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OCR for page 47
H O W T O F I N A N C E T H E N E X T T R A N S P O RTAT I O N P R O G R A M 35 bonds is determined by the source of repayment for the would distribute proceeds to the states for highways in principal component. the amount of approximately $34.1 billion, for transit in Query described an existing tax credit bond pro- the amount of $8.5 billion, and into a sinking fund to gram, qualified zone academy bonds, noting that this repay the bond principal in the amount of approximately program was designed to encourage publicprivate $17 billion. partnerships. Investors and other private parties make Friedl described AASHTO's proposal that the scored investments in cash or in-kind contributions, but the 10-year tax credit cost (revenue loss of about $19 billion) law restricts the range of prospective investors. to the Treasury be reimbursed by some net new source of From the borrower's perspective, tax credit bonds pro- revenue to the Highway Trust Fund. If structured properly, vide an interest rate subsidy but still require repayment of the tax credit bond proposal could draw a wide range of principal. investors into transportation, including pension funds, Considerations for potential investors in tax credit others with long-term liabilities who need "long zeroes," bonds include corporations, and individuals with tax liabilities to offset. Friedl described a component of the TFC concept, the Having a tax liability at the time credit is available; $5 billion Capital Revolving Fund with broad project Legislative risk regarding a change in tax law that eligibility, including freight and passenger rail, ports and would affect tax credit payments; inland waterways, security infrastructure, and others. As Credit risk on repayment of principal and original conceived by AASHTO, the revolving fund would be issue discount; capitalized initially by a grant from the General Fund Risk of program noncompliance by borrower and and would offer low-interest loans, credit guarantees, potential recapture of tax credit; and and standby lines of credit to project sponsors. Timing costs of tax credit, with tax credit bonds being less efficient than regular bonds. Discussion From the perspective of the U.S. Treasury, Query noted the need to see significant additional capital investment as Scott Bernstein a result of an interest rate subsidy and the fact that the manner of budget recognition provides significant budget Serving as discussant for this session, Scott Bernstein scoring advantages. offered remarks to get the discussion started. He first noted Query explained that while one could make the that there was another tax incentive to consider, that of argument that tax credit bonds are more expensive than employer-provided parking and transit commute benefits, tax-exempt bonds, the Treasury should see tax credit pointing out that the level of benefits between parking and bonds as more efficient because the entire subsidy flows transit has not been equalized. He noted that a major ben- to the issuer or project sponsor. efit of tax proposals is that they generally are targeted and Looking to the future, Query observed that tight bud- do not require large bureaucracies to administer. gets will make tax expenditures a more practical method With respect to AASHTO's TFC concept, Bernstein of subsidizing capital investment. He also described recent offered the following questions: proposals that allow for the stripping of principal from interest, an important design feature to attract private What will Congress and the federal government pension funds as tax credit bond investors. 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 Tax Credit Bonds for Surface Transportation: the extent they are required for the Capital Revolving Transportation Finance Corporation Proposal Fund or are lost due to tax credits? What benefits should the public expect from more investments? Janet Friedl Given changes in the tax code, how attractive are tax credits and tax credit bonds? What is the mar- Janet Friedl introduced the American Association of State ketability and demand for tax credit bonds vis--vis Highway and Transportation Officials' (AASHTO's) other investments? Transportation Finance Corporation (TFC) concept to Given political realities, should transportation session participants. She described it as one item on investment emphasize debt or revenues? Are we trying AASHTO's menu of revenue options for reauthorization to answer the question, is it too heavy a lift to go after of the Transportation Equity Act for the 21st Century. a tax increase? with a TFC? TFC would be a federally chartered nonprofit corpora- How could the TFC benefit innovative intermodal tion that would issue approximately $60 billion in tax projects, passenger and freight rail, high-speed rail, and credit bonds over the 6-year reauthorization period. TFC other modes?