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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
×
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Suggested Citation:"Committee Findings and Recommendations." National Academies of Sciences, Engineering, and Medicine. 2005. Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow. Washington, DC: The National Academies Press. doi: 10.17226/13833.
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Page 14

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1Following the final general session, the Committeefor the Third National Conference on Trans-portation Finance convened to develop its find- ings, primarily on the basis of the information presented and discussions held at the conference. A summary of the committee’s findings regarding cross- cutting themes, key issues and observations, and result- ing committee recommendations follows and is organized into four areas: 1. Common themes and key observations, 2. Committee recommendations concerning policy- related issues, 3. Committee recommendations for research, and 4. Committee assessment of the conference and rec- ommendations for future events. With one exception, the committee endorses all find- ings and recommendations. One committee member, Dennis G. Houlihan, agreed with many elements of the report but dissented from some findings. His statement is presented in its entirety as a footnote to this section. In accordance with the policies of the National Research Council, this addendum provides the oppor- tunity for the expression of views not shared by the majority of the committee. COMMON THEMES AND KEY OBSERVATIONS After reviewing proceedings of past conferences and the literature, the committee worked to identify the broad themes that shaped the third national conference. These themes determined the four tracks of the conference: 1. How to Finance the Next Transportation Program— Reauthorization and Beyond; 2. Tools and Techniques to Deliver More Projects Faster; 3. Structures, Institutions, and Partnerships to Deliver More Projects Faster and Cheaper; and 4. New Transportation Initiatives and Demands on Financing. The backdrop for the themes and the conference was a broad recognition of the unique opportunity—and challenge—presented by the multiple upcoming trans- portation program reauthorizations: for surface trans- portation, the successor to the Transportation Equity Act for the 21st Century (TEA-21); for aviation, the successor to the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century; and for Amtrak, the successor to the Amtrak Reform and Accountabil- ity Act of 1997. In an environment charged by an intense focus on addressing security-related needs, these reauthorization initiatives coincide with a strained fiscal situation at federal, state, and local levels of government. In reviewing the ideas and issues addressed at the conference (and summarized in these proceedings), the committee identified a set of common themes and observations. These are divided into two organizing categories—(a) underlying framework and trends and (b) possible new directions—summarized below. Committee Findings and Recommendations

Track 4: New Transportation Initiatives and Demands on Financing ....................................................50 Session 1: Challenge of Intermodal Projects: Keeping Them from Falling Through the Cracks of Financing Programs, 50 Anne P. Canby, Christine Speer, John Gibson, and Mortimer Downey Session 2: Financing Marine Transportation Systems, 51 William Dryer, Robert James, Theodore Prince, M. John Vickerman, and Anthony J. Taormina Session 3: Intercity Passenger Movements: Degree and Form of Public Subsidy, 52 Yuval Cohen, John Bennett, Donald Itzkoff, Charles Quandel, and Thomas Walker Session 4: Emerging Funding Challenges, 53 Frederick (Bud) Wright, Robert C. Brown, Pat Goff, Richard Mudge, and Joseph M. Giglio Synthesis: Conference Themes ...............................................................................................................55 RESOURCE PAPERS Meeting the Challenge to Reauthorize the Transportation Equity Act for the 21st Century: Will System Performance Continue to Be “Gone with the Wind”? .....................................................61 Geoffrey S. Yarema Accelerating Project Development: Approaches and Techniques for Expedient Project Delivery.............69 Sharon Greene and Michael Schneider Institutional Framework for Innovative Transportation Finance.............................................................75 James T. Taylor II Finance and the Visible Hand of Technology ..........................................................................................80 Joseph M. Giglio and Daniel J. McCarthy ACRONYMS ..............................................................................................................................................85 CONFERENCE STEERING COMMITTEE MEMBER BIOGRAPHIES.......................................................................86 PARTICIPANTS............................................................................................................................................92

Underlying Framework and Trends Following are a number of observations formulated by the conference committee in synthesizing the confer- ence and its various sessions and themes. These serve as the backdrop for the committee’s recommendations introduced later in this section. • Many observers believe that a critical need exists to address the seemingly inflexible silos that in their view have come to dominate the nation’s transportation fund- ing programs and to move toward developing financing approaches on an integrated, multimodal basis. This view holds that transportation funding should be designed to support a national transportation system that is both multimodal and multipurpose. • There is broad recognition of the looming set of challenges related to the funding of security-related investments and the impact of such demands on the nation’s transportation infrastructure and overall econ- omy in both direct costs and indirect costs associated with reduced efficiency and time delays. The full extent— and cost—of the required investments is not yet known. Nor are there answers to the questions, Who will pay for these investments? and What will be the process for establishing priorities among alternative investments and between these investments and traditional infrastructure needs? Answers to these questions are critical to inte- grating these new demands successfully into existing funding frameworks and to developing new funding approaches that best meet the new demands. • Transportation needs outstrip the available trans- portation funding being generated from various sources. This situation has led to a push for innovative finance tools and new policies and approaches to assist in narrowing this gap. These tools and policies generally provide the ability to advance projects, but long-term needs continue to mount at a pace faster than available revenues. • Revenues from gasoline and other fuel taxes appear insufficient to meet current use and the projected growth in demand for transportation capacity. The growing use of gasohol and the development of hybrid and alternative fueled vehicles are beginning to affect adversely the via- bility of the gas tax as the primary funding source for transportation. Many observers believe that the trans- portation industry, therefore, must address the viability of these excise taxes as the primary funding source for transportation investments. This consideration will require both near-term steps in the current reauthoriza- tion cycle and, as appropriate, measures to transition to funding approaches that will be sufficient over the long term.1 • With the implementation of techniques made possible or supported by the Intermodal Surface Transportation Efficiency Act (ISTEA) and TEA-21, along with state and local initiatives such as public– private partnership legislation, a wide range of trans- portation financing tools are now known and used selectively across the country. As such, emphasis on the use of the term “innovative finance” has achieved its original purpose and is being increasingly replaced by a need to bring the use of these tools into the main- stream. The term “innovative finance” is essentially out-of-date, and many noted that it should be replaced by a more bundled, flexible approach to financing to enhance the financial management of the nation’s transportation systems. • The use of innovative finance techniques creates some concern regarding the level of reliance on debt finance. In some states, the balance between debt and pay-as-you-go approaches is tipping increasingly toward debt. There is concern that this trend, if it becomes gen- eral, could limit transportation investments in the coun- try. Efforts to extract value from the transportation system (as has been accomplished by some transit agen- cies through joint development programs) could help to offset this trend, provide much-needed revenues, and reduce pressure on taxpayer-supported debt financing. • Some observers view the nation’s reliance on the gas tax as the primary source of funding for surface transportation investments as inconsistent with other national policies, most notably as they relate to energy and air quality. In national and state policy settings, such dependence may encourage the wrong incentives, such as departments of transportation (DOTs) looking for greater consumption of gasoline to increase the yield from each gas tax penny, when they are considering the demands to fund large unmet needs in transportation programs. • The approach of public–private partnership is growing as a management and financial tool to imple- ment transportation programs. Inconsistencies in the treatment of such partnerships by federal, state, and local governments continue to pose barriers to the implemen- tation of public–private programs. Concerns regarding the quality, performance, and cost-competitiveness of public–private arrangements also need to be addressed. • Performance measurement and accountability continue to be critical to gaining and maintaining pub- lic trust and support for the use of new approaches to project delivery and financing, as they continue to be for traditional approaches. This includes the need for full disclosure of public agencies’ financial commit- ments along with disclosure of associated risks and lia- bilities. To this end, many see a strong need for the continued development of data resources and tracking techniques relating to program performance and the 2 TRANSPORTATION FINANCE 1 This issue is explored in a forthcoming report by the TRB Committee for the Study of the Long-Term Viability of Fuel Taxes for Transportation Finance.

interplay with finance to provide the public with the information required to judge overall performance best. • Budget cuts and personnel caps, along with key members of the transportation workforce reaching retirement age, are depleting state DOT workforces. This reduction in in-house expertise is occurring at the same time that potential reductions in federal assistance require transportation agencies to spend smarter to continue improving services. • These staff reductions, achieved substantially through early retirement programs, are accelerating a shift in the senior management of state DOTs. One posi- tive aspect of this change has been a shift in organiza- tional culture toward management of transportation assets as an integrated system and application of newer management disciplines to this end. Continuation of these trends is an important factor in cultivating expanded openness to alternative approaches and reap- ing the maximum benefit from the transportation system. • Many observers feel that budgetary firewalls, fund- ing guarantees, and related policies such as the revenue- aligned budget authority (RABA) in TEA-21, which strive to ensure that all transportation funding sources are used on transportation investments, have collectively worked well. Possible New Directions Following is a set of possible new directions that were dis- cussed at the conference and that inform the committee’s recommendations offered later in this section. • Many participants noted that an important oppor- tunity exists to apply concepts of traditional public finance to the funding challenge and thus to move beyond the application of what they view as an inade- quate and incomplete user-pay approach to incorporate a broader beneficiary-pay principle. Some also noted that the transportation community, policy makers, and the public could benefit by gaining a better understanding of the social and distributional implications of the various tax choices as well as how best to capture the value of the existing system to generate funding. Concern was raised about the increasing reliance on sales tax mechanisms that are generally regressive and that incorporate neither a user-pay nor a direct beneficiary-pay approach. • The focus is shifting from developing new financ- ing techniques to addressing how best to apply these techniques in the most appropriate ways and in securing refinements to enhance their role in meeting transporta- tion investment challenges and ultimately improving the nation’s quality of life. An incipient parallel shift is requiring the inclusion of rehabilitation and preserva- tion needs in the development of any new financing tools. To date, the primary focus of innovative finance initiatives has been on new construction. • Accompanying these shifts in focus is a heightened emphasis on the need for training, education, and con- tinued information exchange on the application of the full range of available finance techniques and assess- ment of their appropriateness to specific situations. This assessment includes consideration of who will bear the costs associated with the various approaches. Costs to be considered include the social, fiscal, economic, and environmental costs as well as the associated risks of employing alternative financing approaches. RECOMMENDATIONS CONCERNING POLICY-RELATED ISSUES The conference committee developed a set of recom- mendations focused on policy-related issues, some entailing possible legislative and administrative changes. Following is a summary of these recommendations. General • In the near term, identify ways to use alternative funding sources to begin to lessen the reliance on fuel tax revenues. Such approaches could focus on application of the beneficiary-pay principle and broader definition of beneficiaries than in current user-pay approaches, as well as on generating funding from existing transportation assets and injecting the discipline of equity investing on the part of the public sector. • To begin addressing longer-term needs, explore options to address the shifting challenges for trans- portation funding and to identify alternatives to fuel taxes as well as financial tools needed to deploy new funding approaches over the long term. • Encourage transportation stakeholders to seek more flexibility in making use of available finance tools. Such broad support will likely be critical in achieving expanded eligibilities and new finance tools. Legislative • Consider alternative funding mechanisms. A variety of options were discussed at the conference. Following are some potential alternative funding mechanisms and adjustments to existing mechanisms considered: –Indexing the gas tax to maintain its purchasing power. –Addressing the problem of fuel tax evasion. –Facilitating private-sector investment in surface transportation infrastructure. 3COMMITTEE FINDINGS AND RECOMMENDATIONS

– Encouraging broader implementation of value pricing and tolling approaches. – Enhancing the ability of states to capture the value of transportation investments, for instance, retaining a portion of the increase in the value of land and structures around interchanges that can be attributed to transportation investment and allowing sponsors of highway projects to capture benefits that already accrue to transit. • Maintain and enhance alternative financing initia- tives. The subject was widely discussed at the conference, and numerous ways were presented for the initiative to be accomplished. The committee does not endorse any par- ticular approach. Some of the potential options discussed at the conference include the following: – Reauthorizing the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and mak- ing adjustments so that it is accessible to a broader range of borrowers and types of investment. – Offering bridge financing or credit enhance- ment opportunities to recipients of full-funding grant agreements to help them deal with funding uncertainty. – Expanding innovative finance programs for rail and freight, possibly including development of a freight infrastructure bank concept. – Increasing utilization of the state infrastructure bank (SIB) program and expanding eligibility for federal funding of state-level SIBs, while maintaining federal policy goals. – Facilitating public–private partnerships that help to develop, finance, and operate transportation facilities. One specific measure that was discussed would revise the tax code to enable public purpose surface transportation projects with significant pri- vate participation to access tax-exempt financing (as currently allowed for other transportation modes). These so-called private activity bonds were proposed in past legislation (the Multimodal Transportation Financing Act, S. 870, introduced in the Senate in 2001, as well as previously in the Highway Infrastructure Privatization Act, 1997, and the Highway Innovation and Cost Savings Act, 1999).2 [Editor’s note: They have also been proposed in the current Congress (S. 104, introduced in the Senate on January 24, 2005).] – Continuing to expand flexibility relating to nonfederal match provisions, including the applica- tion of program match alternatives, toll credits, and other soft match provisions. • Consider taking the first steps to move toward a multimodal, multipurpose transportation program in the current reauthorization cycle, such as expanding oppor- tunities to flex funds between highways and transit investment, broadening eligible uses of surface trans- portation funds for freight, and broadening eligible uses of Airport Improvement Program funding to embrace surface transportation investments that primarily serve airports (for example, rail and roadway access projects). • Make adjustments to achieve consistency of fed- eral laws so that transportation decisions are not driven by inconsistencies in the funding processes. Administrative • Make adjustments to achieve consistency of fed- eral rules and processes, including but not limited to funding eligibility and related procurement rules and procedures within individual modes and across modes. • Given the complexity of many innovative finance strategies, provide full public disclosure of the public sector’s financial commitment and exposure to risk and liability before approval for projects exceeding a given size threshold (e.g., $100 million). • Consider possible improvements to the customer ser- vice component of the U.S. Department of Transportation’s (DOT’s) innovative finance programs, including actions to speed the response time of U.S. DOT regarding proposed innovative finance applications and in negotiations of TIFIA transactions. RECOMMENDATIONS REGARDING FUTURE RESEARCH The conference addressed long-term financing issues and needs beyond the upcoming reauthorizations. On the basis of conference discussions, the committee developed suggestions for various potential research initiatives: • Sponsor research related to the development of comprehensive alternatives to the gasoline tax for surface transportation funding, including the possible creation of a national commission to study the alternatives. 4 TRANSPORTATION FINANCE 2 Minority statement of Dennis G. Houlihan: The committee found that innovative financing techniques have become regular tools for trans- portation finance. As such, projects using innovative finance, including state infrastructure banks and tax credits, should be required to com- ply with the same federal and state worker protection, environmental, accessibility, and civil rights standards as conventionally financed pro- jects. Worker protection standards include, but are not limited to, Davis-Bacon and Section 13 (c) of the Federal Transit Act provisions. In cases where there are direct and subsequent generations of recipients of funds from an innovative financing, such as with state infrastructure

• Sponsor research to inform the development of guidelines for the appropriate level of financial lever- age, including but not limited to the leveraging of fed- eral funding with grant anticipation financing techniques. • Develop guidance and information on beneficial public-sector and private-sector roles and appropriate risk sharing in project development and finance. • Sponsor research to explore potential federal roles in developing standards in technology, especially regarding revenue capture. • Expand research efforts in support of multimodal funding initiatives, including techniques that would eliminate funding silos and identify and address barriers and inconsistencies across modes. • Sponsor research and forums for information sharing with nontransportation public infrastructure modes regarding alternative methods to access revenue and raise capital. • Sponsor research regarding the quantification of economic and other long-term benefits of investing in transportation infrastructure. • Sponsor research on how to capture the value of the existing transportation system fully and to look at the transportation system with an eye toward opportu- nities to generate funding through value capture tech- niques. A few transit agencies and toll authorities have successfully used this method whereby increases in land values associated with a transportation investment have been shared at least in part with the transportation project sponsor or whereby funding has been derived from private partners’ interests in the transportation investment. • Expand on the Innovative Finance Clearinghouse initiative and provide an institutional and financial mechanism to ensure its upkeep. In particular, consider expanding the clearinghouse to include a focus on fund- ing initiatives for local and smaller projects and to go beyond the original focus on innovative techniques to include the full range of transportation finance tech- niques. The clearinghouse also could usefully include sections on the pros and cons of various strategies and the social and distributional implications for different stakeholders. • Develop objective criteria to capture miles traveled on transit to be able to consider that value in allocation formulas for transportation funding. ASSESSMENT OF THE CONFERENCE AND RECOMMENDATIONS FOR FUTURE EVENTS Following is a summary of the committee’s overall assessment of the Third National Conference on Transportation Finance and recommendations regard- ing future conferences and gatherings. These findings and recommendations reflect input received informally from conference participants and the observations of the committee itself. • The overall structure of the conference was suc- cessful. Particular highlights included – The conference’s relative multimodal focus, which was facilitated by more concurrent sessions, the inclusion of presenters from a wider range of dis- ciplines, and outreach to a more diverse group of program participants; – The discussant role and other techniques that expanded opportunities for audience participation and spurred discussion of more controversial topics and the reporter role, which facilitated broader sharing of find- ings from the concurrent sessions and cross-fertiliza- tion of ideas across the tracks; and – Well-constructed and -delivered general and lun- cheon sessions and speakers who provided a wide range of perspectives and pulled together the range of topics and perspectives offered in the concurrent sessions. • Although the conference was generally successful at expanding its reach to nonhighway modes and to a wider range of program participants, it could have gone further in both respects. • The resource papers prepared before the confer- ence and presented in the opening general session helped frame discussions throughout the conference. Such papers, however, could be more fully integrated with the conference program and committee activities. • Concurrent sessions that stimulated participants to consider higher-level conclusions or findings were gener- ally favored over case study sessions, although the contin- ued importance of providing a balance of theoretical and real-life experience is recognized. • The preconference workshops were successful and should be retained. Consideration should be given, however, to the pros and cons of holding these work- shops simultaneously. The disadvantage at this confer- ence was forcing participants to choose from among 5COMMITTEE FINDINGS AND RECOMMENDATIONS banks, these standards should cover all recipients. Innovative financing must not be used to undermine worker rights or allow entities to avoid compliance with laws protecting the public interest. The committee found “concerns regarding the quality, perfor- mance and cost competitiveness of public–private arrangements that need to be addressed.” We also found that retirements and staffing constraints are hollowing out state department of transportation (DOT) workforces and reducing in-house expertise. Given these con- cerns and the reduced in-house capacity of DOTs to evaluate and manage private proposals and agreements, I do not support the com- mittee’s suggestions for expanding public–private partnerships, including broadening the use of private activity bonds.

equally compelling topics and dividing workshop par- ticipants into traditional camps. The benefit was pro- viding both introductory and advanced sessions. • The breakfast roundtable discussions were seen as a welcome opportunity for more informal discussion among conference participants. • The participation of members of Congress, con- gressional committee staff, senior administration offi- cials, and state elected officials was of significant benefit to the conference and to meeting the objective of informing upcoming policy decision-making. To achieve—and expand on—this level of participation, careful consideration of the timing of events is critical. It is important, for instance, to attempt to avoid times when travel is constrained by upcoming elections, administrative transitions, and budget situations. • A continuing cycle of conferences is desirable. Ideally the next conference would be held shortly after reautho- rization. Efforts should also be made to continue the dia- logue in the interim with targeted workshops, informal discussion forums, and other methods of information exchange. Some of this discussion could be integrated into the midyear and annual meetings of the Transportation Research Board (TRB). • Consistent with the effort to make the conference more multimodal, greater involvement of nonhighway modes in planning the conference would be beneficial. To this end, a broad set of organizations should be identified early in the planning process and solicited for suggestions for committee members and program participants. • Conferences should build on the success of this conference in engaging a greater diversity of partici- pants, including those from local government as well as from nonfinancial disciplines such as urban planning and public management. Users of the system (e.g., ship- pers, warehousing and distribution firms) should be invited as well as those reflecting community advocacy and environmental perspectives. • Proceedings of the conference (including CD- ROMs of individual presentations) should be distrib- uted to participants, interested trade associations, and congressional committees. They also should be made available on the TRB website and brought to the atten- tion of relevant TRB committees. • Plans for future conferences should include a final postconference committee meeting to focus on the dis- semination of information from the conference and potential activities. • The committee or TRB should reassess the status of the committee’s findings and recommendations, per- haps most logically shortly after reauthorization and before the next national conference. 6 TRANSPORTATION FINANCE

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TRB Conference Proceeding 33--Transportation Finance: Meeting the Funding Challenge Today, Shaping Policies for Tomorrow summarizes the Third National Conference on Transportation Finance, held October 2002 in Chicago, Illinois and includes committee findings and recommendations developed largely on the basis of information presented and discussion held at the conference. The conference examined new transportation infrastructure and operations financing mechanisms, their structure, and the benefits and costs of implementing such techniques; and explored the development of additional new funding mechanisms and sources.

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