of federal highway funding, instead of the current 10%, and requiring a non-federal match of 20% instead of the current 25% match requirement.

State infrastructure banks are state revolving funds that offer low-interest loans to local governments for highway, transit, and other transportation projects. Only 33 states have their own SIBs now, the report said. But none have requested SAFETEA-LU funding for their bank capital so far, it said.

States and metro areas also would be granted the ability to toll interstate and other major highways, but federal aid for projects costing more than $250 million would be withheld unless the regional or state authority ran a cost comparison between P3 and public funding for the project.

"While there may be circumstances that justify the use of a traditional approach, there is currently no requirement for states to consider ... a project as a P3 when utilizing federal dollars," the plan said.

Federal aid under the plan would be focused on transportation safety, interstates and other highways "of national interest," and major metropolitan areas. Discretionary spending would go to multi-state corridor, bottleneck, nationally or regionally significant and "innovative" urban congestion projects.

The Transportation Department would grant 80% of its overarching federal highway funds to states using a formula based on factors such as the state's share of the interstate network and its contribution to the highway trust fund. Additionally, it would give high-performing states a bonus: the ability to use federal money for non-qualifying, or state and local, highway projects.

States would then have to compete for the remaining 20% in the federal pot. U.S. transportation officials would judge state projects based on the degree who which they incorporate user fees and leverage non-federal resources, as well as their congestion-reduction plans and other factors.

The plan released this week stressed the administration's desire to fund surface transportation projects of the greatest federal interest, and to fund more of those projects through user fees such as tolling and congestion pricing instead of fuel taxes.

America Moving Forward praised the administration's plan as bringing "reduced costs to state and local governments, the acceleration of projects that otherwise might be delayed, appropriate allocation of project risks, and higher quality projects."

Others in Washington opposed it. The administration's plan is to "toll it, privatize it, lease it, sell it, or congestion price it," Rep. James L. Oberstar, D-Minn., chair of the House Committee on Transportation and Infrastructure, said in a statement. The "proposal fails to provide a sustainable system of financing," he said.

Oberstar agrees with parts of the plan, though, such as performance standards for states, said Jim Berard, the committee's communications director.

"[We are] not dismissing it out of hand, but the gist of the philosophical approach they're taking ... certainly the chairman doesn't agree with," Berard said.

An association of more than 5,000 public and private sector market participants gave the plan a lukewarm reception. Dave Bauer, senior vice president of government relations for the American Road and Transportation Builders Association agreed with some financing ideas in the plan, but had reservations about the lack of steps for increasing the federal government's support of transportation, and the plan's "scorched-earth approach" to existing programs.

"The thing about encouraging private sector investment and congestion pricing and tolling, nobody can guarantee you to what extent that is going to be successful. You could encourage [it] and put all your eggs in one basket, and there's no certainty that investment is going to come," Bauer said. "Waiting for Wall Street to save you may be very productive. It may be a long wait. There's just no way of knowing."

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