WASHINGTON - The National Surface Transportation Infrastructure Financing Commission yesterday urged lawmakers to authorize tax-credit bonds for transportation capital projects with a clear public benefit, create two grant programs that could be used by muni issuers for user-backed transportation projects, and pave the way for a future national highway system funded by mileage fees.
The 15-member commission, which issued a report, was created by Congress two years ago to make recommendations for the reauthorization of the surface transportation funding law - the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA-LU, which expires Sept. 30.
The report called tax-credit bond financing an "appropriate tool" for projects wherein user-fee revenues or federal highway funding are inadequate to cover capital costs. Intercity passenger rail and freight projects "could potentially be strong candidates" for the bonds, because their "broad national benefits" would warrant "having the federal government pick up part or all of the interest expense" through subsidizing tax credits to investors, the report said.
"Since interest expense on long-term bonds may constitute as much as 75% of the financial cost of debt service in today's market environment, tax-credit bonds provide the borrower ... with a much deeper subsidy than do tax-exempt bonds," it added.
The taxable tax-credit bonds, which would be issued by state and local governments, would be like qualified zone academy bonds, clean renewable energy bonds, and qualified energy conservation bonds, the report said. It added that the bonds would need to be subject to the same arbitrage and other tax code restrictions as tax-exempt governmental and private-activity bonds.
The group recommended additional federal aid in the form of grants that could plug funding holes for projects that may otherwise be shelved by state or local governments. A feasibility assessment grant program as envisioned by the commission would provide $100 million per year to subsidize feasibility studies for such projects, and a second grant program would provide $600 million per year to subsidize the projects' capital funding gaps.
The report also recommended a 10-cent gasoline tax increase and a 15-cent diesel fuel tax increase, with both taxes pegged to inflation, during a period in which the country would transition to a mileage-fee based funding system - a controversial user fee recently nixed by the Obama administration for the near term.
To encourage private investment, the commission asked Congress to raise the national cap on private-activity bonds for transportation to $30 billion from $15 billion, and to limit their use to projects that create new capacity. Currently, the cap is separate from overall PAB limits for each state.
"Once the turmoil in the financial markets subsides, it is anticipated that the existing capacity of the PAB program will be consumed quickly. More states and local sponsors will be looking to take advantage of this mechanism to lower financing costs for projects with private-sector financial participation," the report said.
Commissioner Dana Levenson, managing director and head of North American infrastructure banking for the Royal Bank of Scotland, said that "private capital, even in this market, is not only plentiful, it's patient."
Demand for the $15 billion PAB program to finance certain transportation projects has been slow to get moving partly due to unfavorable market conditions that halted or delayed projects.
"If the Congress were to implement the recommendations, clearly with regard to public-private partnerships and tolling, [we think] there will end up being a lot more deal flow, so you could easily bump up against that cap," said Robert Atkinson, the chair of the commission and president of the Information Technology and Innovation Foundation.
One major centerpiece of the report was the financing value of tolling and increased private investment. The commission said that the federal government should take actions that would boost the use of tolling, which is described as a relatively equitable user-fee based system when combined with other funding sources.
"State or local governments should be able to add any capacity on the federal system and toll it; they should just be free to do that," Atkinson said. "There shouldn't be any limitation on the number of projects like that."
The report urged Congress to build on current tolling programs by removing limits on new-capacity interstate tolling and allowing states to toll existing interstate capacity for reconstruction and rehabilitation.
There are 277 state and local toll roads, bridges, and tunnels in 32 states that raised a total of $17.2 billion in revenues from tolls, concessions, related bond issues, and other sources, it said. The tolls alone raised $9.3 billion of that amount, which was less than 10% of all user-fee revenues such as motor fuel taxes that were collected that year.
Florida was used to illustrate how tolling could provide massive receipts to help fund highway and bridge infrastructure. The state's use of tolling has generated more than $1.2 billion annually, the report said. If the rest of the country implemented the same amount of state and local tolling, total toll revenues would double - a change in revenues that would be equivalent to adding six cents per gallon to the current motor fuel tax.
The group noted, however, that tolling in rural areas would not necessarily be as advantageous.
The commission was relatively agnostic about the creation of a national infrastructure bank, saying that the "new financing entity" should supplement but not replace or duplicate existing federal support.
It said the federal government could offer more "front-end" assistance to project sponsors, provide the Transportation Infrastructure Finance and Innovation Act-style credit support with larger loans with more flexible payment features, take the reigns of PAB or tax-credit bond programs, or help to recapitalize state infrastructure banks.
The recommendation comes as President Obama yesterday unveiled a budget that would create a national infrastructure bank funded at $5 billion per year for at least five years.
In its discussion of infrastructure banks, the commission noted that 33 states and Puerto Rico had established state infrastructure banks as of December. However, the banks in only five states - Arizona, Florida, Ohio, South Carolina, and Texas - were responsible for about 90% of the $6 billion in total SIB loan commitment, the report said.
The banks in some states, including Arizona and South Carolina, were capitalized mostly through tax-exempt bonds instead of through federal apportionments. Loan repayments to those states are being used to retire the bonds instead of to create a revolving fund for future loans, according to the report.
Commissioners yesterday stressed, however, that for some of the report's recommendations, the White House and Congress would not need to implement controversial programs like the mileage tax, otherwise known as a vehicle miles traveled charge, immediately.
"What's on the table," Atkinson said, "is to identify those specific things that need to be done" in the next multi-year transportation bill to replace the law expiring this fall to prepare for the possibility of new funding programs like VMT in the next six-year reauthorization bill.
