FORT LAUDERDALE, Fla. - Political controversies in Washington, D.C. are clouding the future of infrastructure funding in the United States, experts said here Tuesday.
"Just a few years ago there were no politics in infrastructure financing [but] as of late everything has become a political challenge," Columbia, S.C., Mayor Steve Benjamin said at the National Municipal Bond Summit.
Protecting the tax exemption on bonds is crucial to providing low-cost financing for infrastructure, said Benjamin, who is chairman of the Municipal Bonds for America coalition. Losing the exemption would increase financing costs by up to 65% in Columbia, he added.
"We're in an interesting place right now .where politics in Washington, D.C., is about dealing with challenges from the left and the right," he said. "We're stuck in the middle."
The notion of paying higher costs to fund infrastructure is "sending serious shivers" down the backs of local elected officials, said Ray DiPrinzio, senior vice president and team leader of Infrastructure Project Finance at Sumitomo Mitsui Banking Corp.
"I know the tax-exempt versus taxable issue is an emotional issue, and has brought a lot of concerns," he said. "Bonds are the bedrock of the United States."
Alternative forms of financing are also available, including public-private partnerships and bank financing, DiPrinzio said. "We have a real healthy pipeline of projects that are getting financed."
At the federal level, the Department of Transportation has experienced 32 short-term budget extensions that have created so much uncertainty about the funding status of the highway trust fund that Tennessee, Arkansas, and Delaware have delayed $1 billion in projects, said Blair Anderson, deputy assistant secretary for finance and budget at USDOT.
"We need awareness that the current situation just doesn't work," Anderson said.
By 2040, there will be 45% more freight moving through the country and at ports that will take a "massive" amount of infrastructure. There will also be 70 million more people who will need transit and passenger trains as alternatives to building more roads, he said.
"Those are some of the issues that we see looming on the horizon," he said, adding that in Washington, "we're treading water" instead of looking forward to funding those needs.
In the immediate future, another short-term transportation budget fix runs out in a few months, which could lead the trust fund to insolvency, said Anderson. President Obama has proposed a six-year, $478 billion transportation funding reauthorization proposal called the Grow America Act.
Another area of concern involves the prohibition against using municipal bonds in the low-interest WIFIA loan program under the Water Resources Reform and Development Act in development by the Environmental Protection Agency, said Jordan Dorfman, an attorney with the EPA's Clean Water State Revolving Fund.
In meeting with local and state government officials across the country about the new loan program, the inability to use bonds as part of the financing structure "has become a major issue," he said. Private projects may not be impacted, but as an example the bond prohibition could be a "big problem" for large water and wastewater projects.
"We have a lot of challenges in creating this program," said Dorfman.
