State Officials Want $15B Private-Activity Bond Cap Lifted

State transportation officials are calling for Congress to pass legislation next year that would remove the $15 billion federal volume cap on private-activity bonds for transportation financing, authorize the issuance of tax-credit bonds to fund surface transportation programs, and distribute of 90% of federal transportation funds to the states.

The proposed package, approved last week by the American Association of State Highway and Transportation Officials, echo the U.S. Department of Transportation's recommendation earlier this year to remove the federal limit on private activity bonds that can be issued for infrastructure projects to encourage private sector participation.

The proposal also seeks investment of $545 billion of federal funding in highway, transit, freight and intercity passenger rail systems, over a period of six years from 2010 through 2015. In addition, it would increase the proportion of federal dollars sent to states for core transportation programs to 90% from the current rate of about 84%, according to Jack Basso, director of management and business development for AASHTO. "Core" funding includes interstate maintenance, bridges, and surface transportation programs.

Under the recommendations, highways would get $375 billion, transit would get $93 billion, freight improvements would be funded at $42 billion, and intercity passenger rail would receive $35 billion in dedicated federal funding. The proposal also would cap earmarks at 5% of the federal program, or eliminate them altogether, and allow states to set their own investment targets.

Allen Biehler

"We have to be accountable and we have to move to a performance-based program focused on national goals," said Allen Biehler, AASHTO president and secretary of the Pennsylvania Department of Transportation. "That's where state transportation leaders want to go."The group called for issuing tax-credit bonds to fund surface transportation programs. Whether those bonds would be issued by states or their transportation authorities, or by a quasi-public federal entity is "the open question," Basso said.

"We'd be looking for some source of revenue, could be almost anything - customs fees, revenues from any component of the budget - to pay the principal off on the bonds," he said.

The tax-credit infrastructure bonds would be similar to qualified zone academy bonds, he said. Both are tax-credit bonds, which provide tax credits to bondholders in lieu of tax-exempt interest payments.

In addition, AASHTO said Congress should consider a "menu" of revenue options for short-term funding of transportation projects, including a 10-cent increase in the federal gasoline tax and a 13-cent increase in the federal diesel fuel tax that together fund the highway trust fund. Other possibilities include increased tax rates on alternative fuels, removal of the federal limitations on state and local government authorities to collect and spend toll revenues, and the enactment of user fees based on highway miles driven.

AASHTO's members adopted the recommendations at a meeting on Oct. 20 in Connecticut. Federal lawmakers are expected to soon begin drafting legislation to reauthorize the current federal law, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users, which will expire on Sept. 30.

AASHTO's voting members are the departments of transportation for each state, the District of Columbia, and Puerto Rico. The DOT and some U.S. cities, counties, and toll-road operators, and international and regional transportation entities are non-voting members of the group.

The American Road and Transportation Builders Association recommended last year that federal transportation funding include tax-exempt or tax-credit bonds that would be issued by the federal government but kept separate from the national debt. They also asked the government to require states' tolling authority to be contingent on a 30-year management plan submitted to the Federal Highway Administration and made some recommendations similar to those in the AASHTO's proposal.

The American Public Transportation Association earlier this month asked for $123 billion for transit over the next six years in its SAFETEA-LU reauthorization proposal.

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