CHICAGO — With federal funding and gasoline tax revenue falling far short of meeting demand for transportation infrastructure, sector participants need to do a better job selling the public and political leaders on the perks of investment and the pitfalls of inaction.
While increased fuel efficiency in new vehicles offers environmental benefits, it has eroded gasoline tax collections, a primary source of state and federal funding for transportation. Other travel and vehicle-related taxes and fees, as well as public-private partnerships, help offset the losses, but gasoline taxes remain the backbone of funding schemes. At the same time, steadily rising construction costs are eroding the value of those tax dollars.
“It’s not a sustainable proposition,” David Ellis, research scientist at the Texas Transportation Institute of the Texas A&M University System, said Tuesday in an address at The Bond Buyer’s Transportation/P3 conference in Chicago.
To build public and political support for transportation investment, the sector and its proponents need to translate investment benefits and the negative consequences of inaction in a way that hits home like the “cost of a can of soup,” Ellis said. “We have done a remarkably poor job of communicating the problem, and why it matters and what it means if we don’t make investments.”
Ellis said the issue needs to be discussed “in human terms … just talking numbers is not going to get it done” and the financial sector needs to “carry that message.”
Those human terms include conveying the impact of traffic congestion on quality of life, and whether a parent might miss a child’s soccer game and quantifying the cost in relation to the cost of grocery items. There is also the resulting economic development, job growth and rising tax revenue that results from increased investment.
Without adequate investment, the nation risks losing a competitive edge in moving parts to manufacturers and bringing goods to market. The road to recovering that edge is more costly. To compete internationally where manufacturing and labor costs are lower, Ellis said he envisions a “third-generation transportation system,” but to establish such a network and a financing mechanism will require better storytelling capabilities to win over broad public and political support.
Many eyes remain on the nation’s capitol and efforts to pass a new surface transportation bill. Roy Kienitz, undersecretary of transportation for policy at the Department of Transportation, said during an address he sees hope for passage of a bill during the current federal fiscal year that runs through September but isn’t ready to bet on it.
The last six-year reauthorization bill — the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, or SAFETEA-LU — expired in September 2009 and has been extended eight times.
The Senate Environment and Public Works Committee last week unanimously approved a bipartisan, $109 billion, two-year surface transportation bill that maintains current funding levels for highways and provides another $2 billion for a program that provides federal credit assistance for projects. The vote marked the first in a series of steps toward moving a bill through the chamber.
“It’s the first sign of progress in two years,” Kienitz said, adding it’s “up in the air” whether a bill will pass Congress during the current fiscal year. Kienitz will leave his position next week to start his own transportation policy and financing consulting firm.
Long-term funding based on current revenue structures will remain a problem, as trends suggest that traditional growth in vehicle travel — which drives gasoline tax revenue collections — can’t keep pace with demand for funding.
Traffic volume peaked in 2007 and has yet to recover to that level, Kienitz said. Once traffic hits the 2007 mark, he said, don’t expect strong historical growth rates to return as tougher federal mileage rules for cars take hold over the next decade. A social shift is also at hand, as younger generations show less of an inclination to drive at an early age.
Issuers continue to look to P3s and have succeeded in public outreaches to raise new revenue. The Illinois State Toll Highway Authority ran into minimal public opposition during public hearings over the summer on a new $12 billion, partially bond-financed capital program that was approved in August. The plan primarily relies on funding from a steep toll increase that will take effect in January. The agency promoted the plan as a means to create temporary and permanent jobs, and spur economic development along expanded highway corridors.
Issuers have also benefited fiscally from lower construction and material bids following the recession and increased competition due to the entrance of nontraditional bidders like residential contractors. The toll authority’s deputy chief of finance, Cathy Williams, said the agency’s previous $5.8 billion capital plan — about 85% completed — benefited from lower bidding costs, beginning in 2009.
Jim Ofcarcik, the Illinois Department of Transportation’s manager in fiscal analysis, said overall construction cost growth has shrunk to a 3% rate from 6% five years ago. The state in 2009 launched a $31 billion capital program that is financed from a series of fees and taxes approved by the General Assembly.
Sidney Florey, in North American business development for Vinci Concessions, said the sector is in a transitional period, with contractors veering from traditional bidding models towards design-build and design-build-maintenance models. That’s where issuers will find the most available cost saving opportunities, Florey said.
While P3s are still a tool to bridge funding gaps, their use varies and the sector is grappling with questions over how much financing and leverage is available for new projects. As issuers weigh the use of a P3, Florey urged them not to move forward with a plan until carefully assessing a project with advisors.
“One of the worst things to do to the industry is to launch prematurely,” he said, as a failed plan can cast a pall over future P3 procurements.