Brookings: Topics - Highways

The Benefits of a "Fix it First" Approach to America’s Ailing Infrastructure

Adam Looney — Thu, 14 Feb 2013 09:29:00 -0500

In his recent State of the Union address, President Obama proposed a “Fix-it-First” approach to investing in our nation’s ailing infrastructure. This approach recognizes the value of the well-traveled network of roads and bridges that make up our nation’s existing highway system, and prioritizes the maintenance and rehabilitation of our deteriorating system.

In “Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways," a paper commissioned by The Hamilton Project at Brookings, authors Matthew Kahn and David Levinson argue that the repair, maintenance, rehabilitation, reconstruction, and enhancement of our existing roads and bridges is the best way to maximize the benefits of infrastructure spending. When first constructed decades ago, the interstate highway system led to economic gains by connecting people and businesses. The full benefits of that system has eroded as roads and bridges have deteriorated, contributing to congestion, longer travel times, increased wear and tear on vehicles, and even accidents. A fix-it-first approach would recoup the value we’re missing from using our current system inefficiently. To read the full paper, click here.

Authors

Adam Looney

Crumbling Infrastructure Has Real and Enduring Costs

William A. Galston — Wed, 23 Jan 2013 12:00:00 -0500

Anyone who travels abroad can see that the United States no longer has a world-class infrastructure. And there’s hard evidence to back up that impression. The World Economic Forum compiles a massive annual “Global Competitiveness Report.” The 2012-2013 edition finds that the United States has fallen well behind many members of the European Union, Canada, and Asian countries such as Singapore, Japan, and South Korea in the overall quality of its infrastructure. We rank 18th in railroads, 19th in ports, 20th in roads, 30th in airports, and 33rd in the quality of our electrical system.

An outstanding new report from the Building America’s Future Educational Fund explains why this has happened. Relative to our economic competitors, we have no national infrastructure planning, we systematically underfund infrastructure investments, and we fail to use rigorous measures of evaluation and accountability for the projects we do manage to fund. This makes for a drag on our economy. One example: in 2010, Americans spent a total of 4.8 billion hours stuck in traffic, wasting 1.9 billion gallons of fuel, at a total cost of $101 billion.

And it will only get worse. According to the Building America’s Future report, by 2020, every American port will be struggling to cope with at least twice the tonnage it was designed to handle. While a projected 94 percent of the nation’s economic growth will occur in metropolitan areas, these jurisdictions are already home to “the most congested highways, the oldest roads and bridges, and the most overburdened transit systems,” with no relief in sight. The report warns that “if we don’t create a transportation system that functions reliably and cost-effectively in the 21st century, companies operating in this globalized world can simply choose to do their business elsewhere.”

But before it comes to that, the American economy will pay a steep price. Another report, from the American Society of Civil Engineers, lays out the projected costs, sector by sector. Here’s the bottom line: by 2020, if the mounting investment gap in infrastructure is not addressed, “the economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs . . . the cumulative cost to the U.S. economy will be more than $3.1 trillion in GDP and $1.1 trillion in total trade.”

These numbers would appear large enough to arrest the attention of even the most jaded policy makers. This has not happened. Instead, current fiscal trends and policies portend a long-term squeeze on domestic discretionary spending—the pool of funds from which federal infrastructure investment is drawn. Innovative plans for federal government partnerships with the private sector to leverage scarce public resources have not gone forward in some instances and have fallen well short of adequate scope in others. While things have gone better at the state and metropolitan levels, aggregate investment continues to fall far short of needs—by an estimated $1.1 trillion between now and 2020, according to ASCE projections.

As the Building America’s Future report observes, most of our global competitors have access to infrastructure banks that attract private capital to fund major projects. A recent Brookings report has proposed one model for such a bank in the United States. (There are several others.) Sound proposals to break through the current impasse in infrastructure funding are not hard to find. It has proved much more difficult to mobilize elected officials and average citizens around plans that will require higher taxes and fees upfront in return for a stronger economy and better quality of life down the road.

One of the key tests of democratic self-government is each generation’s ability to overcome chronological myopia and provide for the future that its children and grandchildren will enjoy. Throughout history, Americans have found a way to do that—from the canals and roadways of the early 19th century to the Civil War-era Transcontinental Railroad to Theodore Roosevelt’s Inland Waterways Commission to FDR’s bridges, tunnels, and airports that put millions back to work during the Great Depression, to Dwight Eisenhower’s visionary Interstate Highway System, begun in the 1950s and still benefitting the nation two generations later. It remains to be seen whether today’s Americans will muster the will and resources to do as well for their posterity.

Authors

William A. Galston

Image Source: © Eduardo Munoz / Reuters

Banking on Infrastructure: Enhancing State Revolving Funds for Transportation

Robert Puentes and Jennifer Thompson — Wed, 12 Sep 2012 00:00:00 -0400

In recent years, states and the federal government experimented with a set of innovative finance mechanisms, credit programs, and revolving loan funds to stretch public and private dollars and support the kind of infrastructure investments necessary to build the next economy.

For transportation projects, much of this support comes in the form of below market revolving loans and loan guarantees from state infrastructure banks (SIBs.) Since established in the 1990s they have provided billions in financing for more than 1,000 projects mostly focused on the 100 largest metropolitan areas. However, this activity is highly concentrated in just a few states as many SIBs are underutilized or inactive. This research shows that SIBs can be valuable tools for delivering infrastructure projects and can generate more investment per dollar than traditional federal and state grant programs.

This report recommends that U.S. states should:

Align federal and state roles and responsibilities to streamline project delivery and ensure loan capacity is fully utilized
Ensure the long-term sustainability of revolving infrastructure funds by leveraging capitalization and reach a broader range of sponsors and projects
Develop partnerships with local public and private actors so projects have high economic, environmental, or social effects

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Download the paper

Authors

Robert Puentes
Jennifer Thompson

Image Source: © ERIC THAYER / Reuters

Paving the Way for Driverless Cars

Clifford Winston — Wed, 18 Jul 2012 10:07:00 -0400

California's proposed bullet train between Los Angeles and San Francisco—which Gov. Jerry Brown is likely to sign off on soon—has been characterized by the Obama administration and its other supporters as an effective way to reduce highway congestion. These costs amount to more than $100 billion annually in wasted time and higher fuel expenses.

In fact, a much better technological solution is on the horizon, if we pave the way by getting rid of obsolete highway design. It is already possible to imagine a world in which you could predict exactly how long it would take to drive in your car from one point to another. No worries about rush hour, vacation congestion, bad drivers, speed traps and accidents. You could also text while you drive with no safety implications.

All this may be possible thanks to a "driverless" car that does a human driver's normal job and much more. The car is operated by a computer that obtains information 10 times per second from short-range transmitters on surrounding road conditions, including where other cars are and what they are doing.

That's exponentially faster than the human mind can process the same information. By gathering and reacting immediately to real-time information, the technology can drastically reduce highway fatalities by preventing collisions. It also can significantly reduce delays by creating a smoother traffic flow and rerouting drivers who have programmed their destinations.

Google's version is being piloted in Nevada, and it could prove that faster, reliable and safer road travel is within reach. But one stumbling block would remain: the government-run roads this innovation must use. Auto makers have made one technological improvement after another since the car was introduced to consumers more than a century ago. Unfortunately, the paved road systems on which cars travel have not advanced much in comparison. Without reimagining the way we design and maintain highways, the driverless car will achieve little of its potential.

Despite the frustratingly frequent lane closures for repairs, about one-third of the nation's highways are still in poor or mediocre condition. Driving on damaged roads is hard on vehicles and is estimated to cost motorists billions of dollars annually. Those potholes could also defeat the purpose of the driverless car because it would be unable to avoid them, or succeed in doing so only by significantly disturbing the traffic flow.

Most highways in major metropolitan areas operate under congested conditions during much of the day. Yet highways are designed around standards based on higher free-flow travel speeds that call for wider but fewer lanes. Driverless cars don't need the same wide lanes, which would allow highway authorities to reconfigure roads to allow travel speeds to be raised during peak travel periods. All that is needed would be illuminated lane dividers that can increase the number of lanes available. Driverless cars could take advantage of the extra lane capacity to reduce congestion and delays.

Another design flaw is that highways have been built in terms of width and thickness to accommodate both cars and trucks. The smaller volume of trucks should be handled with one or two wide lanes with a road surface about a foot thick, to withstand trucks' weight and axle pressure. But the much larger volume of cars—which apply much less axle pressure that damages pavement—need more and narrower lanes that are only a few inches thick.

Building highways that separate cars and trucks by directing them to lanes with the appropriate thickness would save taxpayers a bundle. It would also favor the technology of driverless cars because they would not have to distinguish between cars and trucks and to adjust speeds and positions accordingly.

Traffic management also suffers from obsolete technology that could hinder implementing the driverless car. On local streets, signal timing contributes to hundreds of millions of vehicle hours of annual delay because it is based on out-of-date historical data that inaccurately measure relative traffic volumes at intersections. Without signals based on real-time traffic flows, driverless vehicles may not be able to accurately align their speeds with them.

The future also holds the promise of new communications technologies that could let road authorities use electronic tolls to charge motorists for their contribution to congestion, based on actual traffic conditions, and thus encourage them to travel during off-peak periods, use alternate routes, or switch to public transit. Driverless cars would significantly help motorists respond to congestion tolls because their technology can balance the cost of a toll with its travel time savings to optimize motorists' route choices.

The driverless car represents one of the most amazing breakthroughs in safety and quality of life in recent history. Instead of focusing on enormously expensive high-speed rail as our transportation future, the government would do well to stop hindering driverless cars by its obsolete thinking about our nation's roads.

One promising approach that would not require taxpayer funds would be to turn to innovative private highway companies, which have leased the Indiana toll road, Chicago Skyway and Dulles Greenway. By working closely with auto makers, they could significantly shorten the time that motorists must wait before they fully realize the benefits of driverless technology.

Authors

Clifford Winston

Publication: The Wall Street Journal

Image Source: Kevin Bartram / Reuters

Driving Levels in the United States

Robert Puentes and Adie Tomer — Thu, 03 Mar 2011 14:32:00 -0500

Recent data from the Federal Highway Administration shows that driving patterns, measured by Vehicle Miles Traveled (VMT), are back to their highest level since 2007. That’s true. Unlike Western Europe and parts of Asia, the U.S. is a growing country. We’ve added over 29 million people since 2000, and 7 million people since 2007 alone. So one would expect driving to increase, too. What is interesting to note is that combining the growth in VMT and population shows a per capita driving rate that is not growing and, in fact, is pretty much at the same level as it was in 2000. See the chart below.

Overall, there are many complex reasons for the plateauing of per capita driving and multiple signs that these rates could continue. It is also impossible to predict innovations and future national and international events that could strongly influence American driving patterns in the future (the wholesale introduction of super fuel-efficient vehicles, or continued unrest in oil-producing countries like Libya, for example). Nevertheless, we need to recognize these fundamental changes to American driving habits and update our transportation plans and programs accordingly.

Authors

Robert Puentes
Adie Tomer

Publication: The Avenue, The New Republic

Image Source: © Phil McCarten / Reuters

Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways

Matthew E. Kahn and David M. Levinson — Fri, 25 Feb 2011 12:34:00 -0500

Abstract—

The roads and bridges that make up our nation’s highway infrastructure are in disrepair as a result of insufficient maintenance—a maintenance deficit that increases travel times, damages vehicles, and can lead to accidents that cause injuries or even fatalities. This deficit is in part due to a prioritization of new projects over care for existing infrastructure and contributes to a higher-cost, lower-return system of investment. This paper proposes a reorganization of our national highway infrastructure priorities to “Fix It First, Expand It Second, and Reward It Third.” First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.

Read the full discussion paper »
Read the brief »

Authors

Matthew E. Kahn
David M. Levinson

Publication: The Hamilton Project

Last Exit : Privatization and Deregulation of the U.S. Transportation System

Clifford Winston — Tue, 14 Sep 2010 00:00:00 -0400

Brookings Institution Press 2010 188pp.

Video

Infrastructure Bank Not Workable

In Last Exit Clifford Winston reminds us that transportation services and infrastructure in the United States were originally introduced by private firms. The case for subsequent public ownership and management of the system was weak, in his view, and here he assesses the case for privatization and deregulation to greatly improve Americans’ satisfaction with their transportation systems.

Last Exit was prominently featured in an article by Edward L. Glaeser in the Business section of The New York Times on September 28, 2010.

Advance praise for Last Exit:

"A half-century of economics research, much of it from Brookings, convincingly shows that deregulation of transportation services delivered enormous benefits. Last Exit argues persuasively that these benefits are limited by continuing public provision of infrastructure and regulation or public provision of some services. Clifford Winston proposes experiments in private provision of airports, highways, and urban passenger transportation, and more efficient usage pricing for infrastructure, to test the strong theoretical case for increasing the scope of privatization and deregulation. These provocative but measured proposals provide the agenda for a serious national debate on the next steps in reforming transportation policy."
—Roger Noll, Stanford University

"Clifford Winston offers a blueprint for increasing the role of the private sector in providing U.S. transportation infrastructure. He makes the case that public sector exit can improve economic efficiency, speed technological advance, and help solve current fiscal pressures."
—Betsy Bailey, University of Pennsylvania

"Winston pulls together the first comprehensive accounting of the many inefficiencies that arise from current public policies in transportation. The bill—amounting to $100 billion per year plus reduced innovation—will hopefully stimulate some of the experiments he advocates with increased private provision of transportation."
—Tony Gomez-Ibanez, Harvard University

ABOUT THE AUTHOR

Clifford Winston

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{9ABF977A-E4A6-41C8-B030-0FD655E07DBF}, 978-0-8157-0473-7, $24.95 Order
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A Possible Turnback of the U.S. Transportation Program to the States

Robert Puentes — Thu, 19 Aug 2010 16:46:00 -0400

The delay in the reauthorization of the federal transportation law means we haven’t finished the tired and frustrating discussion about so-called ‘donor’ and ‘donee’ states. This is the desire for each state to receive a level of federal transportation funding that matches the federal gas tax and other revenues that are collected within their state borders.

Nevermind that this approach is anathema to achieving a true national purpose and vision and turns the program into one of revenue distribution instead of one designed to meet national needs; it has dominated the debate in Washington for years and is very much on the mind of senators from states like Texas, Arizona, and Florida who perceive they are treated unfairly. [Read this great book for more.]

So it was interesting that the U.S. Government Accountability Office recently found that, since 2005, not one state received less than the total of its contributions to the highway trust fund. In the absence of any policy reform, how can it be that there are no more donor states?

It is due, in part, to the transportation department’s Equity Bonus Program, which exists solely to make sure states get a satisfactory rate of return. That’s all it does. Amazingly, Equity Bonus is the largest federal highway program, and states can use the funds for almost any conceivable transportation purpose.

Another reason we have no more donor states is because those highway tax revenues coming in are not enough to pay for the spending going out. Since September 2008 about $60 billion in general fund revenues have been used to prop up the transportation program. Over $34.5 billion in the form of direct infusions to the highway trust fund in order to balance out the ledger, and another $27 billion from 2009’s stimulus package. In other words, states are not just receiving their “own” highway users’ contributions back from the federal government, but also massive assistance overall from the general fund.

Senator Kay Bailey Hutchison recently praised the good fortune for Texas from this arrangement at a recent event on transportation funding in metropolitan Dallas. So it may seem odd that she also chose the occasion to plug the Highway Fairness and Reform Act, a bill she introduced last year that would allow states to opt-out of the federal transportation program.

Why would a state like Texas want to be excluded? Here’s the rub: the states would drop of the national program but, under the new law, would keep receiving pretty much the same federal highway allocations they’re getting now. That’s a sweet deal.

A few years back, we cheekily recommended something similar. The difference being that a drop-out state would truly drop-out and would no longer get the federal cash. It’s a bit of calling their bluff since no state can really afford to forgo the money. Our own analysis shows that, since 1995, federal sources make up roughly one quarter of the revenues the states spend on roads. In some states – like Texas at 29 percent – the shares are much higher.

It is important to note this is not just another wacky conversation about Texas seceding from the union. This is the fundamental part of the ongoing debate about the future of the nation’s transportation program—how do we reform the existing program from what it has become—a general purpose cash-transfer program—to one that purposefully and strategically invests in what matters?

The GAO points out that the ‘rate of return’ argument becomes difficult to sustain as the gas tax revenue dwindles. No doubt the states are facing crushing fiscal problems but as long as we remain mired in short term parochial grabs for funding with no policy purpose the transportation program will not aid in the development of a productive and sustainable economy over the long term.

Authors

Robert Puentes

Publication: The Avenue, The New Republic

Image Source: © Joe Skipper / Reuters

Creating Banks for Transportation Infrastructure

Robert Puentes — Thu, 13 May 2010 00:00:00 -0400

Good morning Chairman Neal, Ranking Member Tiberi, and members of the Committee. I am pleased to appear before you this morning and very much appreciate the invitation.

From time to time, collapsed bridges, failed dams, and ruptured water pipes remind us of the need for increased investment in the maintenance of U.S. infrastructure. Overall, we know that the condition of our infrastructure is generally declining, especially in metropolitan areas. There is also growing concern that the infrastructure that exists today is woefully obsolete, geared more for a prior generation than for the challenges of the 21st century.

The federal government spends about $65 billion each year on infrastructure—transportation, energy, water and environmental protection [1]. While the figure is not negligible, the investment in infrastructure is only 2.2 percent of total federal spending. More than three-quarters of this spending consists of transportation grants to state and local governments ($50.4 billion) [2].

While most of the attention has been on increasing funding for projects, there are also renewed calls to improve the way the federal government invests in infrastructure. Today, the federal government generally does not select projects on a merit basis, is biased against maintenance, and involves little long term planning. In this context, there is interest in a new federal entity for funding and financing infrastructure projects through a national infrastructure bank.

Mr. Chairman, I believe that while a national infrastructure bank is not a panacea, if appropriately designed and with sufficient political autonomy, it could improve both the efficiency and effectiveness of future federal infrastructure projects of national and regional importance [3].

Background

A national infrastructure bank (NIB) is a targeted mechanism of financing infrastructure. A development bank in essence, an NIB would have to balance the rate-of-return priorities of a bank with the policy goals of a federal agency. The creation of such a special financing entity for infrastructure has been discussed in policy circles for at least 20 years.

Across the Atlantic, the European Investment Bank (EIB) has been functioning successfully for the last 50 years, playing a major role in connecting the European Union across national borders. The EIB has nearly $300 billion in subscribed capital by all the 27 European Union member countries. In 2009, the EIB disbursed over $70 billion, mainly on transportation, energy and global loans [4]. While not trying to maximize profit, EIB functions as a bank, not as a grant-making mechanism. The EIB raises funds from capital markets and lends them at higher rates, keeping its operations financially sustainable. It offers debt instruments, such as loans and debt guarantees, and technical assistance.

While it may take different forms, NIB proposals in the U.S. generally envisage an entity that improves the federal investment process in infrastructure assets that meet some measure of significance and accelerates the investments in such projects [5]. The focus is on multi-jurisdictional or multi-modal projects with regional or national impact.

Yet despite this general agreement about the purpose of an NIB some outstanding questions remain. For one, it is unclear whether it would be limited to certain sectors, such as transportation, or if it would allow for applications from a variety of infrastructure areas. Another is its governance structure, upon which the budgetary impact of federal investment through an NIB depends heavily. Here there are myriad options. It could be housed within a federal agency, established as a government-owned corporation (like Amtrak), or as a shareholder–owned corporation (like government sponsored enterprises) [6]. The precise structure, then, influences what types of funding and financing it would provide.

The Potential of a National Infrastructure Bank

If correctly structured, an NIB may introduce a federal investment process that requires and rewards performance, with clear accountability from both recipients and the federal government. There are several advantages:

Better selection process. At its heart, an NIB is about better decisionmaking of infrastructure projects. The bank would lend or grant money on a project basis, after some type of benefit/cost analysis. In addition, the projects would be of national or regional significance, transcending state and local boundaries. The bank would consider different types of infrastructure projects, breaking down the modal barriers. This would be a giant step from the current federal funding for infrastructure, most of which is disbursed as federal aid transportation grants to states in a siloed manner.

Multi-jurisdictional projects are largely neglected in the current federal investment process in surface transportation, due to the insufficient institutional coordination among state and local governments that are the main decisionmakers in transportation. The NIB would provide a mechanism to catalyze intergovernmental cooperation and could result in higher rates of return compared to the localized infrastructure projects.

An NIB would need to articulate a clear set of metropolitan and national impact criteria for project selection. Impact may be assessed based on estimated metropolitan multipliers of the project. This criterion would allow the bank to focus on the outcomes of the projects and not get entangled in sector specific standards. Clear evaluation criteria would go a long way, forcing the applicants, be it states, metros or other entities, to have a baseline of performance. This change, by itself, would be a major improvement for the federal investment process, given that a major share of the federal infrastructure money goes to the states on a formula basis, without performance criteria.

Keeping recipients accountable. An NIB would have more control over the selection and execution of projects than the current broad transportation grants. It would be able to enforce its selection criteria, make sure that the projects are more in line with its objectives, and have oversight of the outcomes of the projects.

The new infrastructure entity should require repayment of principal and interest from applicants. This would bring more fiscal discipline and commitment from the recipients to the outcomes of the project.

The extensive use of loans by an NIB contributes to the distinction between a bank and another federal agency. The interest rates charged to the state and local recipients of NIB loans might be set to slowly repay the initial injections of federal capital, while still maintaining a sufficient capital base.

Correcting the maintenance bias. The mere establishment of an NIB would not correct for the problem of deferred maintenance. However, through the selection process, it could address the current bias by imposing maintenance requirements to recipients including adequately funded maintenance reserve accounts and periodic inspections of asset integrity.

Better delivery of infrastructure projects. An NIB could require that projects be delivered via the mechanism offering best-value to the taxpayer and end user. The design-bid-build public finance model has been the most commonly used project delivery method in the transportation sector in the United States. Until very recently, there has been little experimentation with other delivery contracting types.

Evidence from other federal states, such as Australia, shows that private delivery saves money on infrastructure projects.

Filling the capital structure of infrastructure projects. Although the United States has the deepest capital markets in the world, those markets are not always providing the full array of investment capital needed—especially for large infrastructure projects with certain credit profiles. This has been even more obvious during the current recession, with the disruptions in the capital markets. An NIB could help by providing more flexible subordinate debt for big infrastructure projects. Generally bonds get investment-grade ratings, and have ready market access, only if they are senior obligations with secure repayment sources. For more complicated project financings that go beyond senior debt, there is a need for additional capital, such as equity capital or subordinated debt.

Other Considerations

As currently proposed, an NIB would receive annual appropriations from Congress and its board would have to submit a report to the President and the Congress at the end of each fiscal year. Establishing an NIB as a shareholder-owned entity would help shield it from political influence. However, there is also a trade-off between independence and the cost of borrowing. If an NIB is a federal agency, it may draw upon the Treasury’s low interest rates to finance its activities. If it is a shareholder–owned entity, it would incur higher costs of borrowing than the Treasury, so the loans going to recipients would have to be at higher interest rates [7].

Therefore, the budgetary and debt impact of federal investment through an NIB depends heavily on its governance structure. Unless the NIB is a shareholder-owned corporation its investment would be included in the federal budget. If it has the power to issue its own bonds and it is not a shareholder-owned corporation, its debt would be on the federal books. In any other case, it would be treated like other federal agencies, funded through appropriations and included in the federal budget. The federal government would have to pay for increased spending which is likely to add to the federal debt.

The mandate of an NIB in practice would also overlap with the mandates of other existing programs. There are two major issues arising from this problem: how would an NIB use the existing agency expertise and how would other federal agencies relate to this new entity? If the sharing-of-expertise is accomplished through detailing personnel from other agencies, the other federal agencies may have indirect control over NIB.

One example is the Transportation Infrastructure Finance and Innovation Act program. TIFIA, which dates from 1998, was created to help finance transportation projects of national or regional significance. The program is managed by the Federal Highway Administration and provides three forms of credit assistance – secured (direct) loans, loan guarantees, and standby lines of credit to a wide range of public and private entities. TIFIA has proven very popular this year with a record 39 loan applications, requesting $13 billion in finance assistance—far more than the program’s $1.5 billion dollar annual budget [8]. The recently-announced National Infrastructure Investments program (also known as the TIGER II Discretionary Grant Program) recognizes demand for the federal finance assistance, allowing up to $150 million of its funds to be used for TIFIA payments [9].

TIFIA is illustrative because it highlights the significant demand for this type of financing tool for infrastructure projects. There are, however, three important differences between TIFIA and the general concept of an NIB. One is that TIFIA is only available for transportation projects and other infrastructure sectors such as water are not eligible. The second related point is that TIFIA is run out of the Department of Transportation and not a stand-alone entity or housed in the Treasury Department, as some have proposed an alternative for an NIB. Third is that an NIB is generally expected to also provide grants to uniquely eligible projects whereas TIFIA is only a credit program.

Lastly, there has been some discussion of an NIB using tax-preferred bonds or federal bonds in order to capitalize the bank. Here there is some overlap with a new federal program known as Build America Bonds (BABs). This committee recently supported a bill to extend that program through 2013. Started up in the stimulus package with issuance expectations of $4 to $5 billion, uptake of this new lower-cost borrowing tool now exceeds $97 billion [10]. While the BABs are very popular they are largely funding local improvements such as school and sewer improvements, many of which would not meet an NIB’s criteria for regionally or nationally significant projects.

Conclusion

A more competitive U.S. economy needs a better infrastructure system. In a time of limited resources, improving the federal investment process should be a priority over finding ways to merely increase the amount of funding for infrastructure.

If designed and implemented appropriately, a national infrastructure bank would be a targeted mechanism to deal with new federal infrastructure spending. An NIB would provide a better project selection process for neglected federal investment in infrastructure, such as capital projects across jurisdictions and state borders, but also there would be more rigorous evaluation of projects across different types of infrastructure.

Yet an NIB is not a silver bullet for dealing with infrastructure reform, either. It would not overhaul the current federal investment, but be limited only to new projects funded through its mechanism. In the end, an NIB should be thought of as a precision tool and not a blunt instrument.

[1] Office of Management and Budget, 2010: Analytical Perspectives, 2009, pp. 36, table 6-2. This does not include spending on community and regional development, because this spending requires finer separation of expenses.

[2] Congressional Budget Office, “Issues and Options in Infrastructure Investment,” 2008.

[3] Emilia Istrate and Robert Puentes, “Investing for Success: Examining a Federal Capital Budget and a National Infrastructure Bank,” Brookings, 2009.

[4] European Investment Bank, “EIB Group: Key Statutory Figures,” 2009.

[5] See e.g.,: National Surface Transportation Infrastructure Financing Commission, “Paying our Way,” 2009.

[6] Congressional Budget Office, “Issues and Options in Infrastructure Investment,” 2008.

[7] The issue of the relative cost-effectiveness to borrowers of the NIB loans being funded through direct federal credit—subject to the Fair Credit Reporting Act—instead of through external sources of debt capital is a more complicated technical issue, outside of the scope of these remarks.

[8] American Association of State Highway and Transportation Officials Journal, “TIFIA Loan Applications Total $13 Billion,” Washington, April 2, 2010.

[9] They are so-named because of their similarity to a program created in the American Recovery and Reinvestment Act of 2009: the Transportation Investment Generating Economic Recovery, or “TIGER Discretionary Grant.”

[10] U.S. Department of the Treasury, “Treasury Releases New Build America Bonds Data,” TG-692, May 6, 2010.

Authors

Robert Puentes

Publication: House Committee on Ways and Means

Mandates for Tolls on Interstate Highways Are Outdated

Robert Puentes — Wed, 07 Apr 2010 10:53:00 -0400

The rejection of Pennsylvania’s request to allow the state to toll I-80 represents exactly the kind of outdated and outmoded thinking the nation cannot afford right now. The U.S. DOT’s decision is based on their interpretation of the law that prohibits dedicating the proceeds of the tolls to anything but the roadway itself which includes paying off debts, potential profits for private investors, and general rehab and upkeep.

Therefore, the state’s plan to dedicate a portion of the revenues generated to fixing the state’s roads and bridges, and to address its dire transit needs is a no-go.

The law needs to be changed.

State and metropolitan leaders are in the best position to determine which interstate roadway segments are the strongest candidates for pricing strategies. They are also well-suited to determine how to use revenues generated to maintain a balanced multi-modal transportation system--and to be held accountable for doing so. When it comes to road pricing what we need now is a new 21^st century compact that rewards the nation’s state and metropolitan leaders who develop deep and innovative visions to solve the most pressing transportation problems.

While the existing law may mean the die had already been cast, the reauthorization of the federal transportation law (which is months overdue) should be the opportunity to remove the archaic restrictions on tolling the interstate system. Such portions would include those where a range of travel options exist or are planned, and where the most intense peak-hour congestion on expressways is present. A broad range of tolling strategies should be considered--not solely for revenue generation but for congestion and demand management strategies on beltways, downtown spurs and within mega-regions.

Authors

Robert Puentes

Publication: The Avenue, The New Republic

Image Source: © Joe Giza / Reuters

Census Brings Money Home

Andrew Reamer — Mon, 15 Mar 2010 13:44:00 -0400

Last Monday, I came home to a letter from the U.S. Census Bureau urging me to fill out the 2010 Census form. The letter went on to tell me why: “Results from the 2010 Census will be used to help each community get its fair share of government funds for highways, schools, health facilities, and many other programs you and your neighbors need. Without a complete an accurate census, your community may not receive its fair share.”

My new report from Brookings, Counting for Dollars: The Role of the Decennial Census in the Distribution of Federal Funds offers important reasons why it’s worth a few minutes of your time to answer the 10 questions. I look at the extent to which the federal government relies on decennial census-related data to determine where domestic assistance funds are distributed across the nation. The motivation behind my study was to “make it real” for individual states and communities by providing dollar amounts, by program, that could be used by local Complete Count Committees to stimulate greater census participation.

The study’s results are interesting in a number of ways.

The numbers gathered through the decennial census determine the distribution of enormous sums -- $447 billion in FY2008, $1,469 per person, and 15 percent of the total federal budget.

Over 80 percent of that $447 billion goes to state governments — mainly through large formula grant programs that aid low-income households and support highway construction. One fifth of state government budgets, it turns out, come from federal grants, so states have a big stake in an accurate census. For each extra person counted, aid increases from between a few hundred to a few thousand dollars, depending on the state.

Census-guided funding per capita going to states varies enormously, from $4,656 in the District of Columbia to $742 in Nevada. Differences in Medicaid programs explain much of this variation. Medicaid reimbursements are huge -- $261 billion or 58 percent of total census-guided funding. States with more generous coverage tend to get more census-guided funding per person, as do those with a higher proportion of lower income people.

Rural states tend to come out a little better. Highway building over large spaces with few people costs a high amount per capita. And for some programs, less populated states get a base amount that’s higher per person than for more populous states.

The outsized influence of census statistics on federal funding indicates the enormous return on taxpayer investment in federal statistics. One way to think about this is that the $14 billion life cycle cost of the 2010 Census will enable the fair allocation of nearly $5 trillion in funds over the coming decade (not adjusting for inflation or other changes).

The upshot: The 2010 Census is important for many reasons, including apportionment and redistricting, figuring out where businesses, schools, and roads go, and, as we see here, who gets hundreds of billions of dollars in federal aid. If you want, check out what monies will be coming to your community because of your participation.

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Andrew Reamer

Image Source: Rick Wilking

Federal Surface Transportation Program Faces Shutdown

Robert Puentes — Fri, 26 Feb 2010 14:19:00 -0500

It doesn’t seem possible that Congress will allow the federal surface transportation program to expire on Sunday night. But that’s what we’re facing this weekend. The current law is operating under a series of extensions—the most recent keeps the program going until the end of February. This time, rather than an inconspicuous continuation of the law, a 10-month extension is proposed as a key part of the Hiring Incentives to Restore Employment Act, aka Stimulus II, aka the jobs bill.

That’s all well and good. Even though we’ve called for wholesale reform when it comes to the nation’s transportation laws, shutting the program down, furloughing federal workers, and halting some construction projects is not what this country needs right now. How other programs like COBRA and unemployment benefits get dealt with is anyone’s guess but on the transportation side something will likely get done – perhaps a one month extension separate and apart from the jobs bill.

But this does suggest some deeper problems. Despite earnest and sustained calls for a long term national commitment to infrastructure little progress is being made. Not to put too fine a point on it: but if Congress can dismiss the program in place today and risk a shutdown, it does not bode well for comprehensive reform.

Yet reform is what is needed to ensure our third class infrastructure doesn’t drag down our first class economy.

Authors

Robert Puentes

Publication: The Avenue, The New Republic

Image Source: Clay Mclachlan

TIGER’s Tale and Lessons for Stimulus Spending

Robert Puentes — Mon, 22 Feb 2010 10:34:00 -0500

Appropriately so, the discussion around the one-year anniversary of the American Recovery and Reinvestment Act focuses on its ability to create jobs. This is especially true on the transportation side of the ledger--after all, the transportation spending is consistently held up as the shining example of how the stimulus is working.

But what of the spatial distribution of that spending? Here at the Metro Program we have long maintained that it is also important to consider where those projects are located because they don't exist in the abstract, but are unevenly distributed across the landscape of the nation.

Because our 100 largest metropolitan areas harbor two-thirds of our population and generate 75 percent of our gross domestic product, it makes sense to leverage that economic might when making infrastructure decisions. Metropolitan areas are agglomerations of innovation and human capital. Metros offer more sustainable development patterns, which are supported by a range of transportation and infrastructure choices. In that regard, metropolitan areas are also where 72 percent of the seaport tonnage arrives and departs; where 78 percent of our interstate miles are travelled; where 92 percent of air passengers and transit miles are ridden, and where 93 percent of rail passengers board.

So what do we know so far about the transportation recovery spending? Analyzing the latest Recovery.gov data we find that, overall, just 41 percent of the projects and 59 percent of the transportation spending occurred in the 100 largest metropolitan areas. As the table shows, this varies by mode, with aviation and highway funds both below fifty percent of total spending, while others--such as railroads and transit--have much higher concentrations in the largest metros.

There are a few likely reasons for this spatial disconnect. First and foremost is that the table above reports spending through last December. Metropolitan planning organizations have one year to obligate their roadway funds, so the highway figures may change somewhat. Another is the federal government’s guidance to target funds in Economically Distressed Areas which, while laudable, seems to have served to spread money around haphazardly.

Also there is the emphasis on shovel-readiness, and the real consequence that some states would lose a portion of their money if they didn’t spend it quickly. This proved to be a powerful incentive to obligate funds quickly, but created a bias towards “business-as-usual” delivery systems. My colleague Mark Muro points out the many innovations that accompanied ARRA, but for transportation, 60 percent of ARRA’s spending is in the hands of the states which have an uneven record on metropolitan issues.

One of those innovations is the recently-announced Transportation Investment Generating Economic Recovery grants. These so-called TIGER grants are much trumpeted by the U.S. Department of Transportation. And for good reason. This comparatively small $1.5 billion program was designed to fund competitive grants that support nationally, regionally, or metro-significant projects that may facilitate linking transportation, housing, energy, and environmental concerns.

We will be writing more about the specifics of these projects--and the process for choosing the awards--in the near future. But what about the geographic spread? Over 80 percent of the projects and 70 percent of total TIGER funding is targeted to the 100 largest metro areas. (UPDATE: Further analysis indicates that, instead of the above, over 61 percent of the projects and 77 percent of TIGER funding is targeted to the largest 100 metro areas.) That’s not just the super-large places like New York and Chicago, but also important metros like Louisville, Tulsa, and Providence.

As Washington considers the additional steps needs to retain and create jobs, the TIGER’s recognition of the economic primacy of U.S. metropolitan area should be illustrative.

Authors

Robert Puentes

New Jersey and Virginia Governors Facing Transportation Shortfalls

Robert Puentes — Fri, 12 Feb 2010 12:50:00 -0500

The new governors that recently took office in Virginia and New Jersey are facing a challenging fiscal environment. Chief among thorny issues are the looming shortfalls on the transportation front for both states.

Governor Christie is facing the reality that by 2011 all the revenue flowing into the New Jersey’s Transportation Trust Fund will be going toward debt payments. Virginia’s “three-alarm” transportation crisis is part of a $1.8 billion mid-year budget gap for fiscal 2010 that new Governor Bob McDonnell has to fix. Beginning next year Virginia will have scarce funding for primary, secondary, urban, and unpaved roads.

What’s to be done? The obvious answer to many is raise the state motor fuels tax. After all, neither state has raised its gas tax in over 20 years. Both are below the 50 state average of 20.8¢ per gallon. New Jersey’s, in fact, is the third-lowest in the nation (10.5¢). As a result, the most recent federal highway data shows that only two states have a lower share of their highway revenues coming from the gas tax than does the Garden State.

On the other hand--and as anyone who’s driven through the state can attest--New Jersey also takes advantage of tolling more than any other state. Nearly 30 percent of the revenue the state uses for highways comes from tolls, principally on the New Jersey Turnpike. Virginia is heavily-reliant on the gas tax but also depends on a range of state imposts.

The bottom line is that there will have to be a range of responses to deal with the transportation funding shortfalls. No good idea should be off the table.

That said, Governor McDonnell’s plan to dedicate 80 percent of the state’s proceeds from his yet-to-be-approved call for offshore natural gas and oil drilling is not a good idea. At least not one that should be looked to for solving the state’s transportation funding woes. Not only is there too much to be determined about authority, quantity, and environmental impact, the proceeds may reach only $69 million. Not negligible, but about $820 million less than the state gas tax pulls in each year. Governor Christie has not come up with his own solutions yet but has ruled out raising taxes or tolls. His transition team assembled a comprehensive and blunt report about the options and realities facing New Jersey.

Let’s hope the new governors heed the advice they’re getting on their states’ transportation future. Whether these leaders ride into office on a national wave or not, they now have no choice but to face their state’s biggest challenges. Sensibly addressing their transportation shortfalls would be a great first step.

Authors

Robert Puentes

Budget 2011: Investing in Infrastructure

Robert Puentes — Thu, 04 Feb 2010 12:21:00 -0500

When it comes to infrastructure, President Obama faces a tricky balancing act. On one side he needs to invest in the kind of infrastructure that the nation needs to remain competitive and put us on the path to a low-carbon future. On the other he has to operate in a constrained fiscal environment with programs that are in fundamental need of reform.

With that as a backdrop the president’s proposed 2011 budget is an interesting collection of investments and reforms.

In the former, there is a proposal to create a $4 billion National Infrastructure Innovation and Finance Fund which appears to be this year’s iteration of the National Infrastructure Bank idea. The fund would support projects of regional or national significance based on merit. While we have written extensively about the need for such a reformed process, the narrow focus on transportation-only projects is somewhat disappointing.

Other areas of infrastructure investment are worth noting including a bump in loans and grants to connect rural communities with broadband infrastructure, an additional $3.3 billion for the Clean Water and Drinking Water State Revolving Funds, and an additional $1 billion to fund competitive high speed rail projects.

The 2011 budget also proposes to make the Build America Bond program permanent. The popular program would be increased to $3.2 billion, the subsidy level dropped, and expanded to include some operating costs, in addition to capital investments.

But what is striking about the budget proposal is the strong language about reform. Notably, the budget reinforces the administration’s desire to extend the current transportation law an additional year. This means not reauthorizing the program at a higher spending level—as many in Congress have proposed to do—but working on key reforms to make smarter investments. It also provides more time to come up with sufficient and sustainable sources of revenue.

The other interesting proposal is to eliminate 353 transportation earmarks from the 2010 appropriations law. In that piece of legislation, these projects are identified as ‘surface transportation priorities’ and include investments such as the Hammond Drive Roadway Upgrades in Sandy Springs, GA, the Edwards County Bone Gap Road in Illinois, and $2 million for something called “Urban Collector Road, MS.” The Administration proposes cutting them because the choice of these projects was “not subject to merit-based criteria or competition.” Overall, cutting these projects from special funding would save $293 million.

Also slated for cuts is the Army Corps of Engineers. The Corps would see a 10 percent drop in funding for its water and flood programs. But the budget also proposes a new direction for the Corps by incorporating new planning concepts and analytical methods.

The general theme, then, appears to be consistent with the reforms that accompanied last year’s budget and the American Recovery and Reinvestment Act (a.k.a. the stimulus bill) which provided a number of avenues for coordinating its various funding streams at a metropolitan level, particularly in new competitive grant programs, and a nudge away from the troublesome formula-driven programs so prevalent today.

Authors

Robert Puentes

An Analysis of Air Travel Trends in the Great Lakes Region

John C. Austin, Robert Puentes and Adie Tomer — Thu, 08 Oct 2009 00:00:00 -0400

An analysis of commercial air travel patterns for the major metropolitan areas of the Great Lakes between 1999 and 2009 reveals the following:

Similar to the national trends, air passenger travel in the Great Lakes region increased steadily since 1990, moving in step with economic growth, and, accordingly, it has also fallen during the recession. Many metropolitan areas vastly exceeded the national growth rate between 1999 and 2009: Akron, Buffalo, Dayton, and Milwaukee. Conversely, some witnessed passenger declines; St. Louis, Pittsburgh, Toledo, and Cincinnati experienced the steepest declines.
Measured by the number of connections, the Great Lakes have three of the country’s 10 most connected metropolitan areas and another three that rank in the top 25. Metropolitan Chicago has 133 connections to other metropolitan and micropolitan areas, which ranks second in the country. Detroit and Minneapolis are not far behind with 122 and 114 connections, respectively.
One of the top 10 most travelled air corridors in the nation and 21 of the top 100 lie in the Great Lakes. The corridor linking Chicago to New York attracted over 4.7 million passengers during the last twelve months to rank fourth in the country by volume. Overall, Chicago boasts twenty corridors in the nation’s top 100.
The Great Lakes metropolitan areas experience a range of on-time performance, although three of the region's four major hubs exceed national on-time averages. During the last year, 79.1 percent of arriving flights in the major Intermountain West metros were on time, similar to the national average of 78.9 percent. However, performance was mixed between the twenty metropolitan areas.

The recession and significant contraction in the Great Lakes region’s auto and related manufacturing industry has recently exacerbated economic woes and an out-migraton dynamic. Hence, it should come as no surprise that air travel patterns have followed suit. A return to economic growth will challenge those growing regions and the most connected metropolitan areas.

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Expect Delays: An Analysis of Air Travel Trends in the United States

Robert Puentes and Adie Tomer — Thu, 08 Oct 2009 00:00:00 -0400

An analysis at the national and metropolitan levels of commercial air travel patterns between 1990 and 2009 reveals that:

Air passenger travel in the United States experienced its first annualized drop in September 2008 since the tragedy of September 11, 2001, and the decline has continued through March 2009. Strong economic growth helped American airports increase their passenger and flight levels by over 60 percent from 1990 to 2008, tripling population growth. However, residents are traveling less since the current economic downturn, producing sustained reductions in passengers and flights since September 2008 and June 2008, respectively.
Nearly 99 percent of all U.S. air passengers arrive or depart from one of the 100 largest metropolitan areas, with the vast majority of travel concentrated in 26 metropolitan hubs. Between April 2008 and March 2009, 26 metropolitan areas captured nearly three-quarters of all domestic travelers, while 20 of these metros landed 94 percent of all international passengers. These extreme shares make these metropolitan hubs the critical links in the nation’s aviation system and reinforce their role as major centers of tourism and commerce.

Half of the country’s flights are routes of less than 500 miles, and the busiest corridors travel between the metropolitan hubs

The 26 metropolitan hubs and other large metropolitan areas host a concentration of national delays—and the situation is worsening over time. The concentration within the 100 largest metropolitan areas was especially troubling with congestion-related delays as well as those lasting over two hours. Within the 26 domestic hubs, six experienced worse-than-average delays for both arrivals and departures: New York, Chicago, Philadelphia, Miami, Atlanta, and San Francisco.

The current economic recession caused carriers to reduce flight levels, which then improved ontime performance in the immediate term. However, the return of economic growth will resume the boost in travelers, a concomitant decline in on-time performance, and the hyperconcentration of U.S. air travel within major metropolitan areas and among flights traveling short distances. To ensure that the commercial aviation system runs efficiently while simultaneously improving its environmental record, policymakers must focus aviation and other modal investments on the metropolitan hubs and short-haul corridors, thus strengthening the performance of the our nation’s major economic centers.

Supplemental Reports
An Analysis of Air Travel Trends in the Great Lakes Region »
An Analysis of Air Traffic Patterns in the Intermountain West »

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The Infrastructure Needs of a 21st Century City—A U.S. Perspective

Emilia Istrate — Wed, 16 Sep 2009 00:00:00 -0400

At the Institute of Brazilian Issues at the George Washington University, Emilia Istrate spoke with a group of Brazilian development experts on the infrastructure needs of a metropolitan area, from a U.S. perspective.

Istrate began by stating that metropolitan areas are the economic engines of the U.S. economy, and that most of the nation's infrastructure assets are concentrated there. However, Istrate argued that the federal government is struggling to deal with the infrastructure constraints posed by these areas. The challenges of the 21st century, she said, require that any infrastructure investment, in the U.S. or in other parts of the world, should be metropolitan, integrated, competitive, optimized, and transparent.

In conclusion, Istrate presented the current U.S. efforts in this direction.

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Emilia Istrate

Publication: The Institute of Brazilian Issues, the George Washington University

National Surface Transportation Legislation: a Metropolitan Outlook

Emilia Istrate — Tue, 28 Jul 2009 00:00:00 -0400

At the annual conference of the Government Research Association in Washington, DC, Emilia Istrate spoke about the current transportation reauthorization debate from a metropolitan perspective.

Istrate argued that the America's transportation challenges and solutions lie in the nation's metropolitan areas, an issue neglected by the current federal transportation policy. In addition, Istrate contended that the federal transportation program lost focus in dealing with both short- and long-term problems.

In conclusion, Istrate presented a short-term outlook on the current transportation reauthorization debate.

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Emilia Istrate

Publication: Government Research Association Annual Conference

The Other Highway Funding Crisis

Robert Puentes and Adie Tomer — Fri, 17 Jul 2009 00:00:00 -0400

Last month, Transportation Secretary Ray Lahood confirmed that, by August, the highway trust fund will "run out of money," due to the fact that Americans are driving less (and more efficiently), while the gas tax hasn't changed in 16 years. Last summer, Congress had to transfer $8 billion from the general fund to keep transportation programs solvent. Today, many in Washington are calling for another $20 billion in general revenues to cover the next year and a half.

Yet just as important as where the money comes from is how the funds are spent. Today, much of the funds authorized in the current program are given to states based on traditional factors such as road mileage, miles, and number of deficient bridges. But the largest federal highway program—the Equity Bonus program—exists solely to make sure that each state gets its "fair share" of revenue, defined as 92 percent of the state's annual contributions to the trust fund. In other words, states get roughly as much money as they pay in gas-tax revenue.

But now that the highway account is set to get bailed out with $28 billion in general funds, that formula needs to be revisited. The Equity Bonus should make sure that states receive highway funds based on contributions to the general fund. Based on work from the Tax Policy Center, a joint effort by the Urban Institute and Brookings, states like New York, California, Washington, and Massachusetts all contribute far more in general tax revenue than they receive from the existing Equity Bonus program. Conversely, Florida, Georgia, and Texas all receive disproportionately large Equity Bonus payments.

If the current apportionments go unchanged, many states will be unfairly punished through this transfer of funds at a time they can ill afford it. The federal transportation program needs an overhaul on many fronts—the least Congress can do is make sure the Equity Bonus program doesn't make a bad situation worse.

View Equity Bonus and General Funding Table »

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Publication: The Vine, The New Republic