With long wish lists for the three R's—repair crumbling infrastructure, renew modes of transportation and governing policies, and reinvent transportation systems with technology—where will America find the will to act and the resources to support actions? As the federal Highway Trust Fund is about to run out of money, how can controversies over funding sources be resolved—raising gas taxes or replacing this with user fees, such as tolls on Interstate Highways, congestion pricing, or vehicle-miles-traveled (VMT) fees? Is the problem of investment one of money, political will, or lack of national strategy? Where can America find new or largely untapped pools of capital? How can business, labor, and government find common ground in the transportation and infrastructure investment debate? Can the U.S. Congress and the Senate lead?
Main ideas from AOTM Summit:
- Infrastructure investments must be more strategic, stemming from national and regional priorities. This requires national strategy—a desire echoed in every session.
- Uncertainty about government action—policies, regulations, decision-making—is a problem for investors.
- Funding through gas taxes still has proponents, and gas taxes are being raised in some states, but in light of trends (e.g., more fuel-efficient vehicles, or electric cars), user fees should be strongly considered as replacements (electronic tolling, vehicle-miles-traveled fees). "Users pay" is a principle with growing support across transportation modes.
- Public funds or tax revenues supposedly targeted for maintenance of particular facilities/services are too easily diverted for uses other than the original intent without a strategic purpose, but simply to cover other revenue shortfalls.
- It is promising to separate purpose and strategy from the question of financing. There are multiple sources of funds, from traditional to innovative.
- Pools of capital exist, including pension funds (aligned with a longer time horizon) and private investors. There are barriers to attracting private capital from outside the U.S., and U.S. investors are only recently building capabilities in this domain
- Conundrum: short-term crisis (running out of money) which inhibits longer-term projects, but can't approach future with assumptions rooted in the past, so need short-term stopgaps while building longer-term strategy.
- Public-private partnerships are promising and feasible, with numerous models possible. Infrastructure banks that attract private investors to projects are in place in over thirty states and one municipality.
- Institutional structures which result in fragmented systems (each transportation mode in a silo) inhibit both strategic priority-setting, synergies from maximizing connections, and ability to assemble resources.
Speaker comments at AOTM Summit:
Elizabeth Warren, U.S. Senator from Massachusetts:
The way I see this, it's about choices. When there is not enough money to fix our transportation system it is because we have made other choices. In this case, choices to spend money on subsidies, choices to decide to keep tax loopholes open. Under-investing in transportation doesn't happen in a vacuum. It is the necessary consequence of other decisions that are undermining our economic future.
Jose Gomez-Ibanez, Professor, Harvard Kennedy School: Congressional apportionment of goods often requires that the government spread the goodies thinly and widely, resulting in over-funding of poorly conceived projects and under-funding of projects with true national significance.
Gina Marie Lindsey, CEO Los Angeles World Airports: We need to be very abstemious about the facilities in which we do invest. The Ontario airport is overbuilt. We should emphasize intermodalism, emphasize a user pay system. We need to be more efficient, and direct our resources that are already being spent in less than optimal ways toward national priorities.
Jeffrey Immelt, Chairman and CEO, General Electric: GE views infrastructure as a $60 billion global investment opportunity, but there is a need for smart choices. I can tell you as a private investor, as a private company, I've had the chance to invest in high speed rail a dozen times and I've said no every time because I didn't think it made sense from an economic or technical sense.
Beverly Scott, General Manager/CEO, MBTA (Massachusetts Bay Transportation Authority):
We are in the institutional armor of the 20th century trying to do a 21st century job and that does not work. We are much too siloed, much too fragmented. It is one thing to do strategic thinking and it is quite another to be able to marshal the resources to actually be able to get the decisions on the ground.
Tay Yoshitani, CEO, Port of Seattle: Half of port tax revenues are routinely diverted from the Harbor Maintenance Trust Fund.
David Walker, former U.S. Comptroller-General, co-founder, Comeback America:
The Highway Trust Fund is not funded and can't be trusted...The largest pool of capital in the world is one that I used to oversee. It's called pension funds. I used to be assistant secretary of labor for ERISA. Obviously you don't want to compromise basic fiduciary standards, but there are tremendous opportunities.
Christopher Beall, Partner, Highstar Capital: In the US and other places in the world, there are tremendously low-cost pools of capital that we could access. It would be nice if our tax law didn't penalize some of those pools of capital for investing in the US. The Foreign Investment in Real Property Tax Act changes the tax rate for those investors, a huge disincentive for that capital coming into the US. Well-structured polices, particularly on the tax side, and well-structured processes, combined with good projects will get private capital off the sidelines to invest in some very important projects.
Karen Gordon Mills, former Administrator, SBA (U.S. Small Business Administration): From my own experience as the SBA administrator, public-private partnerships can be pretty powerful. The SBA has a loan guarantee portfolio of over $100 billion, but it operates as a powerful public-private partnership with 5000 banks all across the country. Because we weren't making loans ourselves, just guaranteeing them and taking some of the risk away from the banks, we were able to deploy a record $30 billion a year at a total cost of less than a billion dollars. And all this money helped small businesses that the market wasn't reaching access the capital that they needed to grow. A second model is the small business investment partnership or SBIC, to get equity capital into small businesses that venture capital isn't reaching. Private investors make the decisions on which projects or which companies will get the investments to insure that the projects have good economic rationale. The SBIC model last year deployed over $3 billion in capital to America's most promising entrepreneurs at zero cost to taxpayers. Both of these programs have an important lesson—the federal government does not have to go it alone, a little government money can go a long way as a multiplier for private capital, incentivizing private capital where the risk may otherwise be too great.
Joseph Aiello, co-Chairman, North America, Meridiam Infrastructure: The reality is that the investors increasingly going to public/private partnerships are U.S. pension funds and U.S. labor dollars. So while in 2008 nobody was really sure what these PPP infrastructure investments were like, the investment community and the investment population has changed radically just over the last four years. Similarly, while no U.S. firm bid on the Port of Miami Tunnel, today if you were to look at the major construction companies that are pursuing PPPs and making investments at the same time, so they have effectively mimicked the big, global players in the PPP market—Kiewit, Fleur, Walsh out of Chicago have assembled investment steps that are probably as good as pure investors like Highstar and Meridiam. It's a remarkable response by US companies to the new opportunity to invest. I think we should all be proud of that ability to continue to respond and innovate.
Bill Logue, President/CEO, Federal Express Freight: Wish-list includes a new highway bill, adequate funding (fuel tax), NextGen air traffic control system detailed plan. And change the debate—it's a necessity; it's not a luxury.
David Kiley, Vice President, Public Finance, Piper Jaffray: We've seen some movement in the last year of transportation legislation actually getting through states. And so far four states passed legislation last year, Pennsylvania, Virginia, two Republican states, and Maryland and Massachusetts passed bills. And each bill effectively increased the baseline gas tax.
Earl Blumenauer, U.S. Representative from Oregon: The gas tax is a necessary evil, much like flossing—but as we say in my household, "you only floss the ones you want to keep."
Bill Graves, former Governor of Kansas, President, American Trucking Association: I'm almost appalled at the notion that all of a sudden as a nation, we're going to abandon a user pay system that's worked for 50 years to support the build out of roads and bridges and we're going to start raiding, in effect, the general fund of this nation....The road and bridge piece has to be solved on a user funded basis or I think we're going to make a huge mistake as a country going forward.
Tom Rice, U.S. Representative from South Carolina:
Watch Video: Donald Ralph, Ann Drake, Jane Garvey, and Tom Rice discuss the need for a freight policy
In a world where Congress has been unable to agree on a budget in years, marshaling support for a national transportation plan—and supporting mechanisms like an infrastructure bank—is easier said than done... The regulatory structure is an enormous threat to U.S. competitiveness... Port Everglades in Ft. Lauderdale, Florida, has been attempting to get federal permission for a deep dredge project since 1998 and has been unable to start due to continued regulatory hurdles.
Stephen Goldsmith, former Deputy Mayor of New York City; former Mayor, Indianapolis: The over-consumption of our assets, driven by the lack of pricing, is a very significant issue... If you take two words people don't like and put them together, and you wonder why you can't sell the concept of congestion and pricing... But the other problem is you have to connect the proceeds of dynamic pricing to something that's tangible. And most folks don't believe that they were going to benefit from dynamic pricing.
Karen Gordon Mills: It creates a difficulty in terms of an investment proposition if you don't know what the standards are going to be, for example when the air traffic control reforms are going to come. Clearly the private sector can be involved in driving innovation and in financing, but the U.S. government and the American people have to be involved in this vision.
Fred Salvucci, former Secretary of Transportation for Massachusetts; Professor, MIT: The biggest thing we could do is to separate the spending from how to pay for it. Spending the money is the one thing we might be able to get everybody to agree on. There'd be a lot of benefits from the stability. How to pay for it would end up being a fight, but roughly a third of that money would come back to the federal government immediately in the income taxes from workers who are now employed instead of unemployed. Now let's make another radical assumption. What if we actually do something useful with the money? If we do something useful with the money, we're now improving the productivity of the entire economy for the future years. That's where the real payoff is.
Robert Atkinson, President, Information Technology and Innovation Foundation: If we built a real time performance-based system, it would force states to move to intelligent transportation system investments because ITS investments are very, very cheap for the bang for the buck. The single biggest thing we could do in this country that would be the cheapest and single easiest thing is traffic light signalization. Get smart traffic lights. That would do more for mobility for this country per dollar of investment than anything else.
Watch Video of Donohue & Trumka
Thomas Donohue, President, U.S. Chamber of Commerce: Here's some old news. The simplest most straightforward way to fix the Highway Trust Fund and buy some time to develop additional funding sources is to raise the federal gas tax which we haven't done for 20 years. Shippers are for it, truckers are for it, the construction industry is for it, labor is for it, the chamber is for it, the triple A is for it, and that's a helluva start.
Richard Trumka, President, AFL-CIO: We need a permanent dedicated revenue stream. As Thomas [Donohue] noted, both of us support the increase in the gas tax or some variation of it, a user's fee to capture some of those users that don't necessarily operate on gasoline. And we think collectively that because you have to have it done by September that's probably the only viable solution that can be done between now and September before the trust fund actually runs out of money there. So we testified in front of the Senate committee, and Chair [Senator Barbara] Boxer told us that she favors a five or six year authorization and Tom and I both agreed to that and said ten would even be better so that you can actually plan these things. It was one of the shortcomings of the stimulus program that we had such short-term projects, and the big stuff that needed to get done didn't necessarily get done. Once we get past that, we support a broad investment agenda in all aspects of the nation's public goods in transportation, energy, and communications infrastructure.
Further information, detailed analyses, case examples:
Rosabeth Moss Kanter and Daniel Fox, "Finding the Money: An Overview of Infrastructure Finance Challenges and Opportunities," HBS Background Note No. 314-094, May 2014. To order cases, contact Harvard Business Publishing.