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Suggested Citation:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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:"Track Reports." 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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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Track Reports

3 1 TRACK 1 How to Finance the Next Transportation Program—Reauthorization and Beyond This section provides a synthesis of the presenta-tions and discussions from Track 1. This trackcomprised four panel sessions, during each of which three or four presentations were made; in-depth discussion by the presenters and conference partici- pants followed. The discussions were facilitated by a designated discussant. SESSION 1: THE PRESENT AND FUTURE OF CORE FEDERAL FUNDING: WILL TRUST FUND REVENUES BE ENOUGH? Phyllis Scheinberg, U.S. Department of Transportation (Moderator) Michael Martin, American Road and Transportation Builders Association (Discussant) Barry Anderson, Congressional Budget Office Arlee Reno, Cambridge Systematics. Inc. William D. Ankner, Rhode Island Department of Transportation Eva Molnar, World Bank The sufficiency of Highway Trust Fund revenues to meet present and future transportation funding needs was the focus of this session’s discussion. What Is: Reviewing the Status, Trends, and Projections of Current Trust Fund Revenues Barry Anderson Barry Anderson pointed out that the existence of bal- ances in the Highway Trust Fund can obscure the real impact of federal taxing and spending decisions. Anderson noted that the fund is unlike a private trust in which funds generally are saved for future use solely for the beneficiary and whose assets are owned and can be transferred. The Highway Trust Fund, rather, is a pub- lic trust fund that has no deferred consumption, has balances that are internal IOUs but not enforceable contractual agreements, is used on a pay-as-you-go basis for diverse goals, and has beneficiaries who do not directly own the assets. According to Anderson, claims on the highway account of the Highway Trust Fund exceed its balances, with $39.8 billion in unpaid commitments from high- way programs through the end of fiscal year 2001 and a current highway account balance of $20.4 billion. In addition, according to Congressional Budget Office projections, outlays and receipts will rise through 2012 (reaching between $30 billion and $40 billion by 2006). What Could Be: Looking Ahead to Alternative Fuels, Taxes, and Other Revenue Sources Arlee Reno Arlee Reno first provided some information on various potential threats to Highway Trust Fund revenues and then presented some potential sources of revenues that might assist in mitigating those threats. The potential threats discussed by Reno include fuel efficiency, use of fuels outside current revenue collection processes, fuel subsidies, diversion of transportation revenues for non- transportation purposes, and inflation. According to Reno, fuel efficiency is a real and major threat to Highway Trust Fund revenues over the next

reauthorization period. Major opportunities exist for increased fuel efficiency, including the possibility of higher corporate average fuel economy standards, vol- untary increases in fuel efficiency, increased use of hybrid vehicles, higher diesel vehicle share, and improved emissions standards. With that said, the hybrid vehicle’s impact will be unclear over the next 10 years, but it is anticipated that hybrid market penetra- tion will rise between 4 percent and 6 percent by 2010, with a possibility of up to 30 percent hybrid penetra- tion. In the United States, increased diesel fuel use is not seen as a significant threat, but 40 percent of light duty vehicles sold in Europe are diesel users. Also, new fuel types—those currently not taxed for the Highway Trust Fund—while not a real threat in the next 10 years, may be a more serious threat down the road. According to Reno, subsidies are a major threat. Such funding of nontransportation investments with Highway Trust Fund revenues raises questions among some about the equity principle. With these threats in mind, Reno suggested some potential future revenue sources for the Highway Trust Fund. Such revenue sources could include taxes on alter- native fuels, elimination of subsidies (not a revenue source, but a means for creating additional funds for transportation), enhancement of traditional funding sources (including inflation-responsive taxes), gross domestic product–responsive taxes, price-responsive titling and registration fees, vehicle sales taxes, and new user-based fees (including taxes and fees based on vehicle miles traveled, congestion pricing, and tolls). No single new source or approach is a panacea, and when people look for new revenue sources, it is impor- tant that they consider the following factors: equity, responsiveness to inflation, administrative costs, and technological feasibility. According to Reno, in all like- lihood the desirable solution will be a mix of new and refined current sources of revenue. Conflicts Between the Current Federal Transportation Financing Mechanism and Other Domestic Policies Involving Energy, Land Use, and Environmental Protection William D. Ankner William D. Ankner spoke on the conflicts between the current source of transportation revenues (the gasoline tax) and other domestic policies involving energy, land use, and environmental protection. At issue, according to Ankner, is the fact that transportation funding is based on consuming a nonrenewable energy source, which is inconsistent with the nation’s energy, environ- mental, and health policies and puts the nation at risk in foreign affairs. This reliance on consumption means that technologies such as hydrogen fuel cells that improve air quality, health, and productivity are actually threats to transportation funding. To find a better way, Ankner suggested that the par- adigm needs to change. Instead of levying user fees based on the vehicle miles traveled by an individual car, automobiles, for example, could be priced on the bases of their energy and environmental efficiencies. This would align the transportation financing structure with national priorities. Ankner also offered the idea that transportation should be looked at as a business. The assets the nation has invested in the transportation system are significant and generate value that has not been captured. While it is important that responsibilities to the public are main- tained, the value of transportation assets must be accessed and reinvested for the public good. One exam- ple is the use of variable message signs (VMSs) to gen- erate advertising revenue. Ankner posed this question to the group: “When a VMS is not displaying a conges- tion message, why isn’t it advertising Coca-Cola?” Another missed opportunity Ankner mentioned is EZPass, which could have been approached by states as a business decision: “Why not partner with the private sector and capture a percentage of every transaction, off the roadways?” Considering Transportation Finance Approaches Used by Other Governments Eva Molnar Eva Molnar completed the panel by discussing the potential to apply transportation finance approaches in the United States that are used by other governments. Molnar explained that in Europe user fees provide a growing share of transportation funding. There is growth in private-sector funding but not as much as was predicted in the 1990s. She explained that expecta- tions were unrealistic and in most countries the envi- ronment is not conducive to public–private partnerships. The forces of change in European transport funding include public resource scarcity, reduced productivity of existing infrastructure, deregulation, expanding capital markets, and globalization. She explained that cross-subsidies from freight to passenger rail will diminish and disappear in the future and discussed the range of user contributions currently in place, including fuel taxes, annual vehicle taxes, reg- istration and sales taxes, road tolls (excluding tunnels and bridges), and taxes on vehicle insurance premiums. She described Eurovignette, a toll system that encour- 3 2 TRANSPORTATION FINANCE

ages a modal split in freight transport. It provides an incentive to shift long-distance hauls from trucks to rail. Molnar explained that road funds acknowledge the utility function of transportation but limit the govern- ment’s fiscal redistribution function and can limit expenditure management. Alternatives to road funds include • Promoting commercialization of road agencies with revenue from toll collection, • Application of a commercially managed motorway agency, such as one instituted in Slovenia that received earmarked funding and makes concession contracts for maintenance; and • Attempts at privatization, which are numerous but small in scope. Molnar addressed the mix of roles of government, the private sector, and road users today and in the future. She predicted the following mix of roles for the future: • Government will have bargaining, negotiating, and enabling functions. Its roles will include policy maker, regulator, contract manager, and provider of last resort. There will be increased accountability, with funding being a part of transportation policy. • The private sector will make a slow transition from its role as contractor–operator to one of investor–operator. • Users will cover part of the costs. Discussion Michael Martin Michael Martin initiated the discussion period by pre- senting four myths in transportation funding: 1. “We’re raising revenues to maintain a system.” According to Martin, systems are not treading water; the real question is how quickly they are sinking. Congestion is more than commuters. Freight should be as much of the story, and we need to think about a needs-based system. 2. “The current system is a user-fee system.” Users pay for the amount of fuel they use, not road use. Martin raises the question, do we need a system where the beneficiaries pay? 3. “Spending on roads is an expenditure.” According to Martin, it is not. It is an investment: the creation of a capital asset. We do not have good research on the return on those investments. 4. “There is a free-rider problem.” According to Martin, from a political perspective, the motor fuels tax has certain advantages. Some other means of generating revenue will have political problems. If there are free riders, they are the beneficiaries that are not required to pay for the capital assets. Martin then raised the question of what we should think about for the future. What are our long-term goals for the system? He stressed the importance of the following: • The need to think about equity and how we equi- tably distribute the cost of investments (e.g., through user fees, beneficiary fees); • The need for a consistent and reliable stream of revenues; and • The need for simple and transparent mechanisms. Discussion topics for this session included the following: • Current funding is entrenched in the gas tax. It will take 10 years to develop something new, and by that time alternative fuels will be more than a threat. In the next 6 years, we will need to build a framework for and consensus around the future funding and financing mechanisms. • One could look at the highway network as a util- ity, with pricing not only a means of raising revenue but also an indicator of where and how much to invest. • To what extent are variable-rate pricing, tolls, and other user fees publicly acceptable? • Should we let the public sector earn a profit from its assets? • How could the system be changed to guarantee that user fees are directed to highways, and spending is associated with performance? • Should revenue be discussed on a project basis rather than a program basis? • If moving freight and moving passengers are really the issues, then why not focus on some sort of unified trust fund that acknowledges that people and goods move with multiple modes? SESSION 2: EXAMINING CURRENT AND POTENTIAL USE OF TAX INCENTIVES IN PROMOTING SURFACE TRANSPORTATION INVESTMENT Bryan Grote, Mercator Advisors, LLC (Moderator) Scott Bernstein, Center for Neighborhood Technology (Discussant) Dennis Anosike, Chicago Transit Authority Karen Hedlund, Nossaman Guthner Knox & Elliott LLP James (Rocky) Query, Morgan Stanley Janet Friedl, American Association of State Highway and Transportation Officials 3 3HOW TO FINANCE THE NEXT TRANSPORTATION PROGRAM

Bryan Grote Bryan Grote introduced the session by presenting three questions that will figure in the upcoming reauthorizations: • How big is the pie? • What are the ingredients? • How does it get sliced up? Grote described the provisions of reauthorization as being mostly regulatory but somewhat spending related. He pointed out that tax incentives are generally less common in transportation than in other areas or sectors, noting that transportation advocates are begin- ning to look to certain tax incentive approaches to increase overall transportation investment. Use of Tax-Oriented Leasing to Promote Investment in Transit Dennis Anosike Dennis Anosike addressed the use of leveraged leasing as a funding mechanism for transit. He described leveraged leas- ing as a supplemental mechanism to public funding of tran- sit systems and noted that these transactions can be quite complex. As Anosike described it, leveraged leasing provides capital investment through secondary leveraging of assets. The Chicago Transit Authority has leveraged $1.7 billion in assets, generating over $100 million to reinvest in the system. Anosike described a number of concerns of the transit system asset lessor, one being that the equity investor is look- ing at the profit motive, issues related to limited use prop- erty, and issues of government agency performance risk. He mentioned a number of issues for the transit agency board, including the external perception that public assets are being sold to private investors and internal issues relating to the need to manage expectations about the level of revenue that can be generated from leveraged lease transactions. He described the ways that the Chicago Transit Authority has managed risk—by capping transaction fees and establishing net present value benefit floors, negoti- ating incentive and broken deal fees, and using AAA- rated institutions and deposits collateralization for credit downgrades. Potential Use of Private Activity Bonds for Highways and Multimodal Transportation Facilities Karen Hedlund Karen Hedlund spoke about the barriers and opportuni- ties for private investment in transportation. She described the manner in which the federal tax code dis- courages private investment in highway and transit proj- ects. She posited that this is really a historical accident rather than a deliberate effort. Hedlund described a limited number of private equity transportation projects, including the Dulles Greenway in Virginia, SR-91 express lanes in California (although they have now been sold to the Orange County Transportation Authority), SR-57 (a franchise since terminated), and SR-125 in Southern California, which goes to financing after a 10-year environmental process. Hedlund offered as the primary reason that trans- portation fails to attract more private investment is that the use of tax-exempt financing precludes private investment in highways and transit. She explained that when exemptions were written into federal law, state laws did not allow for private investment in highways and transit. While exemptions exist to varying degrees for airports, solid waste, docks and wharves, water and wastewater, and high-speed rail, no such exemptions exist for highways and transit. In addition, Internal Revenue Service (IRS) rules strictly limit the ability of private companies to enter into long-term management contracts for facilities financed with tax-exempt bonds. As a result, Hedlund explained, “private” projects have been converted to “63-20” tax-exempt deals imple- mented by nonprofit organizations. (Such 63-20 corpo- rations are enabled by IRS Ruling 63-20, which allows for the creation of nonprofit financing conduits and use of such entities for an array of public–private projects.) Public investment is necessary to achieve lower interest costs and to access a more favorable bond market with longer maturities and less stringent covenants. There is a general comfort level with government as the bond issuer. Hedlund suggested that a solution to the current predicament is for Congress to create a level playing field for private investment. She stated that we almost got there through the 1999 Highway Innovation and Cost Savings Act, which was in a tax bill vetoed by President Bill Clinton. Former Senator Bob Smith’s Multimodal Transportation Financing Act (May 2001) also contained a provision. As with other transporta- tion finance programs, Davis–Bacon labor provisions could be a stumbling block, according to Hedlund. Tax Credit Bonds to Finance Infrastructure: Theory and Practice James (Rocky) Query Speaking to the topic of tax credit bonds, James (Rocky) Query provided a technical overview of the concept. He explained that tax credit bonds are com- posed of two components: principal and interest in the form of an income tax credit. The credit quality of such 3 4 TRANSPORTATION FINANCE

bonds is determined by the source of repayment for the principal component. Query described an existing tax credit bond pro- gram, qualified zone academy bonds, noting that this program was designed to encourage public–private partnerships. Investors and other private parties make investments in cash or in-kind contributions, but the law restricts the range of prospective investors. From the borrower’s perspective, tax credit bonds pro- vide an interest rate subsidy but still require repayment of principal. Considerations for potential investors in tax credit bonds include • Having a tax liability at the time credit is available; • Legislative risk regarding a change in tax law that would affect tax credit payments; • Credit risk on repayment of principal and original issue discount; • Risk of program noncompliance by borrower and potential recapture of tax credit; and • Timing costs of tax credit, with tax credit bonds being less efficient than regular bonds. From the perspective of the U.S. Treasury, Query noted the need to see significant additional capital investment as a result of an interest rate subsidy and the fact that the manner of budget recognition provides significant budget scoring advantages. Query explained that while one could make the argument that tax credit bonds are more expensive than tax-exempt bonds, the Treasury should see tax credit bonds as more efficient because the entire subsidy flows to the issuer or project sponsor. Looking to the future, Query observed that tight bud- gets will make tax expenditures a more practical method of subsidizing capital investment. He also described recent proposals that allow for the stripping of principal from interest, an important design feature to attract private pension funds as tax credit bond investors. Tax Credit Bonds for Surface Transportation: Transportation Finance Corporation Proposal Janet Friedl Janet Friedl introduced the American Association of State Highway and Transportation Officials’ (AASHTO’s) Transportation Finance Corporation (TFC) concept to session participants. She described it as one item on AASHTO’s menu of revenue options for reauthorization of the Transportation Equity Act for the 21st Century. TFC would be a federally chartered nonprofit corpora- tion that would issue approximately $60 billion in tax credit bonds over the 6-year reauthorization period. TFC would distribute proceeds to the states for highways in the amount of approximately $34.1 billion, for transit in the amount of $8.5 billion, and into a sinking fund to repay the bond principal in the amount of approximately $17 billion. Friedl described AASHTO’s proposal that the scored 10-year tax credit cost (revenue loss of about $19 billion) to the Treasury be reimbursed by some net new source of revenue to the Highway Trust Fund. If structured properly, the tax credit bond proposal could draw a wide range of investors into transportation, including pension funds, others with long-term liabilities who need “long zeroes,” corporations, and individuals with tax liabilities to offset. Friedl described a component of the TFC concept, the $5 billion Capital Revolving Fund with broad project eligibility, including freight and passenger rail, ports and inland waterways, security infrastructure, and others. As conceived by AASHTO, the revolving fund would be capitalized initially by a grant from the General Fund and would offer low-interest loans, credit guarantees, and standby lines of credit to project sponsors. Discussion Scott Bernstein Serving as discussant for this session, Scott Bernstein offered remarks to get the discussion started. He first noted that there was another tax incentive to consider, that of employer-provided parking and transit commute benefits, pointing out that the level of benefits between parking and transit has not been equalized. He noted that a major ben- efit of tax proposals is that they generally are targeted and do not require large bureaucracies to administer. With respect to AASHTO’s TFC concept, Bernstein offered the following questions: • What will Congress and the federal government think they are getting out of this proposal? • What is the overall federal interest that justifies blurring the Highway Trust Fund and General Fund to the extent they are required for the Capital Revolving Fund or are lost due to tax credits? What benefits should the public expect from more investments? • Given changes in the tax code, how attractive are tax credits and tax credit bonds? What is the mar- ketability and demand for tax credit bonds vis-à-vis other investments? • Given political realities, should transportation investment emphasize debt or revenues? Are we trying to answer the question, is it too heavy a lift to go after a tax increase? with a TFC? • How could the TFC benefit innovative intermodal projects, passenger and freight rail, high-speed rail, and other modes? 3 5HOW TO FINANCE THE NEXT TRANSPORTATION PROGRAM

Bernstein noted that prospects for the private activity tax-exempt provision might be very good, with support for it on both sides of the aisle. Highlights of the ensuing discussion included the fol- lowing: • Private activity bonds for highways could be sup- ported by tolling and could open possibilities for expanding tolls and similar user fee measures. • Tax-oriented leasing requires knowledgeable staff, legal resources, and the ability to understand private- sector interests and equity rules. The complexity ham- pers widespread use, but it has provided resources to transit agencies otherwise not available. • Tax credit bonds for transportation will require some market development. The cost of bonds is primarily associated with the cost of tax credits—or the revenue for- gone to the Treasury. AASHTO proposes that the Highway Trust Fund reimburse the Treasury for those “scored” costs. Rail, ports, intermodal, and security proj- ects would be able to access loans and other credit instru- ments through the Capital Revolving Fund that would be administered by the TFC and would have broader eligi- bility than the Transportation Infrastructure Finance and Innovation Act or other existing credit programs. SESSION 3: TAPPING ALTERNATIVE REVENUES AT THE REGIONAL AND LOCAL LEVELS: WHAT IS AND WHAT COULD BE Vicki L. Winston, Alameda County Public Works Agency (Moderator) Stephen Lockwood, PB Consult (Discussant) Tamar Henkin, TransTech Management, Inc. Therese McMillan, Metropolitan Transportation Commission David Goss, Greater Cleveland Growth Association Overview of Innovative Transportation Revenue Sources: What’s Been Tried with a View to What Could Be Tamar Henkin Tamar Henkin provided an overview of transportation revenues, including a review of relevant statistics. In 2000, 57 percent of state and local highway funding came from highway user fees; of this amount, 60 per- cent came from fuel taxes and only 8 percent from tolls. On the transit side, 79 percent came from sales taxes. Henkin explained that, in evaluating potential revenue sources, consideration should be given to revenue poten- tial, stability and timing, legal and political issues, and administration and equity. She also said that, in looking to the future, we need to focus on combining resources, expanded application of value-capture techniques, and the increased importance of overall creditworthiness. Vicki L. Winston Vicki L. Winston served as moderator for this session and also offered introductory remarks. She introduced the ses- sion as a view from the trenches and contrasted it with the view from the rails, the view from the sea, the view from the Administration, and the view from the Hill that com- posed the rest of the conference. She stated that the session was intended to focus on the local and regional levels, where the view is often one of “city versus county for what tastes like leftover pie.” She commented, “We can’t solve our financial problems with money. More money is no guarantee that we will secure the future health of our infra- structure and a quality of life demanded by our communi- ties.” Instead, she suggested that we need to solve our financial problems with strategies that may challenge how we do business and how we fund our business. Mixing It Up in the Metropolitan Area: Examples from the San Francisco Bay Area Therese McMillan Therese McMillan gave session participants a feel for funding opportunities from the local perspective. In the San Francisco Bay Area, they have been very successful in getting legislative funding flexibility and voter buy-in on sales tax initiatives. The area’s long-range trans- portation plan is 66 percent funded with local funds. In her presentation, McMillan coined the word “super- matched.” She described a creative process of swaps in which the county and metropolitan planning organiza- tion (MPO) work together to expedite project delivery through an MPO advance of surface transportation funds to a county for the project. The county pays back the MPO through a local sales tax, creating cash flow that the MPO can use to help advance other projects. Making Room for Maintenance: The Intelligent Renewal of Our Existing Transportation System David Goss David Goss emphasized the importance of maintenance and renewal of our existing transportation system. In Cleveland since 1983, 90 percent of the $5 billion transportation investment has been for preservation and rehabilitation of existing infrastructure. Some of the revenue options Goss described were tax increment financing, sale and leaseback of transit equipment, and shared resource–revenue agree- 3 6 TRANSPORTATION FINANCE

ments. He also discussed examples in Cleveland and throughout Ohio of the use of transportation improvement districts, joint economic development districts, and local option sales taxes for transit. Looking to the future, Goss suggested that we need less reliance on gasoline taxes, increased use of intelligent transportation systems, and bet- ter materials to reduce maintenance costs. Life cycle costing should be considered in the procurement process. Throughout his presentation, Goss also stressed the importance of having the business community at the table and, in particular, supporting funding for preservation and rehabilitation efforts. Discussion Stephen Lockwood Serving as the discussant for this session, Steve Lockwood raised a number of discussion points: • The high value of local option sales taxes, with a 1- cent sales tax generating the revenue value of a 30-cent gas tax; • The importance of education and public relations in getting legislative flexibility and voter buy-in; and • A potential area of concern being how projects are or should be prioritized: coming through the planning process in State Transportation Improvement Programs and transportation improvement plans versus “sexy” projects placed directly on the ballot. Lockwood challenged the group to consider whether it was a problem that, in getting funding initiatives in place, high-profile projects were potentially sidestepping the tra- ditional planning processes. He also noted the “home run” for local transportation funding in California and the fact that this does not seem to be replicated elsewhere in the country. He raised the question of how we knock down the apparent barriers in other jurisdictions. One idea that came out of the discussion was adding local initiatives to the Innovative Finance website to provide marketing support for such initiatives. Others noted the important role MPOs play in educating local legislators on transportation funding. SESSION 4: USER-PAY TECHNIQUES: TOLL ROADS AND BEYOND Michael A. Pagano, University of Illinois at Chicago (Moderator) Robert Poole, Jr., Reason Foundation (Discussant) Raymond Tillman, URS Corporation Harold W. Worrall, Orlando-Orange County Expressway Authority Mark Muriello, Port Authority of New York and New Jersey Shadow Tolls Raymond Tillman Raymond Tillman kicked off the session by explaining that shadow tolls are not a user payment or a new fund- ing source but a good tool that allows you to pool together various funding sources, build a project quickly, and pay for it over time. He explained that it is important to identify who benefits and provide funding proportional to the benefits reaped. According to Tillman, shadow tolls are simple to competitively bid and politically appealing and generate no toll resistance from users. Concerns relating to toll (and shadow toll) project implementation include • Politics and the allocation of scarce or limited resources, • Legal issues regarding what is feasible under current laws and regulations, • Necessary cooperation among sectors and across agencies, • Perceptions and the need for public education, • Lack of projects that are 100 percent financially viable, and • Longer and more complex (and uncertain) project development procedures. Case Study: Orlando–Orange County Expressway Authority Harold W. Worrall Harold W. Worrall provided a case study of the Orlando–Orange County Expressway Authority. The history of the expansion of the system and the strong revenue growth indicate that Orlando has an environ- ment that is politically and publicly accepting of tolls. According to Worrall, electronic toll collection is key to implementing open road tolling within the next 5 years. He pointed out that people would rather pay tolls than taxes; they just don’t want to stop to do it. Opportunities for Value Capture and Value Pricing Mark Muriello Mark Muriello described the Value Pricing Program of the Port Authority of New York and New Jersey. The goals of 3 7HOW TO FINANCE THE NEXT TRANSPORTATION PROGRAM

the program are to reduce congestion, encourage use of electronic toll collection, and shift truck traffic from day- time to nighttime hours. Muriello suggested that value pric- ing objectives should not be limited to congestion mitigation but also viewed as a potential revenue generator. Discussion Robert Poole, Jr. Key observations by some participants included the fol- lowing: • Tolls are an acceptable alternative to taxes. • Value pricing for congestion mitigation encourages support from previous opponents such as environmental groups. • Public education and awareness are vital to accep- tance. An example was an I-15 public opinion survey in which 88 percent of users and 66 percent of nonusers approved of the tolls. • Equity concerns regarding tolls and low-income drivers have sometimes been overblown. When advanc- ing a toll increase, a link to transit options may help mitigate opposition. 3 8 TRANSPORTATION FINANCE

3 9 TRACK 2 Tools and Techniques to Deliver More Projects Faster This section provides a synthesis of the presenta-tions and discussions that ensued in Track 2.This track comprised four individual panel ses- sions during each of which three or four presentations were made; in-depth discussion by the presenters and conference participants followed. The discussions were facilitated by a designated discussant. SESSION 1: CHARACTERISTICS OF STRONG FINANCIAL PLANNING: WHAT IT TAKES TO HAVE GOOD DISCIPLINE Susan P. Mortel, Michigan Department of Transportation (Moderator) Barbara Bych, Ambac Financial Group (Discussant) John Basilica, Louisiana Department of Transportation and Development Dane Ismart, Louis Berger & Associates Jonathan Davis, Massachusetts Bay Transportation Authority Integrating Innovate Financing into the Transportation Planning Process John Basilica John Basilica initiated this session with an overview of Louisiana’s TIMED Program: Transportation Improve- ment Model for Economic Development. The program comprises 16 major projects that are constitutionally enumerated and passed by the state legislature. This includes 11 highway corridors, 3 major bridges, and a project to improve New Orleans airport access. Basilica described how the program was stalled until the Louisiana Department of Transportation and Develop- ment adopted an innovative project management plan, hiring a private-sector program manager to help deliver the projects. This program is now under way, and the early results are promising. Basilica described a number of lessons learned from the early phases of the TIMED program: • The original program was oversold to the public. • The department and the legislature were relying on unrealistic project estimates and schedules. • There was an inappropriate use of debt early in the program. • The program was plagued by inadequate planning. From this bleak history, the Louisiana Department of Transportation and Development developed a compre- hensive plan that included three components: • A legislative plan by which the department would not proceed until enabling legislation was in place, • A management plan that called for a program manager approach, and • A finance plan that incorporated sustainable rev- enue bonds and an annual financial feasibility review. In conclusion, Basilica noted the importance of detailed planning, a creative management team with

finance expertise, and top-level leadership throughout the process. What Are the Ingredients of Good Financial Planning? Dane Ismart Dane Ismart provided an overview of the characteristics of a strong financial plan, focusing on • Assessment of financial condition, • Assessment of financing capability, and • Preparation of a financial plan. Ismart described factors that may affect the ability to operate, maintain, and make needed investments in existing systems: • Economic vitality of the state or region, • Debt management history, • Historical financial burden of transportation expenditures, and • Analysis of financing burden of transportation compared with nontransportation investments. Ismart described a comprehensive financial plan as including consideration of financing alternatives through the use of cash flow analysis, risk and sensitiv- ity analyses, and funding flexibility—with a good finan- cial plan allowing quick response to changing conditions. He described financial plans as being con- tinuously evolving tools—with short- and long-term components—and requiring coordination among state, local, and federal actors. Balancing Debt and Pay-as-You-Go Financing Jonathan Davis Jonathan Davis addressed the issue of balancing debt and pay-as-you-go financing in a major transit system. First, he described the Massachusetts Bay Transporta- tion Authority (MBTA) system, noting that 60 percent of people commuting to the financial district take “the T” (Boston’s subway system) and that it is vital to the economy of the city. Second, Davis described the past funding structure for the T as being through a state appropriation, pro- vided in arrears. MBTA would spend the money first and then deliver the invoice to the legislature, which would in turn appropriate the funds. MBTA is engaging in financial reform and, as described by Davis, now deploying a balanced operat- ing budget and a sustainable capital program. The $4 billion of debt on the balance sheet currently consumes about one-third of the system’s operating budget. The system has a dedicated new source of funding: 20 per- cent of the state sales tax, which generates approxi- mately $645 million, plus assessments from cities and towns served by MBTA. With this new funding system, MBTA will need to maximize its own revenues. There was no incentive to do this before financial reform. Since financial reform, the agency has successfully enacted a fare increase. MBTA also will seek nonfare revenue from sources such as advertising, concessions, and parking. The agency will attempt to meet its operating cash flow needs, main- tain a reasonable level of cash reserves, and minimize its reliance on debt. Davis explained that MBTA now has control of the capital program and recognizes that some projects are not affordable through existing revenue sources. MBTA has been able to communicate this message to propo- nents of potential new projects, such as the new Fall River/New Bedford commuter rail line; therefore, the project has secured separate funding from the legislature and other sources. Discussion Barbara Bych Barbara Bych kicked off the discussion for this ses- sion by opening the floor to the audience. The group discussed the benefits of joint development and public–private partnerships. Jonathan Davis noted that MBTA would look to these techniques where they make sense. He also noted the impor- tance of good communication to good financial planning, including telling the public when a project is simply unaffordable. SESSION 2: INNOVATIVE FINANCING TO ADVANCE STATE AND LOCAL TRANSPORTATION PROGRAMS AND PROJECTS Lowell R. Clary, Florida Department of Transportation (Moderator) John Horsley, American Association of State Highway and Transportation Officials (Discussant) Wendy Franklin, Goldman Sachs Thomas McPherson, Ohio Department of Transportation Denise Jackson, Michigan Department of Transportation 4 0 TRANSPORTATION FINANCE

Grant Anticipation Mechanisms Move into the Mainstream Wendy Franklin Speaking to the topic of grant-backed debt mechanisms, Wendy Franklin described grant anticipation revenue vehi- cles (GARVEEs) as having entered the mainstream. The high ratings that recent issues have received and an agency’s ability to borrow on a long-term basis (across authoriza- tions) indicate the market’s comfort level with these bor- rowings. Franklin described how 11 states have issued over $6 billion in GARVEE debt financings, with the bulk of the ratings in the AA category. These ratings reflect “double barrel” security (i.e., a second revenue source for backstop repayment) and conservative leveraging. Role of State Infrastructure Banks in Advancing State and Local Projects: What More Can Be Done? Thomas McPherson Thomas McPherson addressed the role of state infra- structure banks (SIBs) in advancing state and local proj- ects. Describing the Ohio SIB, McPherson discussed the importance of having a variety of revenue sources to facilitate a multimodal SIB. The Ohio SIB has benefited from $40 million in general revenue funds. The program has had one default—from a private-sector borrower. McPherson described the goal of the program as attracting local revenues to transportation. Job creation has been a secondary benefit but not a primary focus. When a project does not score high enough for direct grant funding, then the department looks to the viability of a SIB loan. Offering examples of success, McPherson noted that the SIB has developed a tremendous amount of good will through speedy loan closings and by providing an alternative when the department is unable to provide grant funding. He described a $1,500 loan to a small community to improve traffic signals. While the com- munity was hoping for grant funding, being offered a loan was a better alternative than simply being told no to the request. McPherson described the state’s wish list for reautho- rization: • Federal legislation that makes SIBs available to all states, • Revisions to the payout provisions, and • Consent for SIB capitalization to be used for inter- modal projects. Success in Using Federal Flexible Finance Programs: A Policy Focus Denise Jackson Speaking to the subject of federal flexible funding pro- visions, Denise Jackson described their use in Michigan, which was initiated in 1994 with the TE-045 program. The relevant provisions include tapering, flexible match, phased funding, advance construction and par- tial conversion of advance construction, toll credits, and the SIB program. Giving a little history on transportation funding in Michigan, Jackson described the upcoming transition from a long-term governor and a relatively stable politi- cal climate to a new governor. She described how in the early 1990s then-Governor John Engler wanted to improve the transportation system with the ultimate goal of improving the overall economy. The state did not, however, want to raise transportation costs, so set out to streamline the Michigan Department of Transportation (MDOT) administration and use the state’s borrowing capacity to obtain funds at relatively low rates. Jackson described MDOT’s programmatic strategy as being the prioritization of preconstruction activities so that the agency has projects that are ready to go when funding becomes available. By borrowing funds, the state could go a bit ahead with projects before the state–local match was available. MDOT developed a 5-year capital program that the public and industry look forward to each year. The pro- gram focuses on managing investments and communi- cating to the public what will be done during the specified time period. The department is committed to accelerating program delivery and improving customer relations. It recognized the need to communicate to contractors that by borrowing into future funding (i.e., continuing to use future funds for debt service rather than new projects), smaller programs would result in later years. This communication allowed contractors to plan their businesses and to consider impacts on the construction industry and the workforce. Discussion John Horsley The discussion period focused on the reasons that states have been slow to use the available tools, including a lack of understanding and problems with underlying legitimacy of the techniques. In addition, during the discussion period, McPherson noted that innovative finance should not be treated as “a 4 1TOOLS AND TECHNIQUES TO DELIVER MORE PROJECTS FASTER

solution in search of a problem.” First, the projects have to be identified; then the tools to make them happen are developed. McPherson also described a philosophical evolution: from a pure financing perspective, bonding for a project costs more. From a DOT perspective, an invest- ment is made to reap some of the increased value. The challenge is to identify the projects and communicate the benefits that really need to be communicated. Once the focus centers on the goal to be achieved, the leadership will understand it and the politicians will support it. In discussing the potential for longer GARVEEs (20 to 30 years, for instance), it was noted that the fear related to reauthorization is growing smaller and that the prospects for longer GARVEE financings are improving. SESSION 3: TOOLS AND TECHNIQUES TO MEET PROJECT FUNDING CHALLENGES Suzanne H. Sale, Federal Highway Administration (Moderator) Ron Marino, Salomon Smith Barney (Discussant) David Seltzer, Mercator Advisors LLC Phillip E. Russell, Texas Turnpike Authority Charles McNeely, City of Reno, Nevada James Preusch, Infra-Trans, LLC Suzanne H. Sale Suzanne H. Sale served as moderator for this session and began by describing the backlog of needs against shrink- ing resources and the competition for those resources. She described a decade of success turning concepts into tools that are in use. She also noted the importance of having flexible tools to meet state-specific needs. Role of Federal Credit: Transportation Infrastructure Finance and Innovation Act and Beyond David Seltzer David Seltzer began with a discussion of the role of fed- eral credit assistance in funding large projects. He described a finance “stool”—which he hopes will some- day replace the by-now-familiar finance pyramid—with three balanced legs. These legs represent the perspectives of the project sponsor, federal policy, and investors in determining which form of federal credit assistance is best matched to the specific financing needs of a project. Seltzer described four basic forms of federal credit: • Securitizing federal receivables, including GARVEEs and grant anticipation notes, • Direct federal credit, most notably the Transportation Infrastructure Finance and Innovation Act (TIFIA), • Federal revolving loan funds, the most common of which are SIBs, and • Tax code incentives. Seltzer’s discussion of the advantages and disadvan- tages of each of these forms of federal credit assistance from the perspective of the three legs of the finance stool set the stage for a showcasing of two TIFIA proj- ects by the subsequent speakers. Central Texas Turnpike Project Phillip E. Russell Phillip E. Russell discussed the Central Texas Turnpike Project, a massive $3.6 billion toll project that is being supported by a $916 million direct TIFIA loan, the largest awarded to date under the TIFIA program. The project as described by Russell actually represents four projects in one. The financial plan incorporates a mix of tools and approaches, including revenue bonds and bond anticipation notes, as well as a substantial contri- bution from the cities and counties that will enjoy the project’s benefits. The project is the single largest toll road project in the nation, the majority of which is being delivered through an exclusive development agreement. Reno Transportation Rail Access Corridor Project Charles McNeely Charles McNeely followed with a description of the Reno Transportation Rail Access Corridor (ReTRAC) project in Reno, Nevada. In contrast to the TIFIA project in Texas, ReTRAC is being supported by the smallest TIFIA loan awarded to date. The project, which involves dropping an existing freight rail right-of-way into a trench under downtown Reno, is the result of an extra- ordinary effort to build a partnership among some seem- ingly unlikely allies: the city of Reno, the state of Nevada, the federal government, and, perhaps most critically, the business community, including Union Pacific Railroad. Freight Infrastructure Bank Proposal James Preusch The final speaker for this session was James Preusch, who addressed an emerging concept that would help fund freight and intermodal needs currently facing substantial hurdles in assembling a plan of finance. The National Freight Security Infrastructure Bank, as described by Preusch, would create a new revenue source 4 2 TRANSPORTATION FINANCE

for these projects through a national fee on freight cargo. A stand-alone agency would be created for the freight bank, with the fees administered by U.S. Customs. Eligible projects could include seaports handling international import cargo, border crossings, inland cargo interchange projects, and other projects designated by metropolitan planning organizations. The projects would need to respond to security issues, environmental concerns, or the need for expedited shipments. Preusch noted that this national program would gener- ate needed revenues for freight and intermodal projects, address inadequate local infrastructure in terms of mov- ing more goods that “last mile” to their final destinations, and incorporate the principle that all consumers should pay for the benefits of improved freight infrastructure. Discussion Ron Marino Ron Marino led the discussion for this session. He described how complex projects today require different revenue sources and different levels to get the projects done. In discussing projects with private benefit, he noted that private businesses will need to step up and help pay. The discussion also addressed the question of how to convince people to pay for something they perceive they already have. Participants noted the importance of defining value to affected communities and structuring tolls or other user charges that capture that value. SESSION 4: QUANTIFYING AND COMMUNICATING THE BENEFITS AND COSTS OF INNOVATIVE FINANCE Robert Rich, Public Financial Management, Inc. (Moderator) Hank Dittmar, Great American Station Foundation (Discussant) Miriam Roskin, Roskin Consulting George Erickcek, W. E. Upjohn Institute for Employment Research Fred Jarrett, Washington State Representative Quantify and Qualify: Strategies for Assessing the Impacts of Innovative Finance Miriam Roskin As the first speaker on this panel, Miriam Roskin offered a reasoned approach for not only quantifying but also qualifying the benefits of innovative finance. She explained that we need to be able and want to attach some numbers to the benefits of using these tools to make the case to decision makers and stakeholders that the benefits of using the alternative tools are worth the costs. She described the challenges of coming up with these numbers as threefold: • There is an absence of a control case, that is, one of not using innovative finance. • It is difficult to isolate the impacts of innovative finance from the myriad other factors at play. • You need to be careful that you understand when benefits are being redistributed versus enjoying a net gain, that is, simply divvying up the pie versus making the pie bigger. Roskin pointed out that there is a “lunar landscape of pitfalls” associated with quantifying the benefits of innovative finance and cautioned against losing sight of the fundamental value of the project to the customers it will serve. Roskin noted a number of relevant evaluation reports: • TE-045 Innovative Finance Initiative (1996), • State Infrastructure Bank Pilot Program (1997), • TIFIA Federal Credit Program (2002), and • Innovative Highway Finance “Capstone” Retrospective (2002). Innovative Financing, an Economist’s View George Erickcek Following Roskin, George Erickcek offered the econo- mist’s view on quantifying benefits of innovative finance. Erickcek highlighted the economic considerations in assessing whether innovative finance is a good thing. He cautioned that if we are shifting the costs of today’s infra- structure to future users and even nonusers, then we must be more scrupulous in forecasting future revenues. Communicating Innovative Finance to the Public Representative Fred Jarrett Finally, Representative Fred Jarrett recounted the saga of the Tacoma Narrows Bridge project, constructed next to an existing bridge. He offered a cautionary tale and reminded the session participants that (a) it is nearly impossible to convince people to pay for something they perceive they already have and (b) if tolls—or any fees, for that matter—are going to be used to finance a proj- ect, we need to understand better what is valued by an affected community and to communicate clearly the value of the project to that community. He also asserted 4 3TOOLS AND TECHNIQUES TO DELIVER MORE PROJECTS FASTER

that the toll or fee must be structured in alignment with the project’s value. Discussion Hank Dittmar During the discussion period, there was some focus on the fact that financing tools can be used to achieve policy objectives, such as shifting payment to future generations and value pricing. Use of innovative finance also forces a longer-term orientation and greater transparency. There also was some discussion about the level of program that is reasonable to borrow for and recogni- tion that there is no standard to follow. States need help figuring out the right balance of debt and pay-as- you-go funding and in doing a better job of forecasting both future revenues and future demands for funding. 4 4 TRANSPORTATION FINANCE

4 5 TRACK 3 Structures, Institutions, and Partnerships to Deliver More Projects Faster and Cheaper This section provides a synthesis of the presenta-tions and discussions that ensued in Track 3.This track comprised four individual panel ses- sions during each of which three or four presentations were made; in-depth discussion by the presenters and conference participants followed. The discussions were facilitated by a designated discussant. SESSION 1: PUBLIC–PRIVATE PARTNERSHIPS: TAKING THE MYSTERY OUT OF THE THREE PS John Flora, World Bank (Moderator and Discussant) David Kusnet, Economic Policy Institute Barbara Reese, Virginia Department of Transportation Worth Blackwell, Raymond James & Associates, Inc. John Flora John Flora kicked off this session with an introduction to the role of public–private partnerships in project delivery. He suggested that the term “privatization” has a bad connotation. It, however, is not being imposed but rather has grown up in response to a particular need: the fact that the public sector cannot meet all needs. He also reflected on the fact that local govern- ments need to be more involved in the process. Flora then introduced the three panelists for the session. Setting the Stage: Public-Sector Perspective on Roles and Risk Sharing Barbara Reese Barbara Reese introduced the Virginia Department of Transportation’s public–private partnership [Public- Private Transportation Act (PPTA)] program and the metamorphoses that the program and associated risk sharing have undergone. The original intent of the PPTA legislation was to generate projects faster and cheaper, but according to Reese, the objectives have broadened to a more complex set of objectives to manage. Reese described the attitude shifts over the course of the program and individual project implementation. She noted that, from the public-sector perspective, the most costly risk is often shifted to the public sector and there must be a true commitment for sharing risks among the parties. Reese concluded by explaining that Virginia started the PPTA with a clear commitment to risk allocation, some- where along the way the most costly risks were shifted to

the public sector, and the state is now working diligently to bring the partnership to an equitable balance. Setting the Stage: Private-Sector Perspective on Roles and Risk Sharing Worth Blackwell In his presentation of the private-sector perspective on public–private partnerships, Worth Blackwell described how the transportation sector has lagged behind other infrastructure sectors and noted that there are numerous arrangements in other sectors, such as the water and wastewater management arena. He drew attention to the prohibition of tax-exempt debt by private owners of highways. Blackwell observed that private parties are involved for profit and they must consider how much profit is neces- sary, how it compares with other investment opportuni- ties, and how it compares with the associated risks. In describing the risks to be considered, Blackwell highlighted risks in the following categories: • Construction and operations, • Payment and liability, • Environmental and permitting, • Legal, • Political, and • Right-of-way acquisition. In conclusion, Blackwell noted that private-sector players are willing to take on risks that they can quantify and manage. Highway Robbery David Kusnet Speaking from a recent article, “Highway Robbery: How Contracting-out the Design, Engineering, Inspection and Management of Federally Funded Transportation Projects Produces Problems with Cost, Quality, Safety & Accountability,” David Kusnet described a danger that the public sector will not be able to protect public inter- ests. He described a situation where increased contract- ing out is leading to more expensive projects as well as quality and safety issues. He also described a “brain drain” that resulted from contracting out whereby agen- cies are losing experienced and dedicated staff to the pri- vate sector. Ultimately, according to Kusnet, agencies could lose the capacity to oversee work of consultants. In his remarks, Kusnet stressed the need for greater accountability and the need to maintain the capacity to conduct required oversight functions. Discussion John Flora John Flora led the group through a discussion that focused on risks associated with compliance with envi- ronmental laws and on identifying who takes on associ- ated risks. The group also addressed the pitfalls associated with the public sector’s retrospectively com- pensating private partners for added costs that are theo- retically already built into the private-sector bids for a job. The public–private partnership model of risk sharing can fall apart when the terms of the original agreement are altered midcourse. The group also had an in-depth discussion comparing partnership projects in different states and some of the advantages and disadvantages of the various approaches. Both the public-sector agencies and private-sector firms are still learning from these early experiments and adjusting the form of new partnership projects. SESSION 2: PUBLIC–PRIVATE PARTNERSHIPS: A MATTER OF SURVIVAL Mario Marsano, Raymond James & Associates, Inc. (Moderator) Gordon Linton, WageWorks, Inc. (Discussant) Ron Marino, Salomon Smith Barney Susan Sanchez, Seattle Department of Transportation Monica Conyngham, Foley Hoag LLP Mario Marsano Mario Marsano introduced this case study session, not- ing that the projects presented may serve as potential models for future partnership projects. Las Vegas Monorail Ron Marino Ron Marino provided the participants with an overview of the Las Vegas monorail project, focusing on the public–private partnership elements. He described it as one of the few transit projects that have a sole pledge of fare box revenues supporting the debt. He described how the next phase of the project would depend on the following innovative finance tools: 4 6 TRANSPORTATION FINANCE

Transportation Infrastructure Finance and Innovation Act (TIFIA) financing and acceleration of full-funding grant agreement funds through the use of grant antic- ipation financing. Marino described three benefits of TIFIA financing: • Low interest costs, • Willingness of government to be a patient lender, and • Willingness of government to accept coverage ratios as low as 1.10 times, which facilitates additional borrowing capacity for the project. Seattle Rail Susan Sanchez Following Marino, Susan Sanchez provided an overview of the Sound Transit regional transit project and the monorail project, two projects at different stages of development. Sanchez described the role of the public in initiating these projects, the impact of design–build on project costs, and various elements of project control that are based on the specific construct of the public–private partnership. Greenbush Commuter Rail and Environmental Issues Monica Conyngham Monica Conyngham offered insights into the environ- mental issues associated with delivery of the Greenbush Commuter Rail project, the Massachusetts Bay Trans- portation Authority’s (MBTA’s) first design–build project that runs through five communities and has significant environmental and historic preservation issues. Conyngham focused on the allocation of risks and described how the MBTA maintained risk through the major permitting stage. She noted the importance of having the design–build team at the table throughout the process. Discussion Gordon Linton Gordon Linton, former administrator for the Federal Transit Administration (FTA), led the discussion for this session. He noted the importance of education about the environmental process, in particular for design–build projects. The group discussed how the switch from private to public funding in the Las Vegas monorail project from one phase to the next required the introduction of federal requirements midcourse and the “tricky thicket” this presented to project managers. The group also addressed the importance of an expe- dited review process in advancing projects. Conyngham pointed out that without such an expedited process, a vicious cycle with outdated data and new hurdles results. She stressed to public managers the need to “make the process as tough as you like, make a deci- sion, and live with the consequences.” She asserted that it is imperative to stop continually revisiting the review and introducing new hurdles and costs. SESSION 3: PRIVATIZATION AND OUTSOURCING OF TRANSPORTATION FUNCTIONS: IMPACT ON FINANCES OF THE TRANSPORTATION ORGANIZATION Elizabeth Pinkston, Congressional Budget Office (Moderator) Mary Richards, Massachusetts Organization of State Engineers and Scientists (Discussant) Shirley J. Ybarra, Ybarra Group, Ltd. Heather Dugan, Stifel Nicolaus, Hanifen Imhoff Division Edward J. Corcoran II, Foley Hoag LLP Virginia’s Privatization Initiative: Outcome-Based Highway Asset Management Shirley J. Ybarra Shirley J. Ybarra provided the first case study presenta- tion in this session on Virginia’s privatization initiative. She described the program that was passed and signed into law in 1994 and how the state sought both solicited and unsolicited proposals for construction, operations, and maintenance. The initiative was driven, at least in part, by the loss of approximately 15 percent of the transportation department staff. The state was looking for both cost savings and project innovations. Ybarra described two projects near Richmond for which public–private partnerships allowed the proj- ects’ accelerated completion. She also described a suc- cessful partnership entered into for Interstate maintenance. The partnership, an outcome-based agreement, did not dictate to the private partner how to do it but rather the required outcomes. Managing 250 miles of Interstate, the partnership saved the state $22 million over 5 years. 4 7STRUCTURES, INSTITUTIONS, AND PARTNERSHIPS

Denver I-25: Combining Highway and Rail Financing in a Single Initiative Heather Dugan Heather Dugan used the Denver I-25 project to address the combination of highway and rail financing in a single multimodal project. The Colorado legislature passed a bill to provide needed funding and project-delivery mech- anisms, and state and federal agencies signed agreements to work together to accomplish the project. Dugan used the project as an example of how multi- modal projects can create difficulties because of the lack of a standard process across modes and modal agencies (i.e., between the Federal Highway Administration and FTA). Dugan then enumerated a number of lessons learned from this project: • Multiple funding sources can work together, but there are challenges that must be overcome. • To do so, financial staff must be involved early in the project development process. • Federal agencies also must be involved early on. Massachusetts Route 3 North: Resolving Labor Issues in a Design–Build–Operate–Maintain Project Edward J. Corcoran II Edward J. Corcoran II presented the third case study— that of the Massachusetts Route 3 North project—that focused on the resolution of labor issues in a design– build–operate–maintain project. Corcoran identified the following key labor questions: • Does innovative project delivery displace state jobs? • Does innovative project delivery create labor agreement issues? • Does the magnitude of the project preclude smaller contractors from competition? Corcoran noted that this project required significant negotiation with labor unions to resolve the various labor concerns. Discussion Mary Richards Mary Richards led the group through a wide-ranging question-and-answer period about the three showcased projects and the lessons learned from each. SESSION 4: INNOVATIVE CONTRACTING AND IMPLICATIONS FOR TRANSPORTATION FINANCE Max Inman, Federal Highway Administration (Moderator) Greg Henk, HBG Constructors, Inc. (Discussant) Pete K. Rahn, New Mexico State Highway and Transportation Department John Walsh, South Carolina Department of Transportation Kirk Wineland, Baltimore/Washington International Airport New Mexico Pete K. Rahn Pete K. Rahn provided the first case study presentation in this session, on the NM-44 project. The state had an aggressive plan to build a significant number of four- lane facilities for economic development. The legisla- ture, however, did not approve the highway plan. The state faced two unattractive options: • Remove $214 million from the State Transportation Improvement Program (STIP) for NM-44 or • Build 5-mile increments for the next 27 years. The solution that the state arrived at was to use a combination of traditional and nontraditional mecha- nisms to advance the project. Tools considered by the state for this project included the following: • Advance construction, • Developer financing via a “63-20” corporation (enabled by Internal Revenue Service Ruling 63-20, which allows for the creation of nonprofit financing conduits and use of such entities for an array of public–private projects), • Pledge of future federal revenue, • Soft match provisions, and • A federal lands match waiver. Innovative contracting components included the fol- lowing: • Extremely fast design and construction, • Construction management, • Long-term warranty, and • A combination of low bid criteria with qualification- based request for proposals. The project was a remarkable 15 months from con- cept to contract. Through the contracting and financing methods chosen, the state built four lanes of highway for the cost it would have taken to build only two lanes. 4 8 TRANSPORTATION FINANCE

Construction would be completed in 28 months, with an estimated $89 million in savings through the warranty arrangement. This was accomplished without adding staff or disrupting other projects already in the STIP. South Carolina John Walsh John Walsh presented the second case study, South Carolina’s 27 in 7 Program, by which the state is imple- menting a $5.3-billion work program through a con- struction and resource management (CRM) approach. Through this program, the state aims to complete 27 years of projects in only 7 years. Walsh described a variety of financing mechanisms that accompany the outsourced CRM approach. These include the following: • Use of the South Carolina State Infrastructure Bank, • Issuance of state highway bonds, and • Maximized federal share. Walsh described how through this approach the state would deliver a vastly accelerated program. Through the use of outsourced managers, the state has in essence extended its staff resources without replacing agency decision making. Aviation and Homeland Security Kirk Wineland Presenting the third case study, Kirk Wineland of Baltimore/Washington International (BWI) Airport focused on the new challenges of homeland security in the aviation sector. He described for session partici- pants the challenges of implementing congressionally legislated security measures on an aggressive schedule and the requisite need to use alternative methods to accomplish this. BWI, like other airports all over the country, is struggling to meet this challenge and look- ing for new approaches to help with this seemingly daunting mission. Wineland described his as the “case study that was- n’t.” He doesn’t know how the airport—or others like it—will meet the legislated requirements and is con- cerned about the economic implications for BWI, for the region, and for the country. Discussion Greg Henk The discussion for this session, facilitated by Greg Henk, focused on the facts that innovative financing tools are now in place at the state and federal levels but that there continue to be issues associated with the implementation of these tools that must be resolved locally and up front before they can be used to maximum benefit. It was noted that the traditional pay-as-you-go method for financing projects is creating difficulties for states with large capital needs. Reviewing innovative techniques and thinking creatively to resolve individual project needs as well as program needs are becoming more essential as states address their extensive infra- structure needs. Examples of some of the issues that the group identified as needing to be addressed include these: • Establishing partnerships for funding, oversight, and reporting; • Labor issues; • The need for local buy-in to utilize available tech- niques; • Interagency coordination among state, local, and federal players; and • A variety of legislative barriers. Keys to success identified in this session include the following: • Maintaining a customer focus when identifying innovative financing techniques, • Involving all appropriate parties and doing so at an early stage of the process, • Identifying constraints and roadblocks early in an attempt to overcome issues, • Seeking flexibility with partners, and • Knowing the tools and techniques available and being willing to think outside the box. 4 9STRUCTURES, INSTITUTIONS, AND PARTNERSHIPS

5 0 TRACK 4 New Transportation Initiatives and Demands on Financing This section provides a synthesis of the presenta-tions and discussions that ensued in Track 4.This track comprised four individual panel ses- sions during each of which three or four presentations were made; in-depth discussion by the presenters and conference participants followed. The discussions were facilitated by a designated discussant. SESSION 1: CHALLENGE OF INTERMODAL PROJECTS: KEEPING THEM FROM FALLING THROUGH THE CRACKS OF FINANCING PROGRAMS Anne P. Canby, Cambridge Systematics, Inc. (Moderator) Christine Speer, Florida Department of Transportation John Gibson, CSX Transportation Mortimer Downey, PB Consult Financing Intermodal Centers: What Are the Barriers and How Do We Knock Them Down? Christine Speer Using the Miami Intermodal Center (MIC) project as an example, Christine Speer addressed the issue of financ- ing intermodal centers and how to knock down barriers to such projects. She described a public–private part- nership, including federal, state, local, and private fund- ing partners, to get the project on its way. She noted that large projects such as MIC will have ebbs and flows during implementation and offered as an example the large ebb that resulted from September 11, 2001 (9/11), for this particular project. In identifying elements of success, Speer offered the following keys: • Strong state leadership and commitment, • Backing from the U.S. Department of Transporta- tion, and • Solid commitment from project sponsors, in writing. Financing Intermodal Connections: Bringing Down the Funding Silos for the I-95 Rail Study John Gibson John Gibson addressed the issue of financing inter- modal projects and the need to bring down the funding silos across modes. The basis of his presentation was the Mid-Atlantic I-95 Rail Study. Gibson began his talk with a discussion of the relative advantages of rail transport, including environmental, cost, and traffic flow. Then he addressed the specifics of the Mid-Atlantic I-95 Rail Study, which consisted of 71 infrastructure projects with an estimated total cost of $6.2 billion. He described a three-phase program over 20 years. He noted his view that the 4.3-cent per gallon tax on diesel fuel for railroads should be repealed and addressed what he saw as the discriminatory nature of state property taxes.

Gibson introduced the various proposals currently under consideration. First, he discussed the concept of the Transportation Finance Corporation with a revolving fund repaid by grants and tolls. An alternative is a regional rail finance component capitalized with federal funds, tax credit bonds, or other sources. A further option, according to Gibson, would be a national rail net- work program, a grant program akin to the highway pro- gram. He warned against the Alameda Corridor approach unless other fundamental charges and taxes are in place. Importance of a Multimodal Perspective in Developing Finance Approaches: Putting an End to Modal Stovepiping Mortimer Downey Mortimer Downey spoke to the importance of linking all modes in the planning process. He noted that the existent of three or four Senate committees with relevant jurisdiction helped to create funding silos. He also addressed the need to research, develop, and provide new tools to multimodal stakeholders and organizations. Another key component is the development of performance-based solutions. Downey also discussed the potential for interstate compacts for individual projects and program financ- ing. Recognizing the obstacles to regional approaches, Downey emphasized their potential to contribute to solving multimodal project financing challenges. He noted the opportunity to look at everything all at once, with reauthorization of surface transportation, aviation, and Amtrak programs on the table. He cited four areas that need to be addressed: • There should be a review of the various existing and proposed federally sponsored financing vehicles [e.g., full funding grant agreements, the Railroad Rehabilitation and Improvement Financing Program, passenger facility charges, the Transportation Infrastructure Finance and Innovation Act (TIFIA), and state infrastructure banks (SIBs)] to overcome some of the patchwork, create more consistency, and link these sources better to normal financing. • All of the modes ought to take a lesson from the Federal Highway Administration pyramid of project finance tools and look at their types of projects in that light; that is, don’t waste grant resources on projects that may have potential financing. • Integrate the modal planning and project develop- ment process more effectively, including the use of all the policy tools—operations, demand management, intermodal development—not just project investment. • Create the effective institutions and individuals who can contribute, and avoid duplicating these scarce human resources in each mode and each agency at each governmental level. SESSION 2: FINANCING MARINE TRANSPORTATION SYSTEMS William Dryer, Summit Partners, LLC (Moderator) Robert James, Port Authority of New York and New Jersey (Discussant) Theodore Prince, Optimization Alternatives Limited, Inc. M. John Vickerman, Transystems Corporation Anthony J. Taormina, OmniTRAX, Inc. Alameda Corridor: A Case Study Theodore Prince Using the Alameda Corridor as a case example, Theodore Prince addressed the challenges of imple- menting and financing a multimodal project of sub- stantial scale and impact. He discussed what worked well and what did not, including impacts on other facilities. Prince noted the impact of larger vessel throughput and discussed the fact that, to maximize corridor bene- fit, short-haul service from San Pedro ports to inland distribution centers—and return of empties—may be necessary. The question, according to Prince, will be, Who builds it and how is it funded? Productivity in Marine Terminals: A Financing Challenge M. John Vickerman M. John Vickerman addressed the challenge of financing increased capacity in marine terminals. Complementing the remarks of Prince, Vickerman also drew attention to the need for port and intermodal research. Short-Line Rail: Private Investments in the Marine Transportation System Anthony J. Taormina Anthony J. Taormina discussed private investment in short-line rail and the role of ports in the logistical chain. In the course of his remarks, he also addressed the need for public investment as seed money for port–maritime research. 5 1NEW TRANSPORTATION INITIATIVES AND DEMANDS ON FINANCING

Discussion Robert James Robert James facilitated the discussion for this session. Key observations by some participants included the following: • As projects rely more on taxable and equity financ- ing, there is a greater need for them to make economic sense. • Container growth through ports will outstrip current capacity and create severe congestion. • We can no longer have business as usual, nor can we expect to simply build our way out of capacity constraints. The Alameda Corridor was discussed as a successful megaproject, but its weak points were recognized. The importance of port and intermodal research was noted as was a mechanism for public investment to serve as seed money to draw in private investment. SESSION 3: INTERCITY PASSENGER MOVEMENTS: DEGREE AND FORM OF PUBLIC SUBSIDY Yuval Cohen, Parsons Brinckerhoff (Moderator) John Bennett, Amtrak (Discussant) Donald Itzkoff, Foley & Lardner LLP Charles Quandel, HNTB Thomas Walker, Department of Aviation, City of Chicago Future of Intercity Passenger Rail Donald Itzkoff In his remarks, Donald Itzkoff addressed the prospects for high-speed and intercity rail. Itzkoff reviewed the current administration’s principles for Amtrak reform, including the following: • Creating a system driven by sound economics, • Transitioning Amtrak to a pure operating company, • Introducing managed competition, • Establishing a long-term federal–state partnership, and • Building a new public–private partnership to manage the East Coast corridor. He addressed the investment–policy balance for long-distance service and for high-speed rail, reflecting on the differences for capital and operating investment. Itzkoff then reviewed some of the pending legisla- tion, focusing on those components that relate to inter- city rail initiatives, high-speed rail initiatives, or both. In conclusion, Itzkoff noted the growing demand for rail alternatives, reflected on the interplay with deci- sions relating to Amtrak’s future, and highlighted the need for net new investment for high-speed rail deploy- ment. As other speakers, Itzkhoff spoke to the need for a specific rail title in the bill reauthorizing the surface transportation program. Has the Time Arrived for High-Speed Passenger Rail? Charles Quandel Charles Quandel spoke about the prospects for high- speed rail. He shared with the group the current status of Florida High Speed Rail and also addressed the Midwest Regional Rail Initiative. He described this ini- tiative as changing the basis of intercity planning by coordinating parallel activities in multiple states. In answering the question of what puts Florida so far ahead, Quandel pointed to the critical role of a cham- pion for the initiative as well as the fact that there is a public referendum in support of it. Aviation Infrastructure and Airports Thomas Walker Thomas Walker, Commissioner of Aviation in Chicago, focused his remarks on the infrastructure needs for air- ports and, in particular, for O’Hare International Airport and Midway Airport in Chicago. He provided the audi- ence with a number of privatization examples, including ones for airport parking and the Airport Transit Sys- tem, airport concessions, maintenance, construction management, and design and engineering. In the course of his remarks, Walker described the important role of the airports as intermodal gateways to the region, including for transit and intercity rail movements. He also stated that Chicago is recovering somewhat faster than other airports from 9/11. Discussion John Bennett John Bennett of Amtrak led the discussion for this ses- sion. The discussion focused on • Issues of funding equity between modes, including passenger and freight rail; • The importance of a rail title in the Transportation Equity Act for the 21st Century authorization; 5 2 TRANSPORTATION FINANCE

• Opposition to the regional investment bank concept and funding from the 4.3-cent diesel tax; • The role of rail as an alternative to free up air capacity; and • The possible use of train stations as community centers to attract grassroots support. SESSION 4: EMERGING FUNDING CHALLENGES Frederick (Bud) Wright, Federal Highway Administration (Moderator) Robert C. Brown, Federal Highway Administration (Discussant) Pat Goff, Missouri Department of Transportation Richard Mudge, Delcan Inc. Joseph M. Giglio, Northeastern University Homeland Security and Impact on Transportation Funding Pat Goff Pat Goff addressed the cost of homeland security and its impact on transportation funding. He discussed four homeland security components: prevention, detection, restoration, and training. He described a new sense of urgency to what was already under way and focused on the need to identify collective needs by all states to make the case for more funding overall. There needs to be net new money, he argued, rather than attempts to fund security-related costs with traditional transportation funding resources. Intelligent Transportation Systems: Funding Challenges and Innovations Richard Mudge Richard Mudge addressed the funding challenge that has been facing investment in intelligent transportation systems and reviewed some of the progress that has been made to date as well as some of the potential opportunities in the future. He cited a need for better understanding of who gains and for translating abstract benefits into funding. He offered the Alameda Corridor Project as an example of how this translation was accomplished and of a willingness to provide funding created from an understanding—and even quantification—of the benefits. Mudge suggested that we need not be so afraid of helping the private sector make money. He offered examples of the flexible repayment provisions of TIFIA and SIBs as well as sole-source procurement and tax incentives aimed at safety investments. Mudge shared his ideas for possible next steps, including these: • New—and diminished—rules for the TIFIA program (i.e., no TIFIA minimum for new technology); • Off-budget Technology Finance Corporation; and • Links to other tools, including tax credits for safety enhancement or purchase of technology in vehicles. He suggested to the group that we need to “think big” and that networks drive economic change and productivity. He provided examples of the Interstate, the transcontinental railroad, and the Internet as evidence for his case. The Other Side of the Technology Coin: The Vital Role of Technology in Implementing User-Pay Mechanisms Joseph M. Giglio As the final speaker in this session, Joseph M. Giglio addressed the role of technology in implementing rev- enue collection mechanisms. He told the group that there are simply two true revenue sources: user fees and taxes; it’s that simple. He also raised concern about the pendulum swinging in the other direction vis-à-vis the level of debt issuance. Giglio focused the rest of his remarks on the thesis that there are a number of technologies that lend them- selves to performance pricing and gave a description of the product life cycle of technology investment. Giglio offered the following questions regarding technology: • Will technology generate stable, predictable revenue streams? • What is the cost of collection, and is it less expensive than an alternative approach? • Does the technology impose a higher charge on those who generate a higher cost? • Does it contribute to the reduction of evasion? • Does it help provide better customer service, which in turn can generate value and facilitate premium-pricing techniques? Discussion Robert C. Brown Robert C. Brown led the discussion for this session. He focused it on the questions of how to share costs when the private sector is involved and the impact of having multiple 5 3NEW TRANSPORTATION INITIATIVES AND DEMANDS ON FINANCING

uses for infrastructure to help justify the cost. Wrapped up in the question of appropriate cost-sharing are the questions of how much profit is acceptable for private-sector partners and when they should be able to take this profit out of the partnership vis-à-vis the public side of the partnership. The group discussed the appropriate federal role in developing standards for technology deployment. In the course of the discussion, Giglio noted that privacy is fading away as a constraint on the applications of technology. 5 4 TRANSPORTATION FINANCE

5 5 SYNTHESIS Conference Themes Conference participants recognized the uniqueopportunity—and challenge—presented by themultiple upcoming transportation program reauthorizations: for surface transportation, the suc- cessor 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 Accountability Act of 1997. Conference participants also recognized that these reauthorization initiatives would take place under the shadow of a strained fiscal situation at federal, state, and local levels of government and in an environment charged by the intense focus on addressing security- related needs. With this base, conference participants utilized the four tracks of the conference program to flesh out some key issues. Following is a review of the central issues addressed in each of the four tracks. TRACK 1 The four sessions of Track 1 focused on near-future funding options and potential new funding paradigms for transportation at the national and local levels. These sessions focused on • The various ways that states and localities are taking the initiative, resulting in more players in fund- ing and financing and the need for new creativity and programmatic approaches and • The increasing emphasis on linking beneficia- ries—both direct users and other beneficiaries—to funding and on recognition of a general willingness to pay more for the right purposes and under the right circumstances. Conference participants also addressed at length the future of the gas tax, with a common theme that the cur- rent structure is unfair or unsustainable or both. The concept of transparency is ever important and gets to the concepts of intergovernmentalism and the link between payers and users or beneficiaries. In thinking abut how to structure transportation funding for the future, conference participants recog- nized the need to bring the dialogue to a higher-level framework, one that integrates important underlying principles. Such principles include the traditional ones of • Equity, • Predictability and stability, • Adequacy of the collection function and structure, • Ease of collection administration, • Efficiency, and • Transparency. In addition to these more traditional principles, con- ference presenters and participants focused new atten- tion on the importance of having consistency with other public policies, such as those related to energy conser- vation and environmental protection.

It was noted that when the gas tax was created, the nation was funding highways. With the focus now on building intermodal centers and a wide range of non- highway or multimodal facilities, such investments may call for a new alignment of supporting funding struc- tures and greater integration across modes. TRACK 2 Track 2 sessions focused on the specific tools and tech- niques currently available or envisioned to deliver more projects at a faster pace. A common theme from this set of sessions was the need to move away from considering such tools as innovative and toward thinking of them as simply additional tools in the toolbox, without the fan- fare and sometimes the stigma of thinking of these alter- natives as innovative or outside the mainstream. Key observations by some participants focused on • The role and importance of strong financial planning; • Mounting concerns about potential overleverag- ing and the need to make borrowing decisions at the local level and to base them on particular underlying circumstances; • A recognition that decisions about using particular techniques are best made at the local level; • A perceived need for a better connection between financial planning, pure planning, and project priority setting; • The view that quantifying costs and benefits of the various tools is an important element to good decision making; and • An overarching recognition of the importance of accountability—over both the short- and longer-term horizons. With broad recognition that tools once considered innovative are gradually becoming mainstream, there is a strong interest in disbanding the term “innovative” for approaches that are not so. With this, many partic- ipants felt that such tools—and new ones—could be applied in the most effective manner. There continues to be a search for better planning approaches and analyti- cal frameworks to choose among the various approaches and to decide when they are appropriate— and when they are not—and how to best communicate the costs and benefits to decision makers and to the public at large. TRACK 3 Track 3, with its focus on the structures and institutions needed to work in concert with the funding and finance tools that were the focus of Tracks 1 and 2, drew spe- cial attention to potentially missed opportunities and how to capture these in the future. Some of the com- mon themes from this track are • Recognition that most innovation is local and that, while the Intermodal Surface Transportation Efficiency Act and TEA-21 provided good tools, in many instances they simultaneously hamstrung the abil- ity of states and local project sponsors to take advan- tage of those tools via limitations of pilot programs and other narrowing requirements; • Recognition that, in the context of public–private partnerships, critical issues remain regarding how to share the work and the risks and how to properly com- pensate those taking risks and not compensate those who are not; • Concern about the interplay of partnership struc- tures and the appropriate level of staffing and expertise in departments of transportation to oversee private implementation; • An expressed need for full disclosure on public–private partnerships—on who is doing what and how costs and returns are allocated; and • A view that forecasting results need to be better scru- tinized, given their essential role in underlying decisions abut entering into major project commitments. Through a wide-ranging set of case studies, this track drew out these common themes and sought solutions to the recognized impediments to utilizing public–private partnerships and new institutional relationships to carry out the mounting transportation infrastructure funding challenges. TRACK 4 Track 4, with its focus on new transportation initiatives and related demands on financing, brought attention to multimodal projects, to mounting security-related demands, and to the continued challenges of funding and delivering new technologies to the transportation arena. Key observations by some participants in this track included the following: • Recognition of the need for leadership and the impor- tance of a champion for multimodal—and multipurpose— projects; • A sense that agreements and partnerships should cross administrations, especially for large multimodal projects; • Recognition that intelligent transportation sys- tems and other technology innovations are still evolving and would benefit from better integration with other 5 6 TRANSPORTATION FINANCE

programs but some concern that, in this integration, the core concepts could lose their push; • Recognition of the need for a strong federal role in setting standards for technology; • A concern that the challenge of increased through- put without system expansion is not tenable, for instance, in the areas of marine terminals and railways; and • A perceived need for better coordination in rela- tion to the impacts of particular projects and funding solutions across modes. 5 7CONFERENCE THEMES

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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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