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Funding Options for Freight Transportation Projects (2009)

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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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Suggested Citation:"G39048_TRB_06_Ch05." National Academies of Sciences, Engineering, and Medicine. 2009. Funding Options for Freight Transportation Projects. Washington, DC: The National Academies Press. doi: 10.17226/24702.
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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.

5Review of Finance Reform Proposals This chapter reviews selected prominent proposals for creating new arrangements to pay for major freight transportation infrastructure proj- ects. The proposals originate with the private sector, government, and independent sources and are responses to the concerns described inChap- ter 2 about the course of development of transportation infrastructure. Several are for new federal initiatives to be included in the expected reau- thorization of the federal surface transportation assistance program, the largest federal transportation spending program. The periodic reautho- rizations of the surface transportation program (most recently in 1991, 1998, and 2005) have become the focus of debate over the federal role in freight infrastructure.Most of the recent proposals are similar to ones dis- cussed before the past three reauthorizations (Lauver 1998; TRB 2003, 35–64; GAO 2003). The review serves twopurposes related to the committee’s charge. First, it shows the range of options available or likely to gain serious considera- tion; after more than 15 years of debate of these issues [i.e., since enact- ment of the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991], it seems unlikely that entirely new ideas are going to emerge. Sec- ond, the features in the proposals indicate the evaluation issues that law- makers, administrators, and interest groups will need to consider when their support for such proposals is sought. The first section below describes the scope of the policies that a com- prehensive finance reformpackagewould address, that is, the set of related decisions about paying for andmanaging infrastructure that ideallywould bemade together. This frameworkwill be helpful in comparing the diverse set of proposals reviewed. The second section categorizes and briefly 198

Review of Finance Reform Proposals 199 summarizes the types of proposals. The final section identifies criteria for evaluating the proposals. The annex contains more specific descrip- tions of individual proposals. SCOPEOF FINANCE REFORM AsChapter 1noted, the earlierTransportationResearchBoard (TRB) com- mittees that studied freight capacity and highway finance viewed finance arrangements as an inseparable component of the process of planning, developing, and managing infrastructure. Therefore the committees de- fined finance policy options broadly, to encompass not only sources of funds but also the related functions of project selection, budgeting, pric- ing, operations, and governance. The Fuel Tax committee concluded that a complete definition of a reform package for transportation infrastruc- ture finance in the public sector would specify these elements (TRB 2006, 121–123): 1. Defined goals, that is, a statement of what the reform is intended to accomplish, with reference to overall transportation policy goals. Eval- uation of alternative reforms would entail comparison of the goals of the alternatives as well as judgments as to whether each option would be successful in reaching its goals. 2. Assignment of responsibilities for providing and paying for infra- structure among the federal, state, and local governments and the pri- vate sector. 3. Rules for determining user fees, pricing, the magnitude of subsidies, and where the burden of subsidies falls. 4. Rules on budget and project selection decision making and on dispo- sition of revenues generated by the facilities. 5. A transition strategy: A fundamental change in finance arrangements for amajor part of the infrastructurewould require preparation through planning, public communication, and possibly trial applications. On the basis of present practices and recent finance reform proposals, it is possible to outline the range of options for government roles and arrangements with regard to funding sources and project decision mak- ing (i.e., Elements 2, 3, and 4 in the list above) that will require consid-

200 Funding Options for Freight Transportation Projects eration. As noted in Chapter 4, most policy proposals concerning freight infrastructure development involve only incremental changes in the his- torically established government roles, in particular, expansion of direct federal responsibility for funding and selecting highway and nonhighway freight infrastructure projects, government participation in funding and selecting freight rail infrastructure projects, and concessions for private operation of facilities that are nowpublicly owned. At the federal level, the choices for deciding on the scope and form of involvement in finance arrangements for freight projects are the following: • Federal participation may be through direct provision of facilities or indirectly through assistance to the states, local governments, or private firms. Assistance may be in the form of grants, loans with favorable terms, loan guarantees, or tax subsidies (e.g., authority to issue tax- exempt bonds or targeted investment tax credits). The greatest quan- tity of federal commitments today is in the form of grants (e.g., in the federal-aid highway program). The facilities directly funded, con- structed, and operated by the federal government are the inlandwater- ways, the air traffic control system, andharbor channels andnavigation aids. [In the case of a directly federally provided facility, the air traffic control system of the Federal Aviation Administration, Jasper (1991) reviews advantages and disadvantages of organizational and finance options, including organizing air traffic control as a public corporation or as a corporation with nongovernment ownership.] • If the formof federal involvement is funding or credit assistance, alter- natives for the organization of the program must be considered. The choices concerning the means of distributing assistance are formula allocation (e.g., asmost federal highway aid is distributed to the states), a competitiveprocess [e.g., asTransportation InfrastructureFinance and Innovation Act (TIFIA) loans and certain transit assistance funds are awarded], or earmarking (i.e., legislative designation of specific proj- ects to receive assistance). Formula allocation gives greatest discretion to the states, while competitive grants entail direct federal involvement in project selection (as does legislative earmarking). With the major exception of highway projects receiving assistance through the regu- lar federal-aid highway program, most large federal grants for freight

Review of Finance Reform Proposals 201 have been for projects individually designated by Congress. Efforts to institute more formal procedures (that is, competitive or formula grants awarded according to set administrative procedures) for grants targeted to freight have had only limited success. [For example, the TIFIA andRailroadRehabilitation and Improvement Financing (RRIF) federal credit assistance programshave not beenheavily used for freight projects, and the authorized funding for the Projects of National and Regional Significance program of the Safe, Accountable, Flexible, Effi- cient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) was entirely earmarked.] • Other choices in the design of a federal assistance program may deci- sively influence its outcomes. Conventional federal grants and tax incentives have been subject to criticism for failing to maximize the leverage of the federal dollars applied (i.e., the total amount of new investment per dollar of federal assistance). Alternative structures have been proposed to increase federal leverage, for example, challenge grants, or grant programs in which the total of federal outlays is con- trolledby reducing the federalmatching share (without reducing the size of the federal program) so that any recipient can always increase the fed- eral funds it receives by expanding the size of its own capital program. Also, some proposals would create a new entity (e.g., a government- owned corporation) to administer federal participation in freight infra- structuredevelopment, as ameans to foster independence andflexibility, rather than housing the activity in the U.S. Department of Transporta- tion (USDOT). • Finally, sources of funds for federal assistance and direct expenditures must be specified. Three kinds of sources are available. For a directly federally provided facility, funding may wholly or partially depend on revenue from fees paid by users of the facility. For grants, the source may be an arrangement such as the federalHighwayTrust Fund,which pools revenue from special excise taxes paid by users; revenue from dedicated taxes unrelated to use; or appropriations from general gov- ernment revenue. The trust fundmechanism is intended to ensure that spending on a particular activity is dependent on the revenue from a particular source. Tax incentives that reduce recipients’ federal income tax obligations are in effect grants derived from general revenue.

202 Funding Options for Freight Transportation Projects At the state and local government levels, the same questions must be considered in designing finance options: whether the government should be involved, whether it should directly provide and pay for facilities or stimulate action through aid to other parties, what rules should govern grant programs, and whether to rely on user fees or on other sources of funds. However, the range of options that has been put into practice is broader than at the federal level. State and local governments directly provide many kinds of transportation facilities, so the choice of public versus private ownership and operation (or of conversion from one form to the other) is becoming a prominent consideration in finance deci- sions. State and local governments are beginning to experiment with true public–private partnerships that entail enforceable, ongoing mutual commitments by the parties [e.g., the 2006 Indiana Toll Road concession agreement (FHWA n.d.)]. Thebest choices among these options dependon the goals of thefinance reform. Legislation often states goals only in general terms, but provisions of the finance arrangements in present infrastructure programs apparently were selected to promote particular policy goals, for example, in the federal surface transportation programs, to complete specific projects that would not otherwise be built (i.e., an earmarked grant), to increase total national spending on a category of infrastructure (e.g., expressways through the Interstate highwayprogram), to redirect the spendingpriorities of the grant recipients (e.g., through categorical grants, design standards, and planning requirements), to shift the burden of paying for a facility from its users or fromstate and local taxpayers to abroader base, or topromote certainorga- nizational arrangements or management practices (e.g., incentives or rules regarding planning, public–private partnerships, or toll roads). The dedi- cated user taxes that fund the federal surface transportation program also are structured to promote policy goals; for example, large trucks pay spe- cial fees that small vehicles do not pay in order to align tax payments with cost responsibilities. Chapter 1 explained that a premise of this study is that the primary goal of finance reform should be to improve the performance of the transportation system, taking into account not only revenue ade- quacy but also the influence of finance arrangements on investment deci- sions and on the behavior of users. That is, finance arrangements should promote efficient development and operation of the freight system.

Review of Finance Reform Proposals 203 REFORMPROPOSALS Each of the diverse collection of finance reform proposals that the com- mittee reviewed is incomplete in some way, addressing only certain aspects of overall finance arrangements. Some refer only to a particular freight mode and most refer only to federal programs. Therefore the pro- posals are not readily classifiable according to a simple functional scheme; however, they may be grouped as follows according to the pro- visions that each proposal highlights: • Creation of a new federal-aid program for freight; • Creation of an independent national infrastructure finance authority; • Federally tax-advantaged borrowing to accelerate investment; • Federal assistance to private-sector railroad and terminal operators; • Development of new local or project-specific revenue sources and insti- tutions responsible for finance; and • Adjustments to the federal-aid highway program, including changes in grantmatching rules to increase the leverage of federal aid and changes in truck fees. The concepts of each of these categories are described below. Annex 5-1 outlines the features of specific recent proposals in each of the categories. In the period before enactment of the 2005 federal surface transporta- tionassistanceprogram(SAFETEA-LU), several groups, includingUSDOT (2001), GAO (2003), and TRB (2003), reviewed the variety of proposals for freight-related provisions that had been published in anticipation of reauthorization of the program. The classification schemes that the Gen- eral Accounting Office (GAO) and USDOT developed serve as a sum- mary of the scope of the proposals. GAO (2003, 67–72) examined freight program proposals from the American Association of State Highway and Transportation Officials (AASHTO), the Association of American Railroads, the American Trucking Associations, the American Road and Transportation Builders Association (ARTBA), theAssociation ofMetro- politan PlanningOrganizations, and the Bush administration reauthoriza- tionproposal.USDOTsummarizedpolicy recommendationsofworkshop participants, including public officials and executives from the finance and transportation industries. Their classification schemes are shown in Box 5-1. Both collections of proposals concentrate on two kinds of

BOX 5-1 Classification Schemes for Federal Freight Policy Proposals GAO (2003) GAO summarized seven proposals for federal freight trans- portation assistance programs according to how each addressed three elements of planning strategy and three elements of finance strategy: • Elements of planning strategy: – Coordination across jurisdictions and transportationmodes; – Involvement of the private sector: carriers and shippers; and – Data and planning tools. • Elements of financing strategy: – Expanded eligibility for freight projects within existing pro- grams (e.g., increased funding for existing programs use- ful for freight projects, including TIFIA and infrastructure banks; eligibility rules that direct funding to freight projects), – Alternative finance (new ways to raise funds, facilitate bor- rowing, or stimulate spending, such as tax incentives for pri- vate investment or infrastructure banks), and – Nonbuild tools (application of new technology to improve traffic management and reduce congestion, thus reducing the cost of providing capacity to serve traffic growth; high- way congestion pricing). USDOT (2001) USDOT’s 2001 Financing Freight Transportation Improvements Workshop summarized finance-related federal policy proposals by grouping them in three categories: • Institutional structures and planning frameworks (e.g., a national infrastructure board, multistate regional infrastruc- ture banks, a designated national freight system),

Review of Finance Reform Proposals 205 provisions: new sources of revenue (or sources of credit) andnewarrange- ments for planning and decision making on project selection. In the GAO and USDOT summaries, it is striking that no mention of facility pricing occurs, except in the Bush administration reauthorization proposal summarized by GAO. Also, few proposals in these two earlier summaries envisioned any significant increase in the private-sector role in provision or operation of infrastructure. Some of the more recent pro- posals described below devote more attention to these two aspects of finance. All of the proposals reviewed in these earlier reports, as well as most of those summarized below, mainly concern federal programs; however, the scope of the committee’s study charge is not limited to fed- eral finance arrangements. New Federal-Aid Program for Freight These proposals would create an independent federal-aid program to provide grants and possibly credit assistance to freight infrastructure projects exclusively, with features modeled after both the federal-aid highway program and federal transit programs. The program would be established with its own independent trust fund that received revenue from new dedicated taxes imposed on freight system users and possibly from other sources. A variant would be to create a new funding category within the present surface transportation aid program, drawing funds from the Highway Trust Fund. The examples described in Annex 5-1 are the Critical Commerce Corridors proposal of ARTBA and the federal • Expanded eligibility for freight projects in existing programs (e.g., Highway Trust Fund aid to rail and maritime projects, a new intermodal project funding category), and • New funding sources and mechanisms (e.g., a federal freight trust fund, government aid for investment in privately owned facilities).

206 Funding Options for Freight Transportation Projects freight trust fund proposal of the Coalition for America’s Gateways and Trade Corridors. The National Surface Transportation Policy and Rev- enue Study Commission’s (NSTPRSC’s) recommended Program to Enhance U.S. Global Competitiveness, also summarized in the annex, is similar in some elements. The key elements of these proposals are (a) creation of a new federal revenue source, ostensibly use-related and dedicated to freight projects; (b) project selection at the federal level through competitive grants and possibly following a federally developed national freight plan specifying priority corridors; and (c) expansion of direct federal assistance to freight railroads and other nonhighway infrastructure. The proposals are not specific on the nature of new funding sources or on whether the federal government would also originate projects under the new program. The proposals seek primarily to increase public funds directed to freight infrastructure and would shift a share of responsibility for investment decisions from state and local governments (and possibly from the pri- vate sector) to the federal government. Earlier proposals of this kind were reviewed by the TRB Intermodal Freight and Freight Capacity committees (TRB 1998, 51; TRB 2003, 128–129). The TRB Freight Capacity committee reviewed proposals for new trust funds for port access projects and for harbor dredging. These were more limited than the more recent trust fund proposals; however, the earlier committee’s assessment is relevant to the recent proposals. The committee noted that the user fee–trust fund mechanism has performed well as ameans of sustaining the highway program but that the trust fund mechanism is less suitable for funding major freight facilities like sea- ports than for funding highways. A primary function of the federal High- way Trust Fund has been to redistribute revenue from the high-traffic components of the highway system, which generate high revenue, to spending on components that generate relatively low revenue. The jus- tifications offered for such redistribution in the highway program do not apply to major discrete freight facilities like seaports. No technical obsta- cle hinders direct charging of the users of most freight facilities. Improv- ing the efficiency of the nationwide freight transportation system will require concentrating investments at the large and heavily used facilities and those that have the greatest revenue potential, rather than diverting

Review of Finance Reform Proposals 207 revenues generated by these facilities to subsidize maintenance and improvements at facilities that lack sufficient traffic to be self-supporting from user charges (TRB 2003, 37–38). A practical advantage of the user fee–trust fund mechanism that would be relevant in a freight program is that it provides stable and predictable revenue, facilitating planning. A further practical difficulty in assessing the freight trust fund propos- als is the lack of specific definition of the intended products of the spend- ing. The Highway Trust Fund had physical objectives (above all, the map of the planned Interstate highway system) when enacted that were con- crete and easily understood by the public and legislators and that provided a basis for estimating revenue requirements. The NSTPRSC proposal acknowledges this difficulty by providing for a national freight plan to be developed and for an administrative procedure to determine the user fees and taxes needed to fund the plan. Enacting funding for a large invest- ment program without a well-developed plan for using the funds would entail a risk; moreover, the planning and evaluation capabilities that such an undertaking would require do not exist at the federal level today. National Infrastructure Authority Several recent proposals have called for creation of an independent, fed- erally sponsored authority empowered to make grants or loans to sup- port infrastructure projects, according to selection criteria that it would administer. Freight transportation facilities would be among the broad classes of eligible facilities defined in the proposals. The proposals cited in Annex 5-1 are the National Investment Corporation recommended in 2005 by the nongovernmental Commission on Public Infrastructure and two bills introduced in Congress in 2007 that would create bodies with similar structure but more limited scope. The NSTPRSC proposal for a National Surface Transportation Commission, which would oversee fed- eral transportationuser tax rates, also is described in the annex. Proponents sometimes refer to the independent entity as a national infrastructure bank, although the entity would constitute a bank in the conventional sense only if it were structured as a self-sustaining, seed-funded revolving fund as opposed to a grant and credit assistance program. The infrastructure authority proposals are motivated by two objec- tives. First, they seek to rationalize and depoliticize decision making in

208 Funding Options for Freight Transportation Projects public infrastructure investment programs, creating an objective process in place of current practices such as earmarking and formula allocation of funds, which are seen as inefficient. The proposed new institutional structure would at the same time tend to expand federal control over infrastructure spending. Second, in some versions of the proposal, it is presented as a mechanism to increase access of government infrastruc- ture projects to financing through the private-sector credit market. The national authority would leverage an initial capitalization from the fed- eral government by selling bonds to investors, backed by the revenue to be received from its borrowers (Schwartz 2008). The recent proposals for a national infrastructure authority succeed earlier versions over the past two decades. For example, the 1993 report of the congressionally chartered Commission to Promote Investment in America’s Infrastructure called for the federal government to establish and capitalize a National Infrastructure Corporation to provide credit assis- tance to state and local governments to promote infrastructure invest- ment. The corporation would purchase bonds issued by state and local governments to finance infrastructure projects. The bonds sold to the corporation would be subordinate to the debt sold to the public, thus reducing the interest rate at which the senior bonds could be sold. The corporation and a sister organization, the Infrastructure Insurance Com- pany, also would insure infrastructure bonds and development risks. The corporation would securitize the bonds it purchased and sell these securities to the public. The Congressional Budget Office (CBO) analyzed the 1993 proposal and raised questions about whether the National Infrastructure Corpo- ration would have any significant advantage over more straightforward forms of federal assistance (CBO 1994). CBO concluded as follows: • Themunicipal bondmarket is for themostpart awell-functioning credit market. That is, interest rates appear to be consistent with the risks and other costs of the projects being financed. One of the rationales for the National InfrastructureCorporationproposalwas the existence ofmar- ket failures in themunicipal bondmarket that hinder access or increase borrowing costs for government infrastructure projects.Of course, both the National Infrastructure Corporation proposal and the CBO assess- ment envisioned normal economic circumstances and not conditions

Review of Finance Reform Proposals 209 such as the financial crisis that began in 2008, which disrupted all credit markets. • The net effect of the National Infrastructure Corporation would be equivalent to a federal subsidy to local governments for infrastructure spending. The subsidywould be in the formof the transfer of risk from the local governments to the federally capitalized corporation, reduc- ing local governments’ borrowing costs. • The subsidy would increase investment in public infrastructure, but therewouldbenoguarantee that the increasewould improvepublicwel- fare because mechanisms for ensuring that public infrastructure invest- ment is directed to the most economically productive uses are weak. • The National Infrastructure Corporation would have no economic advantage over a program of direct credit guarantees or loans issued by a federal agency (as the TIFIA program, created later, now functions). • TheNational InfrastructureCorporation alsowas presented as amech- anism to promote user fees. CBO found that “achievement of some of the commission’s general goals—encouraging user fees to finance infrastructure projects and requiring state and local governments to pay a larger portion of the costs of federally assisted projects—could improve the allocation of resources. But policymakers could achieve those goals more simply by modifying existing grant programs or by reforming policies for pricing the use of existing infrastructure. There is little evidence that diverting funds to the [National Infrastructure Corporation and Infrastructure InsuranceCompany] from alternative private investment or current federal grants for state and local infra- structure would produce more benefits for society.” • The cost of theprogram to taxpayerswoulddependonhow theNational Infrastructure Corporation was organized: “Organizing the [National InfrastructureCorporation] as either an on-budget agency or a finance company would have fewer risks than establishing the corporation as a government-sponsored enterprise (GSE). If the [National Infra- structure Corporation] was organized as a GSE, the federal budget would not measure, and policymakers could not directly control, the subsidies provided by the implicit federal guarantee of its obligations. Those subsidies would be relatively large because the corporation’s business prospects would be uncertain” (CBO 1994, xi–xii).

210 Funding Options for Freight Transportation Projects The CBO review did not comment directly on the goal of depoliticizing public-sector infrastructure investment and fee decisions, which is an element of most of the national infrastructure authority proposals. It is reasonable to ask whether removing such decisions from the direct responsibilities of elected officials is politically practical (Orski 2008) or desirable from the standpoint of public accountability. Federally Tax-Advantaged Borrowing to Accelerate Investment In proposals published by AASHTO in 2003 and 2007 and in bills intro- duced inCongress in 2005 and 2007, the federal governmentwouldmake a special issue of tax credit bonds, with the proceeds devoted to transporta- tion infrastructure and distributed either through the existing federal sur- face transportation assistance programs or through a competitive grant program for major projects. The justification for the borrowing would be that there is a backlog of work that must be addressed rapidly. The 2003 proposal may also have been seen as a way to allow an increase in the size of the federal-aid programwhile postponing resolution of the debate over increasing federal user tax rates. A tax credit bond is a bond that pays all or part of its interest in the form of credits against the holder’s federal income tax liability. In some uses that have been proposed for these instruments for infrastructure finance, the cost of borrowing to the issuer of the bonds is eliminated; all costs are borne by the federal government in the form of tax revenue for- gone. From the standpoint of the aid recipient, authority to issue tax credit bonds is equivalent to a federal grant whose value equals the dis- counted present value of the interest payments that the recipient avoids over the term of the bond. If the Treasury were not compensated from future user tax revenues, then the tax credit bonds would represent a contribution from the general fund to the federal surface transportation program (now funded almost entirely by user taxes). Therefore tax credit bonds are appropriate where a grant is intended and, in the interests of transparency, should be identified as such. The bondswould cost the fed- eral government more than ordinary grants of the same value to recipi- ents because they would pay a slightly higher interest rate than Treasury bonds (CBO 2004, 3).

Review of Finance Reform Proposals 211 Assistance to Private-Sector Freight Railroads and Terminal Operators Annex 5-1 summarizes proposals for federal assistance to private freight railroads or to private firms constructing intermodal facilities, including a rail investment tax credit and proposals for institutionalized access to fed- eral grants for rail projects. Government assistance to freight railroads has been available, including state aid programs; loans from the federal RRIF program; and grants from the federal Congestion Mitigation and Air Quality program. Proposals to allow states to assist rail projectswith a por- tionof the funds they receive from themajor ongoing federal surface trans- portation assistance grant programs have been considered periodically since the federal surface transportation assistance act of 1991 (ISTEA) but never enacted. The American Recovery and Reinvestment Act of 2009 (Public Law111-5, February 13, 2009)madeprivate-sector freight rail proj- ects eligible to receive aid through the $29 billion special surface trans- portation discretionary grant program enacted as part of the economic stimulus package. The proposal for a rail investment tax credit is favored by the railroads because it would entail fewer government controls than grant funding on where and how investments are made and by highway advocates because this form of aid would not affect highway funding. The railroads have made two economic arguments to justify the tax incentive. First, their competitors in the trucking industry are subsidized because the various fees and special taxes they pay are less than the cost that highway agencies incur in providing and maintaining highways for them. Trucking subsidies suppress rail rates and cause the railroads to lose some business to trucking for which the railroads would be in reality the low-cost provider. Second, rate regulation by the Surface Transportation Board and, more significantly, the political threat of heavier regulation if the railroads were to exercise their market power to increase profitability suppress rates and prevent the railroads from earning the returns that would justify investments for expanding capacity (AAR 2007). Estimates of the magnitude of trucking subsidies through the highway programby the FederalHighwayAdministration (FHWA1997) andTRB (TRB 1996) indicate that they are significant. The argument that these subsidies justify aid to railroads is equivalent to the argument that pay- ing for rail capacity would be cheaper for the government than building

212 Funding Options for Freight Transportation Projects the highway capacity that would be necessary to carry expected freight volumes by truck. Rail capacity can be cheaper only if governments are undercharging trucks. The TRB Freight Capacity committee examined these arguments (TRB 2003, 82–85) and concluded that subsidizing rail construction would be an inefficient means of correcting distortions in the freight market. The result could be excess consumption of both truck and rail services, and the government would have no basis for gauging the optimum size of the rail subsidy. The 2003 committee observed that governments could ensure that the market outcomes of competition between trucking and other modes are in the public interest by adjust- ing truck user fees so that revenues cover the cost of providing highways for trucks. The 2003 committee also observed that, although external costs (of pollution, congestion, and accidents) per ton-mile are lower for rail than for truck freight, external costs as a fraction of freight rates appear to be roughly similar for the two modes, and therefore failure to internalize all such costs may not greatly affect the competitive balance between the modes. A 2008 study of competitive conditions in the rail industry commis- sioned by the Surface Transportation Board concurs with the railroads’ arguments that the threat of tighter regulation suppresses railroad rates (Laurits R. Christensen Associates 2008, ES-26). The resulting reduction in profits would be expected to reduce railroad investment. However, a more straightforward alternative to subsidies as a means of offsetting this effect would be regulatory changes that allowed railroads greater rate- setting freedom and removed uncertainty over federal policy. The rail- roads have proposed regulatory actions for these purposes (AAR 2008a; AAR 2008b). If rail capacity expansion is economically justified and rail- roads could pay for expansion from revenue from customers, it is unlikely that a public benefit could be gained by shifting the cost burden of the expansion from the customers to the public. Shippers’ groups have argued that lackof competition in certain freightmarkets servedby rail has allowed the railroads to charge rates that shippers regard as unreasonable and have proposed legislation to tighten federal regulatory oversight of railroad rates, competitive practices, andmergers (English 2007;Hecker 2007). The possibility exists, in particular circumstances, that a railroadwith amonop- oly in a freight market niche will underinvest to maximize its profits.

Review of Finance Reform Proposals 213 Rate regulation can ameliorate these special situations without creating a need for subsidies. New Local or Project-Specific Revenue Sources and Finance Arrangements Included in this category are proposals to increase reliance on revenue from facility-specific, cost-based fees to pay for publicly provided infrastructure. Examples of this finance arrangement are toll highways and the Alameda Corridor, which charges per container and per railcar fees to its users. Another form of local, facility-specific finance arrangement raises revenue from a source not paid by freight facility users, for example, the local sales tax dedicated to the Reno ReTRAC project described in Chapter 4, which pays for a project that mitigates the community impact of rail traffic. Many publicly owned facilities charge per use fees today (examples are turnpike tolls, airport landing fees, wharfage and dockage fees charged by seaports, and mass transit fares). Also, rent payments that port and airport authorities receive from their commercial tenants are derived from the per use charges that the tenants’ customers pay. Other public facilities (e.g., the inland waterways, the air traffic control system, and port channels) charge no such fees. Per use fees (or their equivalent) are a major source of funds at most major seaports and airports, but they provide a minority of funds for highways and none for the federally pro- vided systems. Most public transportation facilities today receive impor- tant shares of their funds from general tax revenue or from the revenue of special taxes imposed on users (for example, highway motor fuel taxes and the federal aviation passenger ticket tax) that is dedicated to spend- ing on specified classes of facilities and pooled into central funds for national or statewide redistribution. Historically, these arrangements have been favored because tolls or other forms of facility charges were seen as technically impractical and because redistribution has been one of the political objectives of public works programs. Because fuel taxes and similar charges can be, at best, only weakly related to the costs of pro- viding service to individual users, they are an inadequate mechanism for managing use or for guiding investment decisions. The TRB Freight Capacity committee considered the various argu- ments that have been put forth for pooled funding and for subsidizing

214 Funding Options for Freight Transportation Projects construction of individual facilities (TRB 2003, 37–38, 82–85, 132–135). It concluded, as noted above, that the rationale for pooled funding that applied historically for highways is not applicable to freight facilities and that most freight facilities ought to be able to pay for themselves. The committee noted that a government responsibility to provide facilities or leadership in developing a project does not necessarily justify paying for the project with tax revenue. It argued that the important benefits of most freight transportation–related capital projects are the reduced cost of transporting the goods that are carried on the facility constructed, and therefore, in most instances, if such a project cannot be paid for through user fees, its benefits will not be adequate to justify the investment (TRB 2003, 120). The examples of this category cited in the annex are a proposal for cre- ation of regional corridor authorities in California with revenue-raising powers to coordinate freight capacity development, proposals for expan- sion of highway tolling and for imposition of mileage charges on road users, and proposals for greater reliance on user fee funding of the freight infrastructure facilities that are directly provided by the federal govern- ment: harbor channels, inland waterways, and air traffic control. User fees are imposed by the owner of the facility. Therefore, expan- sion of these kinds of revenue sourceswould tend to diminish dependence on federal funds andon the federally operated user fee–trust fund arrange- ments. However, the federal government could have a role in promoting and assisting in the development of local and project-specific revenue sources through financial incentives or technical assistance. Adjustments to the Federal-Aid Highway Program Two kinds of proposals examined by the earlier TRB committees that could increase the effectiveness of the federal-aid highway program are adjustments to the schedule of federal highway user taxes paid by large trucks and reduction of the federal matching share in federal-aid high- way projects. Reducing the federal matching share in each project, with- out reducing the total amount of federal aid disbursed, would increase the federal-aid program’s leverage to induce additional state spending on highways. Adjusting truck taxes could reduce subsidies that distort truck–rail competition, thereby stimulating increased private-sector rail

Review of Finance Reform Proposals 215 investment and obviating any need for subsidies to rail and intermodal projects, and could reduce highway agency construction costs. The annex describes these proposals. CRITERIA FOR EVALUATING FINANCEOPTIONS As Chapter 1 noted, the earlier TRB transportation infrastructure com- mittees considered the problem of comparing and evaluating alternative finance arrangements. The TRB Fuel Tax committee analyzed a series of state and federal study commission reports on transportation finance to identify the evaluation criteria that officials most often cite as important, and it listed its own criteria (TRB 2006, 11–18, 64–68). The TRB Inter- modal Freight committee laid out a step-by-step checklist for deciding on the scope and form of public-sector participation in freight projects (TRB 1998, 38–44). Ideal rules for finance decisions in the public inter- est are not difficult to compose; however, reform is challenging because finance-related decisions are necessarily political and are dictated by the incentives and motives of the active participants in the political process. Reform will entail changing these incentives to align them more closely with the public interest. The national infrastructure authority proposals described in Annex 5-1 would attempt to overcome this challenge by calling on Congress to depoliticize investment and finance decisions in ceding them to an inde- pendent entity. Although Congress has taken analogous actions in the past (for example, in creation of the Federal Reserve Board to isolate monetary policy from immediate political pressures), public works spending is such a central function of legislatures that it seems likely that they would hesitate to withdraw from those decisions to such an extent. However, in more modest ways, legislatures have already delegated con- trol of certain public works decisions to grant recipients or to program administrators. For example, in the federal-aid highway program, the formula allocations to states and the division of funding into program categories allow Congress to set broad policy but leave project selection to lower levels of government. At the state level, the highway construction program is a political decision but is influenced by objective input (e.g., pavement management systems used to guide resurfacing programs), in

216 Funding Options for Freight Transportation Projects part as a consequence of federal requirements for transparent decision making. The committee’s charge calls on it to evaluate alternative finance strategies to assess how they would serve the public interest. This section identifies criteria that an evaluation of the proposals described above should apply. The criteria can be organized according to the five elements of a complete finance reform package listed at the beginning of this chap- ter: (a) defined goals; (b) the assignment of responsibilities among gov- ernments and the private sector; (c) rules for determining user fees, pricing, and subsidies, and who should pay subsidies; (d) rules on who selects projects and controls project revenues; and (e) a transition strat- egy to establish the new finance arrangement. There are significant dif- ferences among the proposals in each of these elements. The problem that designers of a reform package face is to decide how to specify each of the elements: what goals should be sought, how responsibilities should be assigned, what rules should govern pricing and project selection, and how tomake the transition to the newarrangement. Table 5-1 summarizes how the designers of the proposals discussed in this chapter appear to have answered these questions. As Chapter 1 explained, the normative criterion the committee has applied is that finance arrangements should be designed to improve freight system performance by promoting efficient investment decisions and operations. The five criteria listed above are descriptive of the key elements of finance arrangements; the task for designers of new finance arrangements is to specify each of these elements so as to satisfy the ulti- mate criterion of improved system performance. Goals of the Reform Package The TRB Fuel Tax committee, describing highway finance reform pro- posals, noted: The diversity of reform proposals reflects different points of view on how the underlying problems of transportation finance should be defined. The pro- posals all recognize, to some extent, dual goals of finance policy: to assemble a collection of revenue flows adequate to support a desired level of spending and to establish practices that promote investment in high-return projects

TA B LE 5- 1 Su m m ar y of Fi n an ce R ef or m P ro po sa lF ea tu re s D ec is io n- M ak in g Ru le s: D iv is io n of Re sp on si bi lit ie s: So ur ce s of Fu nd s: U se rF ee s, Pr oc ed ur es fo rP ro je ct Se le ct io n Pr op os al G oa ls Fe de ra l/S ta te /L oc al ,P ri va te Pr ic in g, Su bs id ie s an d B ud ge ts N ew fe de ra l-a id pr og ra m fo r fre ig ht N at io na li nf ra st ru ct ur e au th or ity Fe de ra lly ta x- ad va nt ag ed bo rro w in g to ac ce le ra te in ve st m en t In cr ea se pu bl ic fre ig ht in fra - st ru ct ur e sp en di ng . In cr ea se us er fe e re ve nu e. Pr ov id e pr ed ict ab ili ty an d st ab ili ty in fu nd in g. Ra tio na liz e an d de po lit ici ze in ve st m en td ec isi on s. Ex pa nd ac ce ss to pr iva te ca pi ta lt hr ou gh fe de ra lly ca pi ta liz ed ba nk . Al lo w co m pl et io n of a ba ck lo g of hi gh -v al ue pr oj ec ts w hi le po st po ni ng in cr ea se in us er ta xr at es . St ro ng er fe de ra lr ol e in di re ct in g de ve lo pm en ta nd in fu nd in g. (M os tp ro je ct sr em ai n lo ca lly or pr iva te ly sp on so re d. ) Po ss ib ly ne w go ve rn m en tr ol e in flu en cin g pr iva te -s ec to r in ve st m en t. N ew in de pe nd en tf ed er al en tit y em po w er ed to m ak e gr an ts an d lo an sa nd po ss ib ly to bo rro w . St ro ng er fe de ra lr ol e in di re ct in g de ve lo pm en ta nd in fu nd in g. Fe de ra lf un di ng in cr ea se im pl ie s st ro ng er fe de ra lr ol e. Fe de ra ls ha re of pr oj ec ts fu nd ed by ne w sy st em - le ve lu se rf ee so rt ax es an d po ss ib ly pa rti al ly fro m ge ne ra lf un d. Fe es no td iff er en tia te db yf ac il- ity us ed or co st so cc as io ne d. Pr im ar yr el ia nc e on cr ed it as sis ta nc e pr om ot es us er fe e fu nd in g. So m e ve rs io ns w ou ld al so pr ov id e gr an ts fro m fe de ra l ge ne ra lf un d. Fe de ra lg en er al fu nd .I n so m e ve rs io ns ,c os tt o Tr ea su ry w ou ld be re im bu rs ed fro m fu tu re fe de ra lh ig hw ay us er fe e re ve nu e. Pr oj ec ts pr op os ed by st at es or pr iva te se ct or ;f ed er al go v- er nm en ts el ec ts pr oj ec ts to re ce ive ai d. Po ss ib ly so m e pr oj ec ts fe de ra lly in iti at ed . Pr of es sio na ls ta ff of in de pe nd en t en tit ye va lu at es pr oj ec ts on cr ite rio n of na tio na le co no m ic be ne fit . Po ss ib ly in ce nt ive sf or pr oj ec ts w ith us er ch ar ge s, pr ici ng fo r de m an d m an ag em en t. Ad de d fu nd in g w ou ld flo w th ro ug h es ta bl ish ed ai d pr og ra m s( i.e ., no ch an ge in pr oc ed ur es ); or ,i n so m e ve rs io ns ,n ew fe de ra l en tit yw ou ld be cr ea te d to di re ct us e of fu nd s. (co nt in ue d on ne xt pa ge )

Fe de ra la ss ist an ce to pr iva te - se ct or ra il an d te rm in al op er at or s( in ve st m en tt ax cr ed its or gr an ts ) N ew lo ca lo rp ro je ct -s pe cifi c re ve nu e so ur ce s( e. g. ,r oa d to lli ng an d pr ici ng ;p or t in fra st ru ct ur e fe es ;r ev ise d ha rb or ,w at er w ay fe es ; re gi on al co rri do ra ut ho rit ie s) Ad ju st m en ts to th e fe de ra l-a id hi gh w ay pr og ra m :r ed uc ed fe de ra ls ha re ;t ru ck fe e ad ju st m en t In cr ea se ca pi ta ls pe nd in g of fre ig ht ra ilr oa ds an d in te rm od al te rm in al st o of fs et tru ck in g su bs id ie s an d re du ce ex te rn al co st s of fre ig ht . Pr ov id e ne w re ve nu e so ur ce s fo ri nv es tm en t. In cr ea se re lia nc e on m ar ke t fo rc es an d on lo ca l de cis io n m ak in g to di re ct in ve st m en t. In cr ea se fe de ra ll ev er ag e to st im ul at e st at e an d lo ca l sp en di ng . Im pr ov e ef fic ie nc yo fh ig hw ay us e. Pr iva te fir m sd ec id e us es ,s ub je ct to fe de ra la ge nc yr ev ie w fo r co ns ist en cy w ith us es al lo w ed in fe de ra ll aw . N ew fe de ra li nfl ue nc e on pr iva te - se ct or in ve st m en td ec isi on s. Lo ca li ns tit ut io ns le vy in g fe es w ou ld ha ve gr ea te r re sp on sib ili ty an d au th or ity . Sh ar e of fu nd sf ro m st at e an d lo ca l so ur ce si nc re as es bu tf ed er al in flu en ce ov er st at e an d lo ca l sp en di ng le ve ls in cr ea se s. Fe de ra lg en er al fu nd . Fe es de pe nd in g on us e an d on co st so cc as io ne d w ou ld be m ai n re ve nu e so ur ce . As in pr es en tf ed er al -a id hi gh w ay pr og ra m ,e xc ep t im pl ici ts ub sid ie sf ro m un de rp ay m en to fu se rf ee s re du ce d. Pr iva te fir m ss el ec ti nv es tm en ts on th e ba sis of ex pe ct ed re tu rn s an d el ig ib ili ty fo rf ed er al as sis ta nc e. In st itu tio ns le vy in g fe es w ou ld co nt ro lr ev en ue s, po ss ib ly w ith fo rm al in pu tf ro m fe e pa ye rs . As in pr es en tf ed er al -a id hi gh w ay pr og ra m ,e xc ep ts ta te an d lo ca l go ve rn m en ts re ce ive pa rti al fe de ra lm at ch fo re ve ry ca pi ta l do lla rs pe nt . TA B LE 5- 1 (c on ti nu ed ) Su m m ar y of Fi n an ce R ef or m P ro po sa lF ea tu re s D ec is io n- M ak in g Ru le s: D iv is io n of Re sp on si bi lit ie s: So ur ce s of Fu nd s: U se rF ee s, Pr oc ed ur es fo rP ro je ct Se le ct io n Pr op os al G oa ls Fe de ra l/S ta te /L oc al ,P ri va te Pr ic in g, Su bs id ie s an d B ud ge ts

Review of Finance Reform Proposals 219 and efficient operation of existing facilities. The starting point of proposals from government sources and transportation interest groups tends to be spending needs (generally seen as greater than present revenues can sup- port). Proposals from academia and other independent sources tend to emphasize the importance of finance practices that provide incentives for better spending and operating decisions and usually avoid judgments on the proper levels of revenue and taxes. (TRB 2006, 121) This diversity of goals is evident in the proposals described in Annex 5-1. For example, among the proposals that entail creation of an independent authority with responsibilities for infrastructure, the pri- mary goal of the Center for Strategic and International Studies (CSIS) version is to rationalize decision making. The bills introduced in Con- gress that incorporate a version of this proposal dilute the features of the original that were intended to further this goal and introduce provisions intended to ensure that the effect of enactment would be to increase infrastructure spending. Thus to evaluate the range of proposals, it is necessary first to make a judgment about which goals are appropriate. Appropriately, one of the first concerns of public administrators responsible for transportation programs is revenue adequacy. However, as Chapter 2 argued, finance alternatives must also be evaluated in terms of their impacts on the performance of the transportation system. Finance arrangements exert an important influence on decisions about which projects are constructed and on how existing facilities are utilized. Through these connections with investment decision making and with operations, changes in finance arrangements affect transportation sys- tem performance. Table 5-2 compares the policy proposals described in this chapter according to how they might be rated on this economic efficiency criterion. In general, a proposed reform in freight finance arrangements could be expected to encourage more efficient investment decisions and operations if it were to derive revenue for capital expendi- tures and operation from users, bring charges more in line with the costs attributable to each use of facilities, constrain investment decisions by user fee revenues, minimize expansion of direct government influence over private-sector decisions, and strengthen capabilities and incentives for objective economic evaluation of projects conducted by operating agencies.

TABLE 5-2 Possible Effects of Proposed Finance Reforms on Investment Decision Making and Operating Efficiency Proposal Potential Positives for Efficiency Potential Negatives for Efficiency New federal-aid program for freight National infrastructure authority Federally tax-advantaged borrowing to accelerate investment Federal assistance to private-sector rail and terminal operators Revenue derived from user fees. Grants competitively awarded. Could generate revenue for high- value bottleneck projects. Stable funding makes planning easier and more effective. Public infrastructure investment decision making depoliticized and rationalized from a national perspective. Borrowing costs for public invest- ment lowered through easier access to private credit market (in versions that would leverage public capital). Credit assistance encourages user charges or other project-specific revenue sources. Would avoid delay in completion of high-value projects. Could offset market distortions caused by subsidies to trucks in highway program, external costs of trucks, and regulatory suppression of returns on rail investment. Pooling of revenues can result in productive facilities subsidizing unproductive ones. Flat fee unrelated to costs of spe- cific movements. Specific objectives not defined. (What is to be built?) Would bias private investment decisions in favor of federally favored projects. Would depend on structure of authority, but federal capital subsidies to local projects could encourage low-value projects. Centralization of powers and reduced political oversight would have risks. If Treasury is not reimbursed from user fee revenue, would tend to undermine the efficiency- reinforcing features of the nor- mal user fee–trust fund mecha- nism (i.e., that users pay fees or taxes covering costs and spend- ing is constrained by revenue). Subsidies would result in excess consumption of all freight modes. Government influence on rail invest- ment decisions would tend to direct spending away from highest-return investments. 220 Funding Options for Freight Transportation Projects

Review of Finance Reform Proposals 221 Assignment of Responsibilities Among the six categories of proposals listed above (a federal-aid pro- gram for freight, a national infrastructure authority, acceleration of spending through federally subsidized borrowing, federal assistance to private-sector freight facilities, development of new local or project- specific revenue-raising capacities, and adjustments in the federal-aid highway program), most proposals in the first four envision major new federal commitments, possibly including substantial taxpayer subsidies. The fifth category, development of new local or project-specific revenue- raising capacities, includes proposals that could proceed if major new federal assistance does not materialize. TRB’s Intermodal Freight committee noted that local governments are willing to provide infrastructure support for industries of national Proposal Potential Positives for Efficiency Potential Negatives for Efficiency New local or project- specific revenue sources Adjustments to federal- aid highway program: reduced federal share; truck fee adjustment Reliance on user fee revenue or other locally generated revenue discourages low-value projects. Pricing can be used for optimum congestion management. Lower federal matching share (leaving total federal outlays unchanged) would stimulate increased total (state plus federal) investment. Truck fee adjustment would reduce freight market distor- tions; could stimulate rail investment; could reduce road maintenance costs. More effective remedies to market distortions are available (by adjusting truck fees and eco- nomic and environmental regulations). New institutions with authority to raise revenue and organize projects may be needed; insti- tutional obstacles could slow completion of high-value projects. Could tend to reduce total spending in fiscally weak states, leading to gaps in the national network.

222 Funding Options for Freight Transportation Projects significance if the local community can capture a large enough portion of the national benefits of the activity in the form of income to local resi- dents and tax and user fee revenue to local government (TRB 1998, 56). The committee concluded that “local decisions can be expected to har- monize with national interests . . . if state and local governments have mechanisms for recouping costs of publicly provided facilities through user fees,means are available to compensate parties that bear the spillover costs of development projects, and local governments are not induced by the availability of external aid to undertake uneconomic projects. Federal policy should seek to bring about these conditions” (TRB 1998, 101). Proposals have been made for federal actions that would aim to pro- mote local self-sufficiency in this way. Federal support for development of improved forms of road user charges, as in the proposal of the TRB Fuel Tax committee described above, would be one such action. Another example is a series of proposals published by the Brookings Institution that call for devolution of decision making and revenue responsibilities in surface transportation, but with federal engagement to realign author- ity in favor of local governments (Boarnet and Haughwout 2000; Robins and Strauss-Wieder 2006). The federal governmentwould provide finan- cial incentives for states to transform metropolitan planning organiza- tions into regional infrastructure authoritieswith taxation, programming, and spending power. Ultimately, in the proposal, regionally levied user fees would replace most federal aid. Rules for Fees, Pricing, and Subsidies The practice of collecting fees from users to pay for government-supplied transportation facilities and services is generally accepted and is applied in most transportation modes. However, as the TRB Fuel Tax committee noted, “governments generally have respected the user fee finance princi- ple because it is seen as practical and fair. Explicit consideration of how changes in user fees and other funding arrangementswill affect transporta- tion system performance or the economic benefits derived from trans- portation programs seldom enters into . . . fee decisions” (TRB 2006, 68). That committee and the other TRB committees that studied surface trans- portation finance, as well as the committees on aviation industry policy, all concluded that fees and other revenue alternatives should be compared

Review of Finance Reform Proposals 223 on the basis of their effects on transportation system efficiency. They rec- ommended programs of systematic evaluation to observe the impacts of fees on the behavior of system users, on investment decisions, and on the costs and benefits of transportation programs. The proposals summarized in Annex 5-1 show great variation in the emphasis placed on user fees and on how fees would be determined. In some proposals, like the CSIS National Investment Corporation, federal participation would be used as an incentive to enforce reliance on user fee revenue, appropriate rules for setting fees (e.g., congestion charging), and privatization. In the California regional corridor authorities pro- posal, the basis of the finance arrangement proposed is project-level user charges. In contrast, other proposals would deemphasize or dispense with the principle of reliance on user fee revenue. Among proposals that rely on user fees, differences in the structure of the fees proposed should be an important evaluation criterion. The out- come of state-level and national debates over the forms of possible fee schemes—for example, pooled regional fees versus facility-specific fees, use-based fees versus up-front contribution commitments in public– private partnerships, and fees imposed on containers versus tolls imposed on drayage trucks at ports—will affect the operations of the facilities in question as well as capacity investment decisions. Rules on Project Selection and Control of Fee Revenue Among the proposals summarized, three general approaches to invest- ment decision making may be identified: continued reliance on the pres- ent system of legislative and administrative decision making in the public sector (possibly with adjustments to federal, state, and local responsibil- ities or with extension of this system to rail investment); the solution of the infrastructure authority proposals—delegating substantial power to an independent board of technical experts; and increased reliance on the market mechanism to guide investment decisions. Most of the proposals would involve mixtures of these approaches but would emphasize one of them. Each approach has possible advantages. The existing decision-making arrangements have successfully delivered valuable infrastructure systems in the past and could be modified to improve their performance. One important area for improvement is in

224 Funding Options for Freight Transportation Projects the structure of grants. It is known that the rules of the federal-aid high- way program with regard to matching shares and caps on grants avail- able to each state attenuate the leverage that federal dollars exert over total infrastructure spending. Similarly, tax incentives may be less effective stimuli for investment than other forms of grants with the same cost to taxpayers. In evaluating the various proposals for new grant programs and tax incentives, one of the criteria should be designing the program so that it maximizes the leverage of the taxpayer dollars provided. Greater reliance on market-driven investment decisions has the most promise for improving the performance of the transportation system but will be challenging to implement. The TRB Fuel Tax committee observed that decisions will inevitably become more influenced by market forces as newor refined forms of facility-specific user fees are developed. For exam- ple, if highwaymileage charges or other forms of tolls becomemorewidely applied, highway capacity expansion decisions will have direct revenue implications for the state and local governments that own the roads. Sim- ilarly, greater reliance on user fees to pay for port services and port access routeswill influence competition amongU.S. ports and their relative rates of expansion. These connections among revenue sources, pricing schemes, and the long-termdirectionof capacity development should bemajor con- siderations in evaluating the alternative finance arrangements. Transition Planning Noneof the proposals summarized inAnnex 5-1,with the exceptionof the TRB Fuel Tax committee’s mileage charging proposal, gives much atten- tion to problems ofmaking the transition fromhistorical finance practices to fundamentally new ones. The earlier TRB committee recognized that managers of public-sector transportation programswill require new com- petencies and new information sources as finance practices change. Agen- cies are confronting this problem today in dealing with such activities as toll road concession agreements (Foote 2006) and public–private joint projects. Proposals for finance reform should take into consideration the public-sector management requirements the reforms would impose and how agencies could be prepared to meet them. Table 5-1 does not include a comparison of the categories of proposal on the basis of transition requirements, but none of them could be intro-

Review of Finance Reform Proposals 225 duced confidently without careful planning and preparation. The chal- lenges of introducing mileage charging are well recognized. Instituting a national freight user fee would require resolving conflicts with fees that some localities or states already put in place or are considering and could discourage local initiatives to develop such revenue sources. The success of a national infrastructure authority would depend on development of rigorous and practical procedures for project evaluation and develop- ment of a staff competent to conduct such a program. REFERENCES Abbreviations AAR Association of American Railroads CBO Congressional Budget Office FHWA Federal Highway Administration GAO General Accounting Office TRB Transportation Research Board USDOT U.S. Department of Transportation AAR. 2007. Freight Rail Capacity Expansion Act of 2007 (S. 1125/H.R. 2216): Frequently Asked Questions. www.aar.org/IndustryInformation/InfrastructureTaxIncentive/~/ media/AAR/ITC/FAQ_flyer_v3_FINAL.ashx. AAR. 2008a. Product andGeographicCompetition. Feb.www.aar.org/GovernmentAffairs/ ~/media/AAR/PositionPapers/111.ashx. AAR. 2008b.Why the Rail Re-RegulationDebate Is Important. Aug. www.aar.org/Home/ AAR/IndustryInformation/BackgroundPapers/Economic%20Reregulation/~/media/ AAR/BackgroundPapers/Why_Rail_Rereg_Debate_is_Important_Aug_2008.ashx. Boarnet, M., and A. Haughwout. 2000. Do Highways Matter? Evidence and Policy Impli- cations of Highways’ Influence on Metropolitan Development. Brookings Center on Urban and Metropolitan Policy, March. CBO. 1994. An Analysis of the Report of the Commission to Promote Investment in Amer- ica’s Infrastructure. Feb. CBO. 2004. Tax-Credit Bonds and the Federal Cost of Financing Public Expenditures. July. English, G. 2007. Rail Competition and Service: Before the House Committee on Trans- portation and Infrastructure Subcommittee on Railroads. National Rural Electric Co- operative Association, Sept. 20. www.railcure.org/pdf/Testimony_Glenn_English.pdf. FHWA. 1997. 1997 Federal Highway Cost Allocation Study. Aug.

226 Funding Options for Freight Transportation Projects FHWA. n.d. PPP Case Studies: Indiana Toll Road. www.fhwa.dot.gov/ppp/indiana_ tollway.htm. Foote, J. H. 2006. Testimony to the Highways, Transit, and Pipelines Subcommittee of the House Transportation and Infrastructure Committee. Subject: Understanding Contemporary Public Private Highway Transactions—The Future of Infrastructure Finance. May 24. GAO. 2003. Freight Transportation: Strategies Needed to Address Planning and Financing Limitations.Dec. Hecker, J. Z. 2007. Freight Railroads: Updated Information on Rates and Competition Issues: Testimony Before the Committee on Transportation and Infrastructure, House of Representatives. Sept. 25. Jasper, H. N. 1991. Organizational Options for the Federal Aviation Administration. In Special Report 230: Winds of Change: Domestic Air Transport Since Deregulation, Transportation Research Board, National Research Council, Washington, D.C., pp. 313–383. Laurits R. Christensen Associates. 2008. A Study of Competition in the U.S. Freight Rail- road Industry and Analysis of Proposals ThatMight Enhance Competition. Prepared for the Surface Transportation Board, Nov. Lauver, J. 1998. Federal Surface Transportation Legislation and Freight. In Special Report 252: Policy Options for Intermodal Freight Transportation, Transportation Research Board, National Research Council, Washington, D.C., pp. 153–198. Orski, C. K. 2008. The Transportation Agenda of the Obama Administration. Innovation NewsBriefs, Vol. 19, No. 22, Nov. 12. Robins, M. E., and A. Strauss-Wieder. 2006. Principles for a U.S. Public Freight Agenda in a Global Economy. Brookings Institution Series on Transportation Reform, Jan. Schwartz, B. L. 2008. Redressing America’s Public Infrastructure Deficit. Statement before the Transportation and Infrastructure Committee, U.S. House of Representa- tives, June 10. TRB. 1996. Special Report 246: Paying Our Way: Estimating Marginal Social Costs of Freight Transportation.National Research Council, Washington, D.C. TRB. 1998. Special Report 252: Policy Options for Intermodal Freight Transportation. National Research Council, Washington, D.C. TRB. 2003. Special Report 271: Freight Capacity for the 21st Century.National Academies, Washington, D.C. TRB. 2006. Special Report 285: The Fuel Tax and Alternatives for Transportation Funding. National Academies, Washington, D.C. USDOT. 2001. Financing Freight Transportation Improvements Workshop Proceedings: April 29–May 1, 2001.

Annex 5-1 Examples of Recent Finance Reform Proposals Annex 5-1 Box 1 lists the proposals summarized in this annex. The pro- posals are grouped according to their features into the categories defined in Chapter 5. The list is not comprehensive, and new proposals con- tinue to be made regularly. The proposals described are intended to be representative of the most common forms of finance reform proposals over the past two decades. New proposals are likely to be variations on these forms. NEWFEDERAL-AID PROGRAMFOR FREIGHT These proposals would create an independent federal-aid program to fund freight infrastructure projects, with features modeled after both the federal-aid highway program and federal transit programs. The intent of such a program would be to increase funding for freight-related projects by making federal aid available to projects that are not now eligible, re- directing priorities in state and local transportation programs toward freight projects, and creating new revenue sources. Critical Commerce Corridors TheCritical Commerce Corridors (3C) proposal originatedwith ARTBA (ARTBA n.d.; Potts 2007; Eldridge 2007). AASHTO has promoted the proposal in its publications, although it has not yet adopted an official policy position on it (AASHTO Journal 2007a; AASHTO 2007, 11). The proposal calls for a new federal program to provide financial aid to freight-related highway infrastructure projects, funded with new, dedi- cated user fees or taxes imposed on freight system users, available for 227

228 Funding Options for Freight Transportation Projects ANNEX 5-1 BOX 1 Selected Finance Reform Proposals New federal-aid program for freight • Critical Commerce Corridors proposal of ARTBA: An inde- pendent federal-aid program for projects on designated freight routes; funded by new user fees • Federal Freight Trust Fund proposal of the Coalition for America’s Gateways and Trade Corridors • NSTPRSC Program to Enhance U.S. Global Competitiveness National infrastructure authority • National Investment Corporation proposal of CSIS: A federal entity empowered to issue bonds and make investment deci- sions; to be the sole source of all federal participation in trans- portation, water, and education infrastructure • Dodd–Hagel National Infrastructure Bank: Bill in Congress derived from the CSIS proposal • NSTPRSC National Surface Transportation Commission (advisory only) Federally tax-advantaged borrowing to accelerate investment • Transportation Finance Corporation proposal of AASHTO: $60 billion tax credit bond issue; proceeds to be apportioned through existing federal-aid programs; tax loss reimbursed from Highway Trust Fund • Wyden–Thune Transportation Finance Corporation: Bill in Congress for issue of tax credit bonds administered by a con-

gressionally charted corporation with power to select projects from state, local, or private proposals Federal assistance to private-sector rail and terminal operators • Railroad investment tax credit proposal, supported by the Association of American Railroads: 25 percent investment tax credit for freight rail infrastructure spending • Freight rail grant program proposals from NSTPRSC and other sources Development of new local or project-specific revenue sources and institutions responsible for finance • Tolling and road pricing proposals from TRB committees and other sources • Waterfront Coalition California port access finance concept: Regional authorities sponsor projects funded by public– private partnerships with cost sharing; each project to be self-supporting • Locally controlled port or container fee proposals from various sources • Aviation finance proposals from TRB committees and others • Port, harbor, and waterway finance proposals from TRB com- mittees and others Reforms to the federal-aid highway program to increase cost-effectiveness and federal leverage • Changes in grant matching ratios proposed by GAO and others • Changes in truck user taxes SOURCES: See text. Review of Finance Reform Proposals 229

230 Funding Options for Freight Transportation Projects projects on facilities that are part of a federally defined 3C system. The main features are as follows: • Theprogram is to be federally funded anddirected,with a 25-year dura- tion, and devoted to construction and upkeep of surface freight trans- portation facilities. • It is to be paid for by dedicated revenue from new federally imposed freight-related user fees “and potentially other mechanisms” (ARTBA n.d.). (The revenue is dedicated in the sense that the lawwill dictate that spending over the life of the program will equal revenue collected.) Possible forms of fees that should be considered include a bill of lad- ing tax, a truck mileage tax, a freight transaction fee paid by shippers, freight transfer station fees, tolls, and customs fees. • In addition to the 3Cprogram, the federal government should increase funding for the established federal-aid highway and transit programs (i.e., the 3Cprogramshould increase total federal transportation spend- ing rather than divert it). • While a role is to be preserved for state and local governments in proj- ect selection and execution, the federal government is to determine project eligibility so that funding goes only to projects serving national needs. Funds would not be apportioned by formula to states (except possibly aid for certain Interstate highway improvements). Presumably the federal governmentwould accept grant applications from states and others and award support competitively. The proposal does not pre- clude federally initiated projects and implies that the federal govern- ment would be committed to initiating needed projects if others failed to do so. • Eligibility is restricted to projects that are components of a federally des- ignatednational freight network of corridors, routes, and terminal facil- ities, the Critical Commerce Corridors System. At the least, selected highways and intermodal interchange facilitieswould be included in the system.Most or all of the Interstate highway systemwould be included. Freight railroads would be included if the railroad companies agree to pay some user fee into a national pool to be allocated to projects by the government. Waterways are not specifically mentioned. • Improvements to the 3C System would be directed by a 25-year plan developed by the federal government cooperatively with state and local

Review of Finance Reform Proposals 231 governments and industry. Cost estimates in the planwould determine revenue requirements and fee rates. The plan would include projects needed to ensure a specified minimum service quality on all segments of the 3C System. Theplanning components of the 3Cproposal (designationof a national system, a 25-year improvement planwith cost estimates, and service qual- ity standards) have similarities to the European Union’s (EU’s) Trans- EuropeanNetwork (TEN-T)program, described inChapter 4. TheEUhas designated a systemof priority transportation corridors that are important for international transportation (of passengers and freight), including all transportationmodes, and has developed a 15-year plan of improvements with cost estimates, based on detailed economic evaluations. In contrast to the 3C proposal, however, the role of the central authority (the EU) in project finance is secondary. The EU provides loans and small grants, but projects are the primary responsibility of the member countries, and adherence to the TEN-T plan is voluntary. A second example of the concept of a centrally planned package of improvements to major freight infrastructure facilities is Canada’s new national fund for gateways and border crossings, which is to receive C$2.1 billion over 2007–2013 from the federal government. Federal funds are to be matched with provincial and private-sector funds according to agreements formed for individual projects. The program is to carry out marine, road, rail, and air transportation improvements at a limited num- ber of international gateways and intermodal hubs, including border crossings between Canada and the United States. The federal program does not derive funds from any transportation user fee or dedicated tax (Transport Canada 2007). Federal Freight Trust Fund Another form of freight trust fund has been proposed by the Coalition for America’s Gateways and Trade Corridors (Coalition for America’s Gateways and Trade Corridors n.d.; Keane 2006). The proposal, which the coalition presented in 2006 to NSTPRSC, calls for creation of a new federal Freight Trust Fund, independent of existing trust funds, to pro- vide grants to freight-related infrastructure projects. Revenue to the fund

232 Funding Options for Freight Transportation Projects is to be partly from a share of the revenue of the federal Highway Trust Fund and partly from additional user and nonuser sources to be deter- mined, possibly including a share of existing customs fee revenue. [“The cost of goods and goods movement should support and internalize some portion of the cost of expanding related infrastructure, such that growth in demand for moving goods supports corresponding expansion of infrastructure” (Coalition for America’s Gateways and Trade Corridors n.d., 7).] The fund is to be pay-as-you-go rather than dependent on bor- rowing. Grants are to be competitively awarded to individual projects according to criteria similar to those specified in SAFETEA-LU for the Projects of National and Regional Significance program. Selection crite- ria are to favor multistate projects and projects with relatively large non- federal contributions. The coalition has a membership of about 40 organizations including port authorities and other state and local government agencies, as well as private-sector firms and groups in the engineering, railroad, agricul- ture, construction, and other sectors. It was formed to promote atten- tion to freight in federal transportation programs and presented a similar proposal during debate over the previous reauthorization of the federal surface transportation aid program (GAO 2003). It also has been suggested that federal action could take the form of a national fee imposed on cargoes, with an exemption for cargo passing through ports that had their own fees (Knatz 2008, 8; Mongelluzzo 2008). Such a provision in a national fee program would avoid penalizing ports that had taken the initiative in developing their own revenue sources and would reduce the competitive pressure that discourages port fees.Depend- ing on the program rules, the outcome might be that most major ports would decide to impose their own fees to keep control of the revenues. Administering such a programwould be challenging, from the standpoint both of collecting the fees and of deciding how to allocate expenditure of the national fee revenue among ports and other facilities. The February 2009 report of theNational SurfaceTransportation Infra- structure Financing Commission, one of the two finance commissions mandated in the 2005 federal surface transportation act (SAFETEA-LU), comprehensively reviews possible new sources of revenue to pay for pub- licly constructed freight-related infrastructure. The commission recognizes

Review of Finance Reform Proposals 233 “the likely need for a significant portion of the revenues from certain freight sources to be dedicated to freight-oriented congestion and inter- modal or border crossing projects and programs,” that is, the need for a freight trust fund if new fees or taxes are imposed on freight movements, because “visible benefits are necessary to generate the industry support required to make the mechanism politically viable” (NSTIFC 2009, 112). The commission also rated a federal container fee and a fixed percentage surcharge added to customs duties as potentially appropriate and prac- tical freight-derived revenue sources (NSTIFC 2009, 86, 87, 89). It stated its final conclusion as follows: “The Commission considered a number of alternative freight-related revenue sources but determined that, while several of them may be viable options, the best way to increase funds from freight sources in the short run is by adjusting the fees that the entire trucking industry currently pays into the Highway Trust Fund” (NSTIFC 2009, 12). NSTPRSC Program to Enhance U.S. Global Competitiveness NSTPRSC, created by Congress in the 2005 surface transportation act (SAFETEA-LU), recommended that the federal transportation assistance programs be reorganized into 10 new functional programs. One of them, the Program to Enhance U.S. Global Competitiveness, would be devoted to freight transportation infrastructure. The procedures of the freight pro- gram would be as follows (NSTPRSC 2007, 15–19, 42–43, 46–47): • Federal aid would be competitively awarded to states or to state– private partnerships. Awards would be guided by a National Freight Transportation Plan jointly developed by the federal government and state and local governments. • The federal contribution to freight projects would be 80 percent or higher. • At least some kinds of freight rail projects would be eligible, but private entities would not be subsidized. It is unclear how these two provisions would be reconciled. • Sources of funds for federal freight grants would be a collection of user taxes and feeswhose revenueswere dedicated to the federal freight pro- gram. They would include a new federal freight fee (which could be a

234 Funding Options for Freight Transportation Projects container charge or freight waybill surcharge) as well as shares of exist- ing fuel taxes and customs duties. State and local governments would be preempted from imposing their own freight user fees. • A federal investment tax creditwould be available to railroads andother private-sector owners of transportation facilities who invest in capac- ity expansion. • State and locally imposedhighway tollswould be expected to contribute to freight capacity expansion. Federal restrictionson tollingon the Inter- state system would be relaxed to allow tolls to fund new capacity and for congestion management. NATIONAL INFRASTRUCTURE AUTHORITY These proposals, including bills introduced in Congress, call for federal creation of an independent authoritywith responsibilities related to infra- structure development, which in some proposals would have powers to borrow money and to make grants or loans to support infrastructure, including transportation facilities, according to selection criteria that the authority administers. National Investment Corporation The National Investment Corporation is a proposal of the Commission on Public Infrastructure, formed by CSIS, an independent think tank (Rohatyn and Rudman 2005; Ehrlich and Landy 2005; Kulisch 2006; Rohatyn 2008). The elements of the proposal are as follows: • The National Investment Corporation would become (possibly after a transition period) the sole source of federal grants or other financial participation projects to build infrastructure for transportation, water supply, and education. It ultimately would replace the existing trans- portation trust funds (except that a formula grant program for aid to small projects would continue). Federal agencies that build transporta- tion infrastructure (principally the U.S. Army Corps of Engineers and the Federal AviationAdministration)would be required to apply to the corporation for project funds. • The corporation would have the power to issue long-term bonds guar- anteed by the federal government. Its revenue would include interest

Review of Finance Reform Proposals 235 on loans and could presumably include the dedicated taxes now cred- ited to the trust funds. • The corporation would receive project proposals from state and local governments and from federal agencies. • Selectionof projects receiving grants or loanswouldbebasedonproject- by-project evaluations by “a corps of expert project evaluators” (Ehrlich andLandy 2005, 15), eliminating formula allocations and congressional earmarking. Proposals would be required to show that all justified noncapitalmeasures (e.g., demandmanagement) hadfirst been applied and that appropriate user fees were in place. Proposals would specify cost shares, and the federal share would be tailored to “a level commen- surate with federal benefits” (Ehrlich and Landy 2005, 15). • Criteria would favor private participation and could require that proj- ects first be put up for bids for private construction and management before public funds were committed. [“Projects financed by risk cap- ital are more likely to be rationally designed than those that emerge from the political process” (Ehrlich and Landy 2005, 11).] The National Investment Corporation proposal has three objectives: 1. To expand and broaden the federal role in infrastructure in the belief that infrastructure decay is a national threat requiring a federal response and the states alone are not equal to the task; 2. To rationalize and depoliticize decision making, creating an objective process in place of current inefficient practices, which include ear- marking; formula allocation of funds; conflict between advocacy and administrative functions in federal infrastructure programs; andunder- utilization of pricing, demand management, and private-sector pro- vision [“Though underinvestment poses real risks, . . . committing resources to new infrastructure investments without a better process for guiding those resources . . . will not solve the problem” (Ehrlich and Landy 2005, 6)]; and 3. To accelerate spending [the authors cite an American Society of Civil Engineers estimate of a $1.6 trillion spending gap over 5 years (Rohatyn and Rudman 2005)]. The authors note that operation of the National Investment Corpo- ration would in effect create a federal capital budget separate from the

236 Funding Options for Freight Transportation Projects operating budget, with the result that investment decisions would not be distorted by short-term cash availability. They cite the European Infra- structure Bank as a successful model of the proposal. Dodd–Hagel National Infrastructure Bank Legislation introduced in Congress in 2007 (S. 1926, August 1, 2007) would create a National Infrastructure Bank (Dodd 2007; Dodd and Hagel 2007). The bill is derived from the CSIS proposal described above. The bank would be an independent federal entity with powers to issue U.S. government-backed bonds and to provide grants or loans to state and local government applicants for roads and bridges, housing, drinking water, and wastewater projects. The bond ceiling is $60 billion. The bank would be governed by a board of directors and have an organizational structure modeled on the Federal Deposit Insurance Corporation. The bill does not provide any source of revenue for the bank other than inter- est payments on its loans, so any grants the bank provided would have to be funded from that source. The main differences from the original CSIS proposal are that the bank would not replace any existing federal funding programs and that it would haveno authority over direct infrastructure spendingof other federal agen- cies. The legislative proposal therefore is a retreat from the CSIS proposal’s primary emphasis on rationalizing the process of selecting the projects that receive support, while it retains the objective of accelerating spending (or perhaps is intended as an initial step toward CSIS’s ultimate scheme). The project selection criteria applied by the bank are to favor “projects of sub- stantial regional ornational significance” that are “not adequately servedby currentfinancingmechanisms” (DoddandHagel 2007, 2) andprojects that leverage public funds by attracting private-sector participation. The crite- ria do not refer to facility user fees or place any restriction on the sources of state and local government repayments of bank loans. NSTPRSCNational Surface Transportation Commission NSTPRSCrecommended creationof a permanentNational SurfaceTrans- portation Commission (NASTRAC) to direct development of a national strategic plan (including aNational Freight Transportation Plan) to guide

Review of Finance Reform Proposals 237 investment. The planwould specify performance targets in each of 10 pro- gram areas, of which freightwould be one.NASTRACwould recommend user tax rates to Congress (including rates for the new federal freight fee that the commission proposed) based on the revenue requirements for meeting the plan targets. This function would be analogous to that of the Postal Regulatory Commission, which recommends changes in postal rates to the Postal Service Board of Governors (NSTPRSC 2007, 33–37). NASTRAC would be much more limited in scope than the other pro- posed forms of national infrastructure authority described above. It would not have direct authority over spending or finance decisions and would not function as a bank. The common feature of the various pro- posals is that all include provisions intended to insulate policy decisions on user fees and spending priorities from short-term political pressures and to strengthen accountability of infrastructure programs. FEDERALLY TAX-ADVANTAGEDBORROWING TOACCELERATE INVESTMENT These proposals call for a large immediate increase in the size of the fed- eral surface transportation aid program, to be funded by borrowing rather than by requiring a prior increase in user fee revenue. AASHTOTax Credit Bond Proposals In 2003 AASHTO published a proposal for debt financing of the federal surface transportation aid program, for consideration during the debate preceding the aid program’s reauthorization (leading to SAFETEA-LU) (AASHTO 2003b). The proposal called for creation of a Transporta- tion Finance Corporation, a federal government entity that would issue $60 billion in tax credit bonds. The proceeds would be allocated by Congress through the established federal highway and transit aid pro- grams, as a supplement to the funds those programs customarily receive from the revenues of the federal motor fuel excise tax and other taxes dedicated to the Highway Trust Fund. The federal general fund would be reimbursed for the tax revenue lost by future transfers from the Highway Trust Fund (AASHTO 2003c).

238 Funding Options for Freight Transportation Projects Unlike the national infrastructure authority proposals described above, the AASHTO tax credit bond proposal had no provisions for reforming the process of allocating federal aid and would not create a revolving fund for infrastructure finance. The intent was to allow an increase in the federal-aid program without immediately raising the rates of the fuel tax and other taxes supporting the program. Disagreement on the tax rates and the size of the program was the obstacle delaying reauthorization. The provision for reimbursing the general fund would preserve the prin- ciple that the federal-aid program should be funded through user fees. Inmore recent AASHTOpublications, reimbursement from theHigh- way Trust Fund of the Treasury loss caused by the tax credit bonds is not referred to. An AASHTO 2007 submittal to NSTPRSC calls for three sources of “net new resources from outside the Highway Trust Fund”; an issue of $220 billion in tax credit bonds over 20 years to pay for “trans- portationprojects of national significance,” supported by dedicating to the purpose 10 percent of annual customs revenue; an investment tax credit for freight rail infrastructure investment (see below); and the 3Cprogram described above (AASHTO 2007, 81–83). Wyden–Thune Transportation Finance Corporation A bill introduced in 2007 (S. 2021, September 6) would authorize a $50 billion issue of tax credit bonds [that is, interest on the bonds would be paid in the form of federal income tax credits (CBO 2003)]. Credits would be transferable from bondholders to others. A Transportation Finance Corporation would issue the bonds and administer the disbur- sal of the proceeds. (The proposal could be grouped with the national infrastructure authority proposals but is placed here because its empha- sis appears to be spending acceleration rather than governance reform.) The corporation would have authority to select projects from proposals submitted by states or others. It would receive revenue from customs duties sufficient to cover the principal repayment portion of debt service. The corporation would be a multistate organization formed by agree- ment among two or more state infrastructure banks. (State infrastruc- ture banks are state government entities formed under federal law that provide loans for state and local government transportation projects.) The bill stipulates that the corporation would not be an agency of the

Review of Finance Reform Proposals 239 U.S. government and that the bondswouldnot beU.S. governmentobliga- tions. The bill has received endorsements from officials of AASHTO, the AssociatedGeneral Contractors, ARTBA, theChamber ofCommerce, and the National Association of Manufacturers (AASHTO Journal 2007b). Only general criteria for project selection and disbursement of the funds are stated. The bonds would be issued and proceeds disbursed over a 6-year period. Any public or private transportation project would be eligible to receive assistance, which presumably could be in the form of grants, loans, or loan guarantees. A nonfederal match of at least 20 per- cent of project costs and a 1 percent minimum allocation for each state would be required. It is unclear how rules in present law on the operation of state infrastructure banks would apply to the corporation. Although the bill would create an entity with authority to select the projects that would receive federal backing, improved investment decision making does not appear to be a goal. The federal revenue lost on the tax credit bonds is a contribution from the federal general fund to transportation infrastructure spending. The bill states simply that “the purpose of this Act is to provide financing for additional transportation infrastructure capital improvements” (S. 2021, Section 2b). FEDERAL ASSISTANCE TOPRIVATE-SECTORRAIL ANDTERMINALOPERATORS These proposals call for direct government aid to the industry on a sig- nificantly larger scale than has been practiced. Railroad Investment Tax Credit The railroad industry would be expected to prefer an investment tax credit toovert federal grants because the tax incentivewouldnot restrict their free- dom to make their own investment decisions and because the likelihood that any substantial sum would become available for grants is unknown. Legislation introduced inCongress (most recently, S. 1125, the Freight Rail Infrastructure Capacity Expansion Act of 2007) would allow a 25 percent investment tax credit on expenditures for railroad infrastructure and loco- motives andwould allow expensing (rather than depreciation) of expendi- tures to build or acquire railroad infrastructure. Infrastructure built by

240 Funding Options for Freight Transportation Projects shippers and rail intermodal terminalswouldbe eligible. The railroads esti- mate that the lost tax revenuewould average $300million annually. The tax credit proposal is beingpromotedby theAssociationofAmericanRailroads andhasbeen endorsedby shippers’ groups (AAR2007) and in anAASHTO submittal to NSTPRSC (AASHTO 2007, 83). Other Rail Assistance Proposals Various other forms of government involvement in finance of rail infra- structure are in existenceorhavebeenproposed.The federalRRIFprogram, created in 1998, provides loans and credit assistance for infrastructure investment but has never been used by amajor railroad (FRAn.d.).Many states have rail assistance programs or have assisted railroads in special projects. A federal investment tax credit for track upgrading is already available to short line railroads only. An AASHTO-sponsored study in 2003 concluded that direct government support to freight railroads total- ing several billion dollars annually in grants and loans for capital projects would be economically justified (AASHTO 2003a). Proposals have been made for a railroad trust fund paralleling the federal Highway Trust Fund. The railroads oppose any such fund if it receives revenue from taxes on them. Proponents of a railroad trust fund in some instances appear to have in mind using the fund to pay for investments the railroads would not choose to make. For example, a rail- road trust fund that would receive revenue from taxes on railroads and other sources was proposed by an Illinois congressmanwhowas a promi- nent supporter of the Chicago CREATE rail project (Lipinski 2002). A parcel delivery firm executive, in a 2007 statement to the Surface Trans- portation Board, proposed a federal railroad trust fund to support rail capacity expansion beyond the level of capacity that the railroads would choose to maximize their profits (Boyd 2007). NEWLOCALOR PROJECT-SPECIFIC REVENUE SOURCES AND FINANCEARRANGEMENTS The proposals described in this section are for arrangements to develop new, primarily user-derived revenue sources and new governance mech- anisms for freight infrastructure. Such finance arrangements would be

Review of Finance Reform Proposals 241 established by the owner of the facility, which may be the federal gov- ernment, a state or local government, an independent public authority, or a corporation. Regional Corridor Authorities A group of shipper and carrier associations has proposed action by the California state legislature to create regional authorities with revenue- raising powers to coordinate the planning and construction of port access improvements and mainline facilities to carry international commerce throughCalifornia. The proposal is endorsed by theAssociation of Amer- ican Railroads, the National Retail Federation, the Waterfront Coalition, and other groups (WaterfrontCoalition 2007) andwas formulated in part as an alternative to a state-imposed statewide container fee, a measure enacted by the legislature but vetoed by the governor. TheCalifornia pro- posal has been cited as a model that would be applicable in other states nationwide (Leone 2007;Mongelluzzo andNall 2007;Mongelluzzo 2007; Fink 2007). The provisions of the proposal are as follows: • Four trade corridor authorities would be created under state law to “eliminate piecemeal action of local governments, port authorities and regional planning organizations” (Waterfront Coalition 2007, I-1). The authorities would correspond to the four principal trade corridors identified in the state’s freight plan, theGoodsMovement Action Plan. Among the functions of each authority would be to “administer and coordinate projects” within its corridor that are identified in the state’s plan, to “ensure that bond proceeds (from the $20 billion transporta- tion general obligation bond issue authorized in 2006) are spent appro- priately,” and to help “define and promote projects that may require no public support” (Waterfront Coalition 2007, 2–3). • The authorities or the state would be the lead agencies in any freight infrastructure projects constructed with their participation. • Most corridor projects would be structured as public–private partner- ships. Private partners, participating voluntarily in agreements with the authorities negotiated for each project, would consent to pay fees commensurate with the “private” benefits of the projects (presumably

242 Funding Options for Freight Transportation Projects the direct transportation cost savings to users of the facility) andwould participate in governance of the project. The government partners would contribute to project costs in proportion to “public” benefits (perhaps including congestion, pollution, and safety benefits) (Water- front Coalition 2007, 3). • Each project will have an independent finance arrangement and mix of funding sources appropriate to the project’s mix of public and pri- vate benefits. • Private-sector support for projects carried out by the public sector or in public–private partnerships would be via fees or “contributions.” Fees would be collected from the “actual users” of the facility constructed in a project. Revenues would be project-specific; no pooling of fees from a broad class of users into a fund for redistribution is to occur. “Contributions” appear to be the railroads’ preferred form of support, as opposed to the per use fees charged by the Alameda Corridor. Pre- sumably these would be staged payments in cash or in kind (perhaps private construction of facilities in accord with the overall plan for the project in the public–private agreement) in amounts agreed at the out- set and not proportional to use. • Road and bridge tolls would be important project funding sources, and a pollution fee would be imposed on drayage trucks. The Amer- ican Trucking Associations participated in the group that issued the proposal but withdrew because of the provisions concerning highway tolls and truck charges (Leone 2007). • Fee revenues would be “firewalled” (i.e., available for use only for the specific project on which they were collected). • Only those projects are to be selected whose primary justification is direct freight mobility benefits to shippers and carriers (i.e., “capac- ity, reliability, and velocity”) because these are the projects most suit- able for public–private partnerships. Project selection criteria are outlined in the proposal, and specific projects that should receive ini- tial priority are listed. In summary, the regional corridor authorities proposal would provide an institutional structure for organizing joint public–private projects conforming to a long-term corridor plan, in which the public contribu- tions would be drawn in part from the state’s infrastructure bond issue

Review of Finance Reform Proposals 243 and private support would include user fees and in-kind contributions. Funding arrangementswould be negotiated on a project-by-project basis. Fundingwould not involve broad-based revenue sources such as regional or state-level container fees or pooling of fee revenue from multiple facil- ities into a fund to be allocated by government. TRB Fuel TaxCommittee Recommendations on Road UseMetering The TRB Fuel Tax committee recommended steps to begin a transition from the present fuel tax–based highway finance system to one thatwould rely largely on revenue from automatically assessed mileage charges. It recognized that this transitionwouldbe adecades-longproject but empha- sized that preliminary steps would be immediately feasible (TRB 2006, 190–192, 196–199). One transition step the committee identified would be to imposemileage charges on commercial trucks on expressways. Auto- mated truck mileage charging systems are already in operation on the entireGermanAutobahn systemand inAustria andSwitzerland (Sorensen and Taylor 2005). Such charging schemes seem likely to be adopted else- where in Europe and have been designed to allow incorporation of roads other than expressways and vehicles other than trucks. The Fuel Tax committee observed that “the general introduction of mileage charging would have profound effects on every aspect of the management of transportation programs. The roles of the federal, state, and local governments would be altered; new criteria would become prominent in the selection of projects; highway managers would have newmeans of regulating traffic and controlling congestion, pollution, and accidents; and a more nearly optimal balance between transit and high- way use and resources in urban areas would be attainable” (TRB 2006, 192). A system of mileage charging, even one limited to trucks on major roads, could help reduce some of the institutional obstacles to more effi- cient financing of freight transportation infrastructure. It would provide a practical mechanism for internalizing the high external costs of truck operation, especially in urban areas, that have been themajor justification for public financial assistance to railroads and to projects like theAlameda Corridor and CREATE.

244 Funding Options for Freight Transportation Projects Mileage charging systems would be operated by the state and local governments that owned and maintained the roads and would increase both the capability and the willingness of these governments to generate revenue to cover the cost of providing services to highway freight traffic. Proposals for Reform of Finance Arrangements of Federally Provided Infrastructure A 1991 TRB study committee considered how to cope with capacity con- straints in the air traffic control (ATC) system and in airport operations. The committee noted “concern for the future about the [Federal Aviation Administration’s] ability to provide adequate capacity” (TRB 1991, 12) and recommended reformof themanagement andfinance structure of the system. One option that the committee identified is to make the ATC sys- tem either a public or a private corporation with power to set fees charged to aircraft (under regulatory supervision). Fee revenuewouldpay formain- taining and improving the system (TRB 1991, 14–17). TheTRB committee also recommended adoption of congestion charg- ing for use of airport runways and predicted that such chargeswould raise substantial revenue, which could be devoted to capacity expansion (TRB 1991, 10). Proposals for reformoffinanceofharbor channels and inlandwaterways would increase reliance on fees to pay for capital expenditures and for operation of these facilities. Sources of such proposals include TRB com- mittees,members of academia, andfiscal reformand environmental advo- cacy groups. They generally have been opposed by industry participants. TheTRBFreightCapacity committee reviewed a range of finance andman- agement reform proposals for water transportation (TRB 2003, 35–38, 40, 129–133). Fees charged to international traffic through seaports and air- ports must be related to the cost of serving the traffic in order to avoid violating international trade agreements prohibiting tariffs disguised as user fees. Chapter 3 described fees that some ports have imposed on traffic through the ports to pay for harbor and access infrastructure, pollution mitigation, and congestion management. The American Association of Port Authorities (AAPA) disputes the necessity of the Water Resources Development Act of 1986 provision authorizing ports to impose harbor

Review of Finance Reform Proposals 245 dues to pay for the local share of channel dredging projects, with restric- tions. It seeks to have Congress eliminate the provision in favor of broad language recognizing that a port may impose fees to recover the cost of services it provides. The original problem was the need for revenue to pay for dredging projects, but AAPA’s proposal would allow fees for any service a port provided (Nagle 2008). ADJUSTMENTS IN THE FEDERAL-AID HIGHWAY PROGRAM Two changes in the federal-aid highway program have been proposed to increase the program’s effectiveness in achieving federal policy goals. First, the structure of federal-aid highway grants today provides only a weak incentive for states to spend more on capacity than they would in the absence of the federal program. The state matching share is small (20 percent for most projects), and the total amount of federal grants for which a state is eligible is capped. Under these rules, if a state is undertak- ing more capital spending from its own funds than the minimum needed to match all available federal aid, any increase in federal aid will largely displace state funds rather than adding to total state highway spending (TRB 2006, 174). GAOestimates that a $1 increase in federal aid increases state spending on highways by probably only about $0.40; the other $0.60 replaces state spending that would have occurred in the absence of the aid increase and, in effect, goes to support general state spending or state tax reductions (GAO 2004, 21–25). If the federal matching share in highway grants were reduced and the cap on available aid eliminated, a state’s incentive to increase highway spendingwould be stronger, because every dollar the state spent would bring in additional federal aid. The total of federal expenditures could be controlled by adjusting the match- ing share (Gramlich 1990). The second proposal is for adjustments in the present highway user taxes imposed on large trucks (at the federal level, the fuel tax; the Heavy VehicleUseTax; and excise taxes on sales of trucks, trailers, and truck tires) to align the charges paid by different kinds of trucksmore closely with the costs of building and maintaining highway infrastructure to accommo- date them. A more ambitious reform would be to impose mileage-based

246 Funding Options for Freight Transportation Projects taxes on large trucks (TRB 2006, 164–167, 193, 196). Appropriate adjust- ments to fees would reduce the total of public and private costs of truck transportation by encouraging use of truck designs that reduce highway agency costs and would reduce or eliminate subsidies to trucks that dis- tort competition with railroads. The effect of such adjustments on total revenue generated for the highway program is difficult to predict and would depend on the responses of truck operators and shippers to the rate changes. If revenue declined because of a reduction in truck traffic or because carriers began to favor equipment that paid lower fees, the loss would be offset by reduced highway agency costs. REFERENCES Abbreviations AAR Association of American Railroads AASHTO American Association of State Highway and Transportation Officials ARTBA American Road and Transportation Builders Association CBO Congressional Budget Office FRA Federal Railroad Administration GAO General Accounting Office; Government Accountability Office NSTIFC National Surface Transportation Infrastructure Financing Commission NSTPRSC National Surface Transportation Policy andRevenue StudyCommission TRB Transportation Research Board AAR. 2007. Freight Rail Capacity Expansion Act of 2007 (S. 1125/H.R. 2216): Frequently Asked Questions. www.aar.org/IndustryInformation/InfrastructureTaxIncentive/~/ media/AAR/ITC/FAQ_flyer_v3_FINAL.ashx. AASHTO. 2003a. Freight-Rail Bottom Line Report. Jan. AASHTO. 2003b. Innovative Finance: ExpandingOpportunities to Advance Projects.March. AASHTO. 2003c.Transportation Finance Corporation: LeveragingNewRevenue to Fill the Gap.March. AASHTO. 2007. Transportation: Invest in Our Future: A New Vision for the 21st Century. July. AASHTO Journal. 2007a. Reauthorization 2009: Corridors of Commerce Concept Advo- cated by ARTBA. Vol. 107, No. 27, July 6. AASHTO Journal. 2007b. Sens. Wyden, Thune Introduce “Build America Bonds” Legis- lation. Vol. 107, No. 36, Sept. 7. ARTBA. n.d. Critical Commerce Corridors Implementation Recommendations.

Review of Finance Reform Proposals 247 Boyd, J. D. 2007. Sounding the Whistle. Traffic World, April 23, pp. 12–14. CBO. 2003.AComparison of Tax-Credit Bonds, Other Special-Purpose Bonds, and Appro- priations in Financing Federal Transportation Programs. June. Coalition for America’s Gateways and Trade Corridors. n.d. Freight Trust Fund. www.tradecorridors.org/images/Binder_Section_6.pdf. Dodd, C. J. 2007. Dodd, Hagel Introduce Bill to Revitalize America’s Infrastructure. Press release. Office of U.S. Senator Christopher J. Dodd, Aug. 1. Dodd, C. J., and C. Hagel. 2007. National Infrastructure Bank Act of 2007: Overview. Aug. 1. http://dodd.senate.gov/multimedia/2007/080107_InfrastructurePacket.pdf. Ehrlich, E., and B. Landy. 2005. Public Works, Public Wealth; New Directions for Amer- ica’s Infrastructure. Center for Strategic and International Studies, Nov. Eldridge, E. 2007. A Critical Moment. Traffic World, Feb. 5, p. 13. Fink, W. G. 2007. Give Freight a Vote. Journal of Commerce, July 2, p. 52. FRA. n.d. Railroad Rehabilitation and Improvement Financing (RRIF). www.fra.dot. gov/us/content/177. GAO. 2003. Freight Transportation: Strategies Needed to Address Planning and Financing Limitations.Dec. GAO. 2004. Federal-Aid Highways: Trends, Effects on State Spending, and Options for Future Program Design. Gramlich, E. 1990. How Should Public Infrastructure Be Financed? In Is There a Short- fall in Public Capital Investment? (A. Munnell, ed.), Federal Reserve Bank of Boston, Boston, Mass. Keane, A. G. 2006. Coalition Seeks Freight Fund. Traffic World,Oct. 2, p. 16. Knatz, G. 2008. On Port Development and the Environment at the Ports of Los Angeles and Long Beach: Testimony Before the House Committees on Transportation and Infrastructure and Coast Guard and Maritime Administration. Aug. 4. Kulisch, E. 2006. Rethinking the Public Works Model.American Shipper,May, pp. 8–19. Leone, D. 2007. Group Pushes Tolls to Fix Roads; Opposes Calif. Container Fee Bill. Transport Topics, April 9, p. 5. Lipinski, W. O. 2002. Why We Need a Rail Trust Fund. Railway Age,Oct. Mongelluzzo, B. 2007. There Will Be User Fees. Journal of Commerce, June 18, pp. 22–24. Mongelluzzo, B. 2008. New View on Fees. Journal of Commerce, Aug. 18, pp. 12–16. Mongelluzzo, B., and S. Nall. 2007. Whose Pocket? Traffic World, April 16, p. 15. Nagle, K. J. 2008. Proposals for a 2008 Water Resources Development Act. Testimony Before the Water Resources and Environment Subcommittee, Transportation and Infrastructure Committee, U.S. House of Representatives, April 30. NSTIFC. 2009. Paying Our Way: A New Framework for Transportation Finance. Feb.

248 Funding Options for Freight Transportation Projects NSTPRSC. 2007. Report of the National Surface Transportation Policy and Revenue Study Commission: Transportation for Tomorrow. Volume I: Recommendations.Dec. Potts, C. 2007. How a Critical Commerce Corridors Program Will Improve the Perfor- mance of Our Transportation System: Testimony Before the National Surface Trans- portation Policy and Revenue Study Commission. March 19. www.artba.org/pdf/ 031907_Potts_Testimony.pdf. Rohatyn, F. 2008. A New Bank to Save Our Infrastructure. New York Review of Books, Vol. 55, No. 15, Oct. 9. Rohatyn, F., and W. Rudman. 2005. It’s Time to Rebuild America.Washington Post, Dec. 13, p. A27. Sorensen, P. A., and B. D. Taylor. 2005. Review and Synthesis of Road-Use Metering and Charging Systems. http://onlinepubs.trb.org/Onlinepubs/news/university/SRFuel TaxRoad-MeterPaper.pdf. Transport Canada. 2007. National Policy Framework for Strategic Gateways and Trade Corridors. TRB. 1991. Special Report 230:Winds of Change:Domestic Air Transport SinceDeregulation. National Research Council, Washington, D.C. TRB. 2003. Special Report 271: Freight Capacity for the 21st Century.National Academies, Washington, D.C. TRB. 2006. Special Report 285: The Fuel Tax and Alternatives for Transportation Funding. National Academies, Washington, D.C. Waterfront Coalition. 2007. A Program for Establishing Public–Private Partnerships for Infrastructure Financing and the Improvement ofHarborDrayage Trucks in the State of California. March 26. www.portmod.org/CA_Position.pdf.

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TRB’s Special Report 297: Funding Options for Freight Transportation Projects explores ways to pay for projects that expand freight capacity or reduce the costs of freight transportation. The committee that produced the report found that present finance arrangements are inadequate for maintaining and improving freight transportation system performance. The report calls for finance reforms that promote productivity gains by targeting investment to projects with the greatest economic benefit and by encouraging efficient use of facilities.

A summary of the report, which was published in the July-August 2010 TR News, is available online.

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