Breakout 4: Meeting Transportation Funding Needs

With the state's population and business expansion, transportation infrastructure and services are key areas for funding opportunities. How are the region's airports, ports, toll roads and other key sectors faring?


Transcription:

Chris Bergstrom (00:09):

All right, terrific. Well welcome. Today we're talking about the meeting the transportation funding needs. Excited to have a great panel here assembled. What we thought we would do is break transportation down into some of its component parts since it's a big wide sector to try and tackle in one bite. So hopefully this makes it a little bit easier to digest. So we thought to kick it off, we would have Rodger give us some thoughts on the port sector. Rodger,

Rodger Rees (00:38):

Good afternoon. It's pleasure to be here. Rodger Reese from the Port of Galveston. Probably a lot like most of you here, I'm an accountant or CPA from background, which I think really helps my position to understanding what's happening from a financing standpoint. The Port of Galveston has traditionally been a very sleepy, slow port, and until recently we've come alive and we've actually entered the bond markets to the tune about $200 million over in the last 18 months to build infrastructure. And the thing about infrastructure, it is never ending. I mean, as you know, it's always out there. We've always got to keep putting money into it, and then as soon as we put money into it, then we need to put more money into it. So this is one of the big challenges I had. I was an entrepreneur for 25 years, used to own a broker dealer out of Atlanta, and did that for 25 years.

(01:44):

And then one day it seemed like the industry wasn't in any fund anymore. And I know some of you feel that maybe sometimes, but it turns into something a little bit different. And so I decided I wanted to get into the port business by default. I got into port business, didn't plan on it, but it's been an exciting road and transportation. I first moved here from Florida. I was a CFO at the Port of Canaveral in Florida. And in Florida, they understood that transportation included ports. And when I first came to Texas, that wasn't the case. And I testified several times before transportation committees here in Austin about the fact that this is transportation. I mean, ports are transportation. We move, in some cases 90% of all goods come through ports. And so it's important that we keep that up. And I think that what we've seen in Galveston has been a study of what not to do. And so we've actually come out with and starting to put a lot of money into it. And the reality is the cruise business is doing that. So I'll let somebody else talk right now, but I mean, in reality, we are transportation and we definitely believe that we've seen a huge increase in the state's willingness to put money into the transportation sector.

Chris Bergstrom (03:16):

Maybe on that, could you talk a little bit about the growth at Port Galveston and what you're seeing there and maybe this year as well?

Rodger Rees (03:24):

Certainly. That's my favorite topic. The port, when I came to the port in 2018, I've been on seven years now, and the port was, as I mentioned earlier, a sleepy little place where there was no investment at all because there was no revenues to invest. And so what's happened over the last six years, we've become the fourth largest cruise port in the United States, eighth in the world, and closing in on number three, we've over the series since I've been there, we've built two cruise terminals. We're finishing up the second, I just spent the last three days in Miami, Florida at a major cruise conference that we have down there. And we talk about growth. And Galveston is on the map. I mean, over the past four or five years, we have really become a subject of conversation globally. And so we're now approaching 2 million passengers and understand infrastructure and not necessarily port infrastructure, but streets and roads.

(04:35):

I mean, when you start bringing that number of people into one side of the island that already has 7 million people coming on the other side of the island. So it becomes a real issue about infrastructure, how we move people in and out. And it's an issue, especially when you like Galveston where you have a city right next to you one block over, and you have pedestrians customers walking over that street where you've got on any given Saturday or Sunday, you've got 40 to 60,000 people coming and going into the port. It scares me. And so one of the things we have to work on here again, is the infrastructure. And I'm really excited about the fact that TxDOT as now started a maritime division and they jumped in with both feet. And we have about six people that handle that. I sit on, I'm vice president of the Texas Ports Association, a member of the American Association of Port Authorities, as well as the tech stock committee, which is the Port Authority Advisory Committee. And finally, we're starting to get investment from the state. The last legislature gave us 200 million. And the sad thing about that is every port can use 200 million. I mean, the cost of construction, especially marine construction, is just skyrocketing. Several years ago we built a parking garage for $25 million and now it's 50 million. So the costs are just continuing to go up. And I think this is where this group and the public finance area has been a big help to us to be able to move forward.

Chris Bergstrom (06:27):

Just thinking about your role in the State Port Commission, tariffs are looming large on everyone's mind right now and what that might do on the cargo side. It certainly seems like in the near term there could be some headwinds related to that, but as we think further out, do you see a sustained tariff policy as changing the kind of port infrastructure investment needs here in the state of Texas? Or are the types of infrastructure that get developed?

Rodger Rees (06:57):

I have mixed feelings about the tariffs, right? I mean, I think that it certainly is real right now and there's a lot of discussion going on about how it affects the port business. As I mentioned, the American Association of Port Authorities has come out very strong against this. And it's going to affect, I guess the good thing, it doesn't affect the port of Galveston that much because we are a port for crews. Mostly 60% of our business comes from the cruise business, but it will affect everybody. And I know that there's, especially when you look at the size of of Houston as large as they are and as many ships as they that are coming in from around the world, it's going to be a real issue. My hopes is that this is, we're in a negotiation pattern, and if you know Trump and you read about his philosophy, I mean it's the art of negotiation.

(08:02):

And

Chris Bergstrom (08:02):

I'm hoping that this is where we are with tariffs because I think it's just a matter of how do we level the playing field and hopefully that's what it is. But tariffs are real right now and hopefully they're not as real next week. And I think that's the situation we're in right now. But right now there's an effect on our industry and we're coming out pretty strong against it in Washington. And as I mentioned, we don't have any cruise ships that are made in China, and so we're kind of exempt from that. But my fellow port directors, this is a topic discussion every week at the Texas Port Association, and so it's real. I think that in my mind there's a leveling of the playing field going on right now and they can't be sustained at these levels or everybody in this room pays for it.

(09:04):

Alright, fair enough. Before we move on, any other questions on the port sector? Na, I will go ahead and hand it over next to Jose, who's going to talk a little bit about the toll road and highway space. Jose?

Jose Hernandez (09:19):

Yeah, good afternoon everyone. Jose Hernandez, Chief Financial Officer at the Central Texas Regional Mobility Authority here in Austin. We serve central Texas, Travis and Williamson Counties. So Chris mentioned, I've been asked to talk about highway funding and toll road funding. Most of the highway funding, I don't deal with that on a daily basis. So I've taken some information publicly available and maybe I've taken some liberties with some of it just to make it more interesting hopefully. But I think everyone here is aware that there's, the infrastructure investment in Jobs Act has about one more year left on it, that was 350 billion to fund multiple channels of surface transportation. And so thankfully it's a multi-year legislation. It's not really subject to budget impasse or government funding year over year. So the other aspect that provides a lot of funding is the Highway Trust Fund, the Federal Highway Trust Fund, and no news here, nothing significant about, there's a structural imbalance.

(10:38):

And so I think revenues are projected to continue to grow, which is a good thing, but expenses are projected to accelerate even higher. So 2028 I believe is the time when the Highway Trust fund is projected to be short of funds. So what's new, I think we have a new administration and I think it's going to take a little while longer for them to come out with some policy standards or guidance. But one of the things that has come out I think is positive is that there's an emphasis on economic analysis, cost benefit analysis, and so more data-driven decisions. So I don't know that it wasn't before. Certainly if you've been through a TIFIA alone application, that's a very data-centric, but a couple of things that are listed as priorities are self or user pay type of projects. So hopefully that bodes well for toll roads.

(12:00):

And then the second one that was listed was direct funding to opportunity zones. I know we have some of those in Texas. And lastly, well there's more, but the last one I'll cover is preference to communities with marriage and birth rates higher than the national average. So a lot of this conference has been on the growth in Texas, so I don't know if there's some kind of formulas tied to that, but hopefully Texas will benefit from some of that. One of the other things across the US that has a topic that's received a lot of attention is these road user charges. And so as more of the fleet becomes electrified, then how are we going to replace the gas tax?

(12:58):

Interestingly, some of the research I did is that Mississippi just passed some legislation to increase their gas tax. There's legislation introduced in three other states, Maine, Oregon and Washington State that I guess is being considered also to raise the gas tax. And so I was a little surprised about Oregon because they've kind of been at the forefront of the road user charge pilots. So not sure, I didn't really investigate further than that. But what has Texas done? There is a registration charge for electric vehicles and it's the registration. When you buy a new electric vehicle, it's 400 bucks that lasts for two years and it's a $200 a year renewal. So about 10 years ago, there was two constitutional amendments that voters approved that would supplement the state highway system. And so one of them was related to sales and use taxes. So if there was a threshold, I think of 28 billion of general revenue coming in, once that happened, the next two and a half million of state sales tax that was generated would go to the state highway fund.

(14:35):

And so that's been, the other part of that was the motor vehicle sales and rental tax, and that was a lower threshold, I believe it was 5 billion. And so any revenues related to that revenue stream that were higher than that, 35% goes to the state highway fund. And I think probably must you remember back in Texas in the eighties especially and before Texas government was funded a lot with oil and gas production, severance taxes. And so one of the other initiatives that voters approved was that revenues above the 1987 collections of natural gas and oil production taxes, 25% went to the general revenue fund and the other remaining 75% was split evenly between the state highway fund and the economic stabilization fund or the rainy day fund.

(15:52):

So Texas took a different approach I think to, I don't know what other states have done, but I think it's worked out quite well. And even though those initiatives are ongoing and been successful, that's led to I think last year, last state fiscal year, 13.4 billion in new improvement projects that were authorized. And then over the next 10 years is expected to be 104 billion in the 10 year unified transportation plan. So those are all time highs. I'll transition a little bit to toll roads and really it affects all roads is the dynamic. Rodger mentioned it just a second ago, the cost to deliver projects. And so the highway cost index over the past five years has gone up almost 71%. I think it's 70.87%, and that's a composite index depending on what kind of project you have, you can refine that, but that's pretty stunning.

(17:11):

And so how does that affect compare to revenues? Well, inflation's been high at CTRA, the authority that I work with, we have A-C-P-I-U annual adjustment, but even though the board maintained that policy during the high inflationary times, it's 21% increase as compared to 70 on the cost side. And the other thing that's out there, I know it's been a topic here is for about 20 years, it issuers the municipal market enjoyed quite low rates to borrow. And so what is this interest rate environment? How long will it last? And are we still going to have tax exemption? Those are questions that will affect the future delivery of projects. So other kind of themes in the toll road market, especially here in Texas, there have been a couple of the larger toll road entities here that have raised their video tolling premium. And so the North Texas Tollway Authority went to a hundred percent of the toll rate as did Harris County Toll road authority. And the other big item that changed is that there's text tag is back office moved over to Harris County Toll road authority. So there's one less I guess tag that'll be issued. There's still text tag is still works on all Texas toll roads, but one less back office.

(19:10):

I'll close with just a couple other things. We had a new project open yesterday, so 183, phase three, I don't know. I kind of did a back of the envelope calculation on what we thought the daily transactions would be and I came up with around 35,000 and yesterday we had 62,000 transactions come through that new segment so I could be off on the forecast. It didn't have time to check it, but we have another project under construction. It'll be a managed lane project, but just to give you an idea on that was financed in March of 2021 and I think on our senior lien debt, the two interest cost is 3.13. These are using last Friday's rates a little different. The two interest cost on our senior lien debt would be about five and a quarter. And we talked about that. The highway cost index, the project fund was about 499 million and with the increase in costs now that's, it's hard to believe, but it's over a billion.

(20:39):

And remember we include capitalized interest in that, so interest rates are higher as well. And TIFIA has been a great program for us and for that project we were able to get right under a 2% TIFIA loan rate and we tried to do that today it'd be about 4.6%. So we do have some projects under development and I know there's some credit analysts in the room, so how are we going to do it? And certainly we hope that the municipal market will stabilize and be of course maintain tax exemption. We have partners. I think we've been fortunate that we were able, many of our roads operate within the Texas Department of Transportation right of way. So that's a cost that we can avoid or Williamson County has donated right of way to our projects. The other thing we're very conscious of in our board has stated is that a hundred percent debt financing, we'd like to get away from that.

(21:55):

And so we're certainly an objective of ours is to be able to contribute capital in cash and hopefully right away that'll bring down the borrowing costs. So this area continues to grow and so we'll do the best that we can. One of the topics that was brought up in an earlier panel is maintaining the roads after they're built. And I think this week there was the American Society of Civil Engineers that gave a report card to about US infrastructure and really all the facets that we're going to talk about here and the overall grade for the US was a C highways or roads was a D plus that 20% of the roads in the US were considered in poor condition. So with that, I guess downer comment, I'll turn it over to.

Chris Bergstrom (23:06):

So you mentioned state gas tax increases in a number of states. I guess the first question is, are you ready to announce your state senate candidacy today on a platform of increasing gas taxes here in Texas?

Jose Hernandez (23:21):

Let's see, I have how many years to retirement? Let's see.

Chris Bergstrom (23:27):

But seriously this morning Horatio made the point that taxes are unpopular here in the state and tolls might be even more unpopular or plus or minus relative to that. And so there has to be funding from somewhere. And given your experience of both the DOT and the toll road side, how do you think about that interplay in getting that funding mix right to fund mobility investments here in the state?

Jose Hernandez (23:52):

Well, I can also mention that we have to have partners and so we'll see what happens. I think it's going to be a couple of months or longer before we see what the U-S-D-O-T focuses on. Certainly, I don't know that we received a U-S-D-O-T grant in the past, but if it's self a user pay type project that's a priority. Perhaps there's some opportunity there. I know there's been very specific sectors, especially rural type projects that have gotten funding grant funding. The other part that I didn't mention is that what happens at the local level. I mean Williamson County, one of our sponsor counties in 2023 asked the voters for 835 million of bond authority for roads. Travis County, 233 million Hayes County, just last year, 439 million. So there's a lot of, I think, opportunity to try to leverage and layer in different funding sources to get projects done.

Chris Bergstrom (25:16):

Okay, thank you. So with that, I think we'll shift gears and maybe hand it to Jamie to talk a little bit about what's happening in transit in Texas.

Jamie Scranton (25:25):

Great. I can continue the positive vibes, how I started there. Jamie Scranton Loop Capital. I think as far as transit goes, I think a lot of us know the backstory, which is say we had covid ridership went down significantly pretty much across the board. You kind of came out of that with the story of the haves and have nots. Some of the haves were the entities that didn't rely on fairbox revenues for their operations very heavily. And then you had a lot of have-nots who ended up in this kind of fiscal cliff situation that you hear people talk about with respect to transit.

(26:10):

So it's been a rough go for this particular modality coming out of COVID. Probably more difficult than any other transportation modality out there. We have seen over the past several months uptick in usage. So that's kind of been a little bit of a bright spot in the transit space. What else do we have to rely on that is positive in the transit space? That's maybe more difficult story you've seen with the change in administration and the focus. You've seen some grants going away. I have some issuer clients out there on the transit side who are still waiting on some grant dollars that they should have received that are not materializing. And when you're we're operating a system like a transit system, which Jose and Horatio talked about earlier where there's a large operating cost to any type of entity, well triple that quadruplet, whatever. When you're talking about a transit system, the operations and maintenance there are just more intensive, whether it's from a financial perspective or a human resources perspective, et cetera, et cetera.

(27:28):

So losing those grants is particularly difficult, especially coming out of a situation like covid where you lost a lot of traffic and then you have stories like congestion pricing in New York City. Is it a go? Is it not a go? Is it going to end at the end of April or did they give them dispensation through November or not or it's a lot of that uncertainty, the word of the conference and probably just particular Amelia, there's a lot of uncertainty out there. There's a lot of uncertainty around reauthorization and how the administration and congress will approach that. If you look at some of what has been out there from project 2025, you see a clear focus on roads and the question is does that become policy or not?

(28:18):

And we continue to wait, just like Jose continues to wait to see what's going to happen there. If there is more of a focus on roads, I'd say it's more likely that formula funding for transportation for transit systems continues then things like capital investment grants. I think that's going to be something that's harder to come by. So when you're talking about systems that are expanding and you see the construction cost inflation numbers that Jose mentioned earlier, if you don't have those capital investment grants, that's more that you need to fund upfront, it's more borrowing, et cetera, et cetera. So just a lot of questions swirling around out there that aren't answered yet. I think maybe there are some positives that could come from the new administrations with respect to transit, maybe you have fewer administrative hurdles, environmental hurdles that you need to jump through. You can get projects in the ground faster, which would be a positive for a lot of folks.

(29:20):

So maybe there are some changes to TIFIA and riff that make the process not as painful as sometimes it can be. All of those things could be positive. What you have seen as a response to the COVID epidemic, the fiscal cliff, you've seen a lot of entities stepping up with extra dollars to support transit systems and a lot of times that's not revenue that's related to the transit system. So a lot of transit systems are funded through a sales tax revenue stream for example. But you started to see states, cities, other entities stepping up with different revenue streams to fill in the gap.

(30:07):

A lot of times you're seeing that in places where transit is a large part of the transportation environment. So New York City, Chicago, Boston, San Francisco, those kind of places, those were also some of the fairbox heavy systems that were hurt and mortar during covid. But you see different types of taxes, whether it's the millionaires tax in Massachusetts or Washington and Virginia stepping up to help support OMADA in DC. I think as far as those cases go, that's where people are kind of viewing transit as an essential service transit as something that needs to happen to move people to keep the economy in that particular area going.

(31:00):

I think with respect to Texas, it's a little bit of a different situation in a lot of ways and you have a lot of uncertainty in Texas right now in the transit space, whether it's ATP project connect, whether it's some of the legislation swirling around dart, there are a lot of questions there that session. So we'll see what happens in session. But transit in Texas has not been as central to the movement. It's been much more of a road centric type of environment here. And I know like in Austin, they were trying to change that the project connect with a TP, whether or not where that goes, it's certainly way above my pay grade. I am not just going with the flow.

(31:58):

I think some of what could happen on Dart could be not the most positive story for a bunch of revenue credits across the state to the extent that the legislature is reaching and trying to change a revenue stream that has been pledged to bond holders and obviously there are certain legal protections around that and what they can and can't do, but we'll just have to play that by ear. I do think as far as Texas goes, that high speed rail is probably something that is more likely to be supported. I know even earlier this week there was this southwestern rail conference here in town and the TxDOT representatives, this is the third time TxDOT is being mentioned. I'm looking at you. You guys are all over the, everybody's relying on you.

Rodger Rees (32:53):

No pressure.

Jamie Scranton (32:53):

Yeah, exactly. They are looking at that as a modality. When you have a place that is growing as fast as Texas is, at some point it can make sense really to look at something like high-speed rail to get people between these really large cities that now exist here. The roads are full and where that goes, I don't know. You could connect, as has been discussed, Austin and San Antonio, you could do the triangle. There are a lot of different options out there at play. But again, if you want to talk about expensive projects, that's going to be a really expensive project. And then again, to get back to the o and m concept, it's not just funding what costs 5 billion or 10 billion or 20 billion or whatever that number is upfront to put the lines in the ground and to buy the rolling stock, then you have to actually operate and maintain it and someone has to pay for that. And as far as transit goes, historically speaking, even high speed rail in the us, that has not been a model that works from a user pay perspective. So really there are decisions that need to be made around that from a political perspective that it's a commitment that if it's going to happen, needs to be made. And right now, judging on what's happening on the intra city transit side of things, it doesn't seem like it's the most supportive environment at this time. But again, we'll see what happens in the legislature.

Chris Bergstrom (34:50):

The high-speed rail being one, technological innovation, but you see are there other innovations out there, whether it's on the autonomous side or micro mobility or things that could make transit a bigger part of that transportation pie in Texas as we look into the future,

Jamie Scranton (35:09):

I'm not a futurist, I wish I were, that'd be a much cooler title. I tend to see those technological advances helping more around the edges, replacing some of what you need for accessible transportation, that kind of thing. If you have a major city and everyone starts to take a little car, then you end up with gridlock. So I think it's a hard way to replace a major transit system. Maybe it's easier in a small town where there isn't other traffic on the road, but if you had a bank of little cars and you could just call them up at any time and it would take you where you needed to go and you could divide the lanes into, it's possible. But I tend to think of it as being a difficult solution anytime soon.

Chris Bergstrom (36:13):

So that's a no.

Jamie Scranton (36:15):

Yeah,

Rodger Rees (36:15):

Probably I'll add little, I think it's kind of what I'm seeing up here as a theme initially, it's all about money, right? Everybody up here in this panel is talking about money, how we're going to fund things in the future. And I know one thing that's happening in the port business is that this is all about public private partnerships. I mean everybody, the governments are looking to see more skin in the game. And this is what we've seen in the port business all around the country. It's you want this, but we can only give you this. And so if you want to make these things happen and as we do in the port business, it's going to take participation, it is when you, you're talking about public transportation, who benefits from that and who then can write some checks for the infrastructure. And this is what's happening here.

(37:21):

Like I said, I Pete, myself in the port business in the roads, I mean we look at roads coming into the port of Galveston, the question is, well what are you putting in? And so I think this is something, this is the days that we live in now is we all have to be expected to pay. We pay through tolls or we pay through. You put this much in, I put this much in. So I think this is something, this is a way of life these days. We hope that we'll still get great interstates. We've had all of our lives. I mean I can remember when the interstate system wasn't like it is now, but the bottom line is funding is tough. It really is tough. And that's why we're all here talking because you guys are helping everybody fund things. But if you remember most of that kind of stuff we have to put share in.

Chris Bergstrom (38:20):

Good. Well with that, maybe we'll just take the last topic and I'll cover a little bit on the airport side. So I think to set the stage, last year was really the first year of real traffic growth in airports since the pandemic after finally recovering in 2023. And nationally, we saw airports grow about 5% on balance last year. And here in Texas it was right about in line, it was about 4.8%. But I think what's interesting here in Texas, and this will talk a little bit more about this, is we saw DFW and Bush intercontinental grow collectively about six point a half percent, about four times the rate of all the other major airports in the state. If you take Austin Love Field Hobby, San Antonio and El Paso combined. So a real gulf between those two groups and what's going on there. And I think what's going on in airports is again here in Texas but also nationally, it's part of a trend I'll call the revenge of the legacy airlines.

(39:17):

The first couple of years out of the pandemic, we saw the ultra low cost carriers, people like Spirit and Allegion who were really small parts of our air transportation kind of system adding literally more seat capacity nationwide than the big four airlines who make up 90% of the industry. And that's just an unprecedented imbalance in growth. Fast forward to today, spirit is on its way out of bankruptcy. It's cutting service by 20% quarter over quarter, and the sector as a whole in the ultra low cost space is really struggling. If we look at legacy airlines, we're seeing them really grow at a pretty robust clip driven on one end by the recovery of international traffic and the pivot towards premium products. And at the other end really figuring out how to effectively segment their product and market a stripped down fair basic economy to compete with those ultra low cost carriers.

(40:12):

So they're kind of stealing market share at both ends of the market and caught in the middle has been folks like Southwest and some of the others who've really found their business model under some degree of pressure. And we're seeing that show up in terms of the traffic performance around the country and again at airports here in Texas. So as we think about the outlook for this year, where are we headed? I think there's two answers to that. One is a few weeks ago what that answer was and what it looks like today. So a few weeks ago I would've said that we're seeing continued moderation in growth, but growth of around 2% this year. Again, led by Delta and United primarily as we look at it now, you've got softening consumer confidence, which is hurting leisure demand. We've got softening business indicators which are not boning well for business travel, decreased federal government travel as a result of some of the headcount changes and then policy shifts more broadly that are impacting international arrivals.

(41:13):

And there's reports of Canadian forward bookings being down as much as 70% for the next quarter and European arrivals down 25%, which is a real break with the trend we were seeing as recently as just a few weeks ago. So none of those indicators are positive. And so I think at this point it's fair to assume that a flat traffic outlook for this year would be a best case scenario. So we're seeing a bit of a slowing in the airport sector, but over the medium term, especially here in Texas, the continued outpaced population and business growth in the state is really fueling expectations for sustained year over year growth of the kind we've seen over the last three to four years. And so I think that's going to be a big part of the CapEx plans and what we see in terms of capital investment over the next couple of years.

(42:01):

So what does that look like nationally? Moody's recently estimated the five year debt financing for airports at $68 billion. That's 30% above what they estimated just a year before. So either their estimation or was off the first time or it really increased. And I'm going to go with I think spending plans really increased over that timeframe. I'm not going to have it Earl, I'll catch a straight, but here in Texas, Texas is a big part of that, right? The major airports in the state collectively are expected to finance over $16 billion of capital investment over the next five years as well. So a huge part of that national spending is right here in the state. I think in the current rate environment, I'll use current and air quotes because I wrote this yesterday, we might see that slow down a little bit. There could be some headwinds for getting some of that transacted and funded this year.

(42:56):

If we have a couple more days of market rallies like today, I think we could see issues come flooding back in short order, not least because of the issues around tax exemption and the concerns about where tax exemption is heading broadly, but specifically for private activity bonds, which we've talked about as a small part of the public finance market, but it's a big part, almost 50% of our airport financing market. And so I think that's a real, could be a real incitement to airports. If the market conditions improve, we might see some of that financing accelerated and there've been signs before the recent selloff of folks doing just that.

(43:34):

The last thing I'll say on capital investment is that I think resiliency continues to be a big focus of market participants. One of the risks around when it comes to resiliency was covered on the last panel in the other room who sent in this issue of the cost and availability of insurance. I think that's a medium term headwind for the sector and looking at what happens in terms of are there demographic pressures associated with that? And so getting that right and figuring out how to manage insurability, both not just at the airport level but also at the regional level to support economic growth is going to be a really important part of sustaining growth in some of these markets. And then the other one is energy resiliency, but some of you might have seen the reports a couple of weeks ago, the substation fire at Heathrow, which shut down the airport for almost 24 hours and it was still recovering to get to full capacity. And so in addition to all of the increased energy demands that airports are already facing from electrification to other technical systems, this issue of resiliency to kind of be able to be more independent is I think going to be an area of sustained focus. So things like campus energy projects and microgrids I think are likely to be a part of the capital investment spending that we see at airports here over the next kind of few years.

Jamie Scranton (45:00):

So it seems like there's a lot going on really large capital needs and I imagine, and I'd like your opinion on whether you think that could create challenges for affordability for customers for airlines, but at the same time there's also uncertainty around the economy and the demand for air travel in general. It seems like it's all getting caught up at the same time. Do you have a view on what the outcome is?

Chris Bergstrom (45:33):

Yeah, I mean, again, I think that unsettled economic outlook I think is a near term challenge. I think that will unfold and unspool over time. But I think the cost pressures associated with airport investment I think are interesting. There is an element of that where the scale of it is certainly going to move cost structures higher, that much is agreed and forecasts are already out there showing the first really material increases in airport cost per employment that we've seen in the better part of a decade. But the breadth of the investment happening across the sector has the effect that it's a rising tide that's lifting medians across and it's creating an environment where the amount of competition between airports over cost is being mitigated by the overall increases that we're seeing. But at the airline, the consumer level, I think that it's not unfair to worry or to keep an eye on what that does to marginal demand for that very fair sensitive traveler.

(46:39):

And if that could ultimately be a growth headwind, I think that's a bigger issue for the ultra low cost carriers like spirit. And so I think for them to remain competitive working, it'll be interesting to see what solutions are developed for that. I think things like the south terminal at Austin to provide a differentiated product at a differentiated cost point is one type of solution. I think them potentially retreating back into more regional airports that have a different cost structure might be another place where we see their business evolve, but it is something to keep an eye on with that. I think maybe we are out of time, so we're not going to take anyone's questions, but we'll be out in the hallway if folks want to pull. Anyone aside, I want to thank the panel for being here today and thank all of you for attending.