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Infrastructure

Transportation Sector Seeking Revenue Amid Chaos

DEC 24, 2012 2:55pm ET
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WASHINGTON — The transportation sector will spend next year looking for opportunities to achieve limited legislative goals, while hoping to stay out of the way of lawmakers who may have to slash funds in ongoing efforts to deal with the debt crisis.

That's the consensus of transportation experts and lobbyists interviewed about what to expect for the year.

Neither a surface transportation nor a Federal Aviation Administration funding bill are needed in 2013, but lobbyists said they will be looking for legislative openings that allow them to make modest progress. They will be working towards those ends against a backdrop of uncertainty over how the economy might fare under a "grand bargain," or lack of one, to avert the fiscal cliff.

"The main issue is obviously the economy," said Cherian George, managing director of global infrastructure and project finance at Fitch Ratings.

George said that while the credit of much of the transportation sector has stabilized and he expects that to continue, the presence of a huge fiscal challenge before Congress presents a wild card.

Most transportation advocates and sector observers, including George, think lawmakers will find a way to avoid the crippling tax hikes and across-the-board spending cuts slated to take effect because of expiring legislative provisions and Congress' failure to reach a debt ceiling deal last year. If not, a resulting depression could hammer infrastructure even though many key revenue streams are legally protected from the sequestration cuts.

But airport and highway interests alike say the uncertainty also contains opportunity, since a grand bargain to resolve the debt crisis could also present legislative windows to achieve some long-awaited goals.

Deborah McElroy, executive vice president of policy and external affairs at Airports Council International-North America, said that it is difficult to predict what legislative developments might occur until a clear path to avoiding the fiscal cliff emerges. Until then, airports and other infrastructure interests with capital needs are faced with uncertainty, she said.

"The economic uncertainty affects everyone," said McElroy.

Brad Van Dam, vice president of federal affairs at the American Association of Airport Executives, said airports are concerned that they could eventually be targeted for devastating cuts once lawmakers have begun to exhaust other options. The FAA bill enacted in 2012 authorized $3.3 billion annually for the airport improvement program, a key revenue stream for airports. That money is subject to appropriation, however, and could be slashed if lawmakers decide to do so.

If the current proposed cuts go through, airports could suffer due to cuts to the FAA budget. With fewer security and operations personnel available, airports might see a drop in passenger enplanements, a key to their credit quality. Even if that does not happen, Van Dam said airports lobbyists are going to take another run at gaining financial flexibility through the elimination of the passenger facility charges cap and the alternative minimum tax on private activity bonds.

PABs

Like most of the major policy overhauls interest groups are seeking, these would be most likely to come about as part of an omnibus budget package or comprehensive tax reform. AMT relief for PABS has been a major airport interest for years and groups fought unsuccessfully to implement that change last year. Many in the transportation sector are pessimistic that a measure that actually costs the government money could find traction in an environment focused on finding revenue to reduce the federal deficit.

Van Dam said his group definitely plans to use the next year to fight for the elimination of the cap on PFCs, a funding source that airports use to back bonds, which is raised locally as a user fee. PFCs have been federally capped at $4.50 since 2000, despite airport lobbying to raise or eliminate the cap in order to offset inflation. Both the AAAE and ACI-NA will relentlessly pursue this goal, but airline opposition and lawmakers focused elsewhere will make it a huge challenge to enact a change to the policy, Van Dam and others said.

The coming year will shift the highway finance spotlight away from Capitol Hill to individual states. This past summer lawmakers were engaged in a protracted surface transportation bill debate that became a months-long drama. Transportation officials and policy observers said states are increasingly waking up to the reality that federal road revenues, mostly provided by a per-gallon gasoline tax, will not be rising to meet investment needs. The federal highway trust fund has been projected by the Congressional Budget Office to go broke within three years without a revenue increase. As a result, states are expected next year to increasingly explore new options such as raising state gas taxes or using tolling and managed lanes.

"More states are going to step up with addressing their own transportation" needs, said Pete Rahn, leader of national transportation practice at HNTB Corporation.

That will likely take the form of tolling, especially tolling of managed lanes, Rahn said. Managed lanes give drivers a choice of using tolled lanes to avoid heavy traffic. States may look at increasing their gas taxes as a short-term solution, Rahn predicted, but said state policymakers know that a fossil-fuel driven revenue stream might be facing extinction.

"Everybody can see there's a limited life to the gas tax," he said.

Jack Basso, director of program finance and management at the American Association of State Highway and Transportation Officials, said federal lawmakers will probably hold a series of hearings to examine how to create more revenue for transportation systems.

Senate Environment and Public Works Committee chairwoman Barbara Boxer, D-Calif., and new House Transportation and Infrastructure Committee chair Bill Shuster, R-Pa., have both said they look forward to beginning work on a new multi-year transportation bill in 2013. The current law expires in September 2014.

Janet Kavinoky, executive director of transportation and infrastructure and vice president of Americans for Transportation Mobility at the U.S. Chamber of Commerce, said revenue sources could include money gleaned from expanded domestic energy production, and idea Republicans have floated before. Kavinoky said transportation advocates and lawmakers alike will be looking for creative ways to raise transportation revenue, but will likely be looking mainly at mechanisms already in place.

"There's a fairly obvious list of options," she said.

GAS TAX
Shuster has said he might be open to a gas tax increase, something that has been a political nonstarter in the past, and that increase could come to pass as part of a budget deal or omnibus spending package. Basso said it might still be a tough go to get the gas tax upped but not out of the question.

"It's not dead, in my view" he said.

Rail development could also have a huge year, with a railroad bill due to become law and coming on the heels of a intense debate this year over the future of passenger rail.

Shuster and other Republicans insist that more private involvement is needed in passenger rail development, especially in the Northeast, and that the U.S. government should stop subsidizing Amtrak. Kavinoky said 2013 could be when the future of U.S. rail becomes clearer, especially in terms of funding and deciding what level of government might oversee major high-speed intercity systems.

"What are the sustainable ways to invest in passenger rail?" Kavinoky asked. "What will the role of the states and locals be?"

Obama has made high-speed rail investment a major focus of his stimulus efforts and Transportation Secretary Ray LaHood has said the president will include dedicated money for high-speed rail in his annual budget next year.

But ultimately all sectors of transportation will likely take a back seat until some sort of fiscal cliff solution appears to be in place. Industry lobbyists reported no consensus on when a solution might be agreed upon, leaving the sector to guess at what environment it might be operating in next year.

"Until the fiscal cliff situation is resolved," McElroy said, "It's really hard to say what's going to happen."

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