WASHINGTON — For cash-strapped state and local governments that have critical transportation infrastructure needs, but no money to pay for them, the coming year will be bittersweet.
Federal aid from the American Recovery and Reinvestment Act and possibly another job-creation bill will provide some transportation funding relief to municipal bond issuers, and some high-profile grants are expected to be announced this winter.
But it probably will be another year before Congress takes up new multi-year authorization bills for the sector, sources said in recent interviews.
Governments and other muni bond issuers earlier this year began chasing ARRA funds after the new law was enacted in February, flooding the U.S. Department of Transportation and its various sub-agencies with applications for surface transportation and high-speed rail projects.
The application pool was so large that states and cities face miniscule odds and are competing with their neighbors. But market and industry participants are now speculating that the ARRA initiatives may be models for, or springboards into, longer-term programs.
Meanwhile, surface and air transportation groups have pushed for Congress to dedicate a large portion of funding in any new job-creation bill to transportation infrastructure.
But more permanent programs and revenue overhauls that would be instituted by much anticipated multi-year transportation bills have been hampered by a prolonged congressional battle over health care and climate-change legislation, the coming midterm elections, and reluctance by some lawmakers and the White House to broach the subject of user fees while unemployment remains high.
After the Senate returns from its winter recess this month, it is expected to take up a new job-creation bill. The bill had not been proposed in the Senate as of late December, but the House-approved Jobs for Main Street Act of 2010 would provide federal transportation grants and attempt to solve some cash-flow problems that have plagued the highway trust fund.
The House bill would provide $27.5 billion for highways, $8.4 billion for transit, and $500 million for airports. Rumblings in the Senate have suggested lawmakers there might support transportation funding in the area of $23 billion to $30 billion split between highways and transit, an industry source said late last month.
The House bill also would lift a ban on the trust fund’s ability to earn interest on its cash balances — providing it with $500 million to $1 billion more per year, according to House estimates — and would restore $19.5 billion of foregone interest payments.
The jobs bill also could prolong the wait for a new multi-year transportation law. The bill passed by the House, for example, would extend the Safe, Accountable, Flexible, Efficient Transportation Equity Act: a Legacy for Users through the end of the fiscal year on Sept. 30, 2010, or one year after the law expired.
The programs under SAFETEA-LU were extended through the end of February by a military appropriations bill to give Congress time to approve the longer extension.
In the meantime, new programs created by ARRA may be laying groundwork for lengthier federal investments in state-administered transportation projects.
State transportation officials want the Build America Bonds program created by ARRA to be extended beyond its current expiration date of Dec. 31, said Joung Lee, senior analyst for finance and business development at the American Association of State Highway and Transportation Officials.
Sen. Ron Wyden, D-Ore., who introduced BAB legislation in February 2005 and is considered a key supporter of the bonds, plans to work toward an extension.
“I think that we have seen that Build America Bonds have been an incredible success, providing prompt infrastructure investment in an efficient way. For that reason, I want to continue working to extend the program before it expires at the end of next year,” he said. “But I also think that Congress needs to refine the program, so that there isn’t just one type of Build America Bond that can be used for any type of project.
“I would like to see different flavors of BABs created. That would allow us to adjust the subsidy and give, for example, transportation infrastructure investment a larger subsidy than other types of projects because transportation projects typically create more jobs and other public benefits.”
Currently, state and local governments can issue an unlimited amount of BABs to finance capital expenditures with the option of receiving direct federal payments equaling 35% of their interest expense. By mid-December, only eight months after ARRA’s enactment, issuers had sold more than $64 billion of direct-pay BABs, according to Thomson Reuters.
Airports want Congress to extend the temporary alternative-minimum tax exemption for private-activity bonds, saying the AMT exemption saved airport bond issuers millions of dollars and kept some projects from being halted.
Issuers had sold $5.4 billion of AMT-exempt airport PABs as of Dec. 11, according to Jane Calderwood, vice president for government and political affairs at Airports Council International-North America. The debt supported projects at 35 different airports, she said.
McCarran International Airport in Las Vegas was in the midst of a $2.5 billion project and “would have had to close the door” on it, but the AMT exemption enabled them to sell $550 million of debt to keep it alive, Calderwood said.
Another ARRA program will result in one of the most-anticipated announcements of the winter: the Federal Railroad Administration’s choice of a state or states to receive $8 billion in high-speed rail funding that was authorized under the law. The FRA received 259 applications for projects totaling $57 billion.
Already, lawmakers are appropriating funds to build the high-speed rail network, which the U.S. High Speed Rail Association recently said will cost $600 billion to complete.
Tacking onto the initial ARRA investment and following the designation of 11 high-speed rail corridors, Congress last month approved $2.5 billion for high-speed rail projects in its fiscal 2010 transportation appropriations bill.
The FRA’s administrator Joseph C. Szabo said recently the Obama administration is evaluating high-speed rail proposals in keeping with its “desire to lay the groundwork for a truly national high-speed and intercity passenger rail program.”
But the lingering, crucial problem for transportation officials — how to generate revenue for federal and state transportation trust funds — is not likely to be solved soon, according to sources.
Only one multi-year surface transportation authorization has been introduced so far, by House Transportation and Infrastructure Committee chairman James L. Oberstar, D-Minn. It does not yet include a tax title establishing a revenue source for the program.
The bill would establish a bond-related metropolitan mobility program for metro areas with more than 500,000 residents, including the establishment of metropolitan infrastructure banks. Oberstar said that $1 billion of federal funds would be provided for the metro mobility program.
His bill also would merge more than 100 federal transportation funding categories into four major programs, and create a federal P3 office to oversee and approve state and local governments’ tolling of highways financed with federal aid.
Transportation advocates have all but placed bets on the nation moving toward a mileage tax to replace the current revenue source, gasoline and diesel fuel taxes and vehicle-related fees.
But White House officials have stated emphatically that they will not consider a new transportation tax in a struggling economy.
The delay in finding a new revenue source could spark more participation from the private sector and more public-private partnerships. If Congress does not raise fuel taxes significantly, states and localities will look more and more to the private sector for capital to support their needs, said Jack G. Finn, senior vice president and national director of toll services of HNTB Corp.
But commenting on prospects for a gas tax increase, Finn said, “I think that’s doubtful.”
One potential mechanism to pay for infrastructure is a national infrastructure bank, which has been proposed by congressional lawmakers and the White House, among others.
However, the current multi-year transportation proposal does not yet include such a bank, and Congress voted not to appropriate any money for it this fiscal year, opting instead for the bank to be created under the authorization process. Additionally, transportation experts have warned that a bank would not be a cure-all for funding woes.
“An infrastructure bank is not a substitute for money,” said Joshua Schank, director of research for the Bipartisan Policy Center’s National Transportation Policy Project, which is pushing for a performance-based federal policy and wants tolling — particularly congestion pricing — to play a larger role in transportation finance.