CHICAGO – With Congress and the Obama administration honed in on resolving the national budget crisis and avoiding the fiscal cliff, it’s unlikely the already squeezed transportation sector will avoid a hit, predicted former Federal Aviation Administration administrator and sector specialist Jane Garvey.

Transportation financing likely will be “part of the grand bargain,” Garvey said during an address at The Bond Buyer’s Transportation Finance/Public Private Partnership Conference in Chicago Thursday.

“It’s highly unlikely that transportation will go unaffected” and likely that funding will continue to shrink, she said. The debate will be intense and raise questions over the scope and purpose of the national government with both sides of the political aisle concerned over how their actions will impact growth, education, and infrastructure.

While the 2010 Bowles-Simpson deficit reduction plan recommends a 15 cents increase in the 18.4 cents per gallon tax on gasoline that hasn’t been increased since 1993, comments by key congressional figures suggest that’s a non-starter, Garvey said. Even if approved, it would “come nowhere near solving the” sector’s financing needs.

Garvey served a five-year term as FAA administration beginning in 1997 and joined Meridiam Infrastructure in 2009. She served on President Obama’s transition team for transportation policy. She also previously headed US P3s for JPMorgan. During her tenure in senior roles at the Federal Highway Administration, she helped establish Garvee borrowing allowing states to leverage federal grants.

While the sector faces a further crunch for funding, Garvey said she sees some positive signs with more bipartisan acceptance of private sector investment. She cited the Brookings Institute’s report earlier this month suggesting the creation of a national public-private partnership office to help state and local governments wade through the complexities of P3 transactions. The institute, which carries the label of being a liberal think-tank, marks a shift. “That’s a significant step forward,” Garvey said.

The federal government’s expansion of the Transportation Infrastructure Finance and Innovation Act of 1998 to $750 million in 2013 from $122 million and then $1 billion in 2014  “bodes well” for the sector. With fewer federal dollars in hand to fund grants, the government could step up programs offering credit subsidies as another vehicle to aid project financing.

TIFIA provides secured loans, standby lines of credit, and loan guarantees to certain transportation projects of major regional or national importance. Increasing discussions on the creation of a national infrastructure bank to help provide a “one-stop” shop for local and state governments also is a positive sign.

Garvey anticipates local and state officials will put greater pressure on federal authorities seeking more flexibility to spend their limited transportation aid as they see fit. “They are weighing in hard on the notion of flexibility,” she said.

While congressional authorizing committees will remain front and center on transportation policies, Garvey foresees growing prominence for congressional finance committees as competition for funds increases.

Garvey also puts her bet on U.S. Transportation Secretary Ray LaHood sticking around to provide a steady hand as key cabinet members are set to depart soon into Obama’s second term.

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