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 The term "innovative finance" is essentially ing programs and to move toward developing financing out-of-date, and many noted that it should be replaced approaches on an integrated, multimodal basis.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