The Forum on Funding and Financing Solutions for Surface Transportation in the Coming Decade Conference Report

Sponsored by:
AASHTO Center for Excellence in Project Finance • America 2050 at the
Regional Plan Association • Fels Institute of Government at the University
of Pennsylvania • Georgia Institute of Technology • Humphrey Institute
at the University of Minnesota • Keston Institute for Public Finance and
Infrastructure Policy at the University of Southern California • Meridiam
Infrastructure • Nossaman LLP • US Department of Transportation
THE FORUM ON FUNDING AND
FINANCING SOLUTIONS FOR
SURFACE TRANSPORTATION
IN THE COMING DECADE
CONFERENCE REPORT
CONFERENCE:
September 30, 2010
Capitol Visitor Center January 2011 Washington, DC
American Association of State Highway and Transportation Officials
444 North Capitol Street, NW, Suite 249
Washington, DC 20001
(202) 624-5800 phone/(202) 624-5806 fax
www.transportation.org
www.transportation-finance.org
© 2011 by the American Association of State Highway and Transportation
Officials. All rights reserved. Duplication is a violation of applicable law.
Established by the American Association of State Highway and Transportation Officials
(AASHTO) and the U.S. Department of Transportation (USDOT) through Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU),
the mission of the AASHTO Center for Excellence in Project Finance is to provide support
to State Departments of Transportation in the development of finance plans and project
oversight tools and to develop and offer training and state-of-the-art finance methods to
advance transportation projects and leverage funding.
The Center provides four primary services:
W Professional Education
W Research Services
W Technical Assistance
W Information Dissemination
Staff
W Peter “Jack” Basso, Director
W Joung H. Lee, Deputy Director
W Wendy Franklin, Director of Finance Programs
Contact
AASHTO Center for Excellence in Project Finance
444 North Capitol St NW, Suite 249
Washington, DC 20001
Phone: 202.624.5818
Fax: 202.624.5469
Email: cepf@transportation.org
About the AASHTO Center for
Excellence in Project Finance
THE FORUM ON FUNDING AND
FINANCING SOLUTIONS FOR
SURFACE TRANSPORTATION
IN THE COMING DECADE
CONFERENCE REPORT
CONFERENCE:
September 30, 2010
Capitol Visitor Center
Washington, DC January 2011
American Association of State Highway and Transportation Officials
444 North Capitol Street, NW, Suite 249
Washington, DC 20001
(202) 624-5800 phone/(202) 624-5806 fax
www.transportation.org
www.transportation-finance.org
© 2011 by the American Association of State Highway and Transportation
Officials. All rights reserved. Duplication is a violation of applicable law.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | i
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Part I—Where Are We Headed?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Part II—What Can We Do About It?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part III—Session Summaries from the Forum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Part IV—Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Appendix A—Speaker White Papers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Appendix B—List of Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Appendix C—List of Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Table of Contents

In recognition of the need to discuss a broad range of tools to address the transportation
“funding gap,” the AASHTO Center for Excellence in Project Finance convened a forum
on September 30, 2010, at the Capitol Visitor Center in Washington, DC, for members of
Congress, Congressional staff, and transportation industry stakeholders.
The forum, entitled Funding and Financing Solutions for Surface Transportation in the
Coming Decade, was organized around six discussions that addressed:
W Near- and medium-term funding options for the Federal surface transportation
programs
W Current and potential future applications of Federal financing tools
W Funding and financing initiatives that are meeting with success at state and local
levels of government and whose use could be expanded
Forum speakers included members of Congress, representatives of state and local governments, and professionals from educational and private sector transportation-focused organizations and businesses.
The AASHTO Center for Excellence in Project Finance would like to recognize the partnership and funding support for the forum from the following organizations:
W America 2050 at the Regional Plan Association
W Fels Institute of Government at the University of Pennsylvania
W Georgia Institute of Technology
W Humphrey Institute at the University of Minnesota
W Keston Institute for Public Finance and Infrastructure Policy
at the University of Southern California
W Meridiam Infrastructure
W Nossaman LLP
W U.S. Department of Transportation
Funding and Financing Solutions for Surface Transportation in the Coming Decade | iii
EXECUTIVE SUMMARY
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
WHERE ARE WE HEADED?
Since its inception in 1956, the Highway Trust Fund (HTF) has helped to ensure that Federal
highway user fees are spent for transportation purposes. However, as a result of the weak U.S.
economy, the increasing discrepancy between receipts and outlays in the HTF in recent years has
created a solvency crisis. Without three intra-governmental transfers from the general fund of the U.S.
Treasury, totaling $34.5 billion since 2008, balances in the Highway and Mass Transit Accounts would
have fallen close to zero over the course of the last several years. The recurring potential for severe
cutbacks in Federal funding for state highway and transit programs combined with the significantly
reduced purchasing power of motor fuels taxes is creating a near-term crisis for investment in our
nation’s transportation assets.
At the same time, investment needs continue to grow. As seen in the exhibit below, according to the
National Surface Transportation Infrastructure Financing Commission (Financing Commission), over
the period from 2008–2035, revenues generated under current policies provide enough resources to
meet only 44 percent of the requirements to maintain the current system; similarly, such revenues can
fund only 36 percent of the costs to improve the system.
Source: National Surface Transportation Infrastructure Financing Commission
Over the period referenced above, the Financing Commission’s baseline revenue forecast projects an
average annual growth rate of 0.9 percent in current-law HTF net revenues. Assuming a 2.0 percent
average annual inflation rate, Federal program purchasing power in 2008 dollars would drop to $27.1
billion by 2035, a 25.5 percent decline from 2008.
AVERAGE ANNUAL CAPITAL NEEDS AND GAP ESTIMATES—
ALL LEVELS OF GOVERNMENT, 2008–35 (in 2008 dollars)
134
57% 44% 39% 40% 36% 29%
172
194 189
214
262
Gap Revenues Percent of
Needs Met
2006 USDOT
Conditions
and
Performance
Report
National
Surface
Transportation
Infrastructure
Financing
Commission
National
Surface
Transportation
Policy and
Revenue Study
Commission
2006 USDOT
Conditions
and
Performance
Report
National
Surface
Transportation
Infrastructure
Financing
Commission
National
Surface
Transportation
Policy and
Revenue Study
Commission
0
50
100
200
250
2008 $ in Billions 150
Maintain (Medium) Improve (High)
iv | Center for Excellence in Project Finance: Conference Report
WHAT CAN WE DO ABOUT IT?
A number of funding and financing tools are at our disposal. To clarify, funding means revenue available to pay for investment in transportation assets or programs. Financing relates to the use of financial tools or techniques to leverage project revenues, accelerate project development, and match the
costs and benefits of long-lived assets.
On the funding front, many transportation professionals (including the participants in the September
30th forum) agree that the traditional HTF funding sources, particularly the motor fuels tax, hold the
greatest potential for addressing the current discrepancy in receipts and outlays in the HTF. An array of
other sources, with particularly strong potential accorded to a vehicle miles traveled fee, present opportunities for addressing the long-term investment requirements of maintaining and modernizing our
national surface transportation systems. The forum examined the following category of funding options:
W Existing HTF Sources
W Vehicle-related Sources
W Motor Fuel-related Taxes
W Broad-based Taxes and General Fund Revenues
W Freight-related Taxes
W Tolling and Comprehensive Road Pricing Options
W Value Capture Strategies
A broad array of existing and potential funding sources with illustrative revenue potential is provided
below.
Source: American Association of State Highway and Transportation Officials
Annual Drivers License Surcharge
Annual Highway Miles Traveled Fee (All Light Duty Vehicles)*
Annual Highway Miles Traveled Fee (All Trucks)*
Annual Registration Fee (Light Duty Vehicles)
Annual Registration Fee (Trucks)
Container Tax
Dedicated Income Tax–Personal
Dedicated Income Tax–Business
Diesel Tax Increase
Gas Tax Increase
Harbor Maintenance Tax
HVUT Increase
Imported Oil Tax
Sales Tax on Auto-related Parts & Services
Sales Tax on Gas
Sales Tax on Diesel
Sales Tax on New Light Duty Vehicles
Sales Tax on New and Used Light Duty Vehicles
Share of US Customs Revenues
Tire Tax on Light Duty Vehicles
Ton Freight Charge—All Modes
Ton Freight Charge—Truck Only
Ton-Mile Freight Charge—All Modes
Ton-Mile Freight Charge—Truck Only
Truck/Trailer Sales Tax Increase
Truck Tire Tax Increase
US Freight Bill—All Modes
US Freight Bill—Truck Only
*VMT fee estimates refer to miles traveled on Interstate System.
Surface Transportation Funding Options Matrix
(all revenue estimates in $ millions)
Illustrative Revenues Revenues Revenues
Average Total
Rate 2011 2011–2016 2011–2016 Funding Mechanisms Mechanism Yield
(2011)
286
2,288
1,017
399
80,843
6,993
18,120
16,448
63,946
71,285
24,172
36,309
84,183
39,485
26,138
16,938
185,671
68,903
15,427
23,021
37,009
26,592
18,340
140,678
41,174
9,174
49,236
42,745
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,165
13,474
3,020
2,741
66
10,658
11,881
4,029
6,052
14,030
6,581
169
4,356
2,823
30,945
11,484
2,571
3,837
381
6,168
4,432
3,057
23,446
6,862
1,529
48
8,206
7,124
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,110
13,075
2,931
2,613
66
9,076
11,301
3,832
5,794
13,795
6,181
146
4,217
2,567
25,091
9,198
2,337
3,515
333
5,880
4,111
2,835
21,748
6,365
1,095
33
7,612
6,608
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
222
6,538
977
261
4.4
605
1,130
383
386
1,379
1,236
97
4,217
2,567
2,987
868
2,337
3,515
333
1,960
164
113
43,497
12,731
219
33
7,612
6,608
$1.00 Surcharge
1¢/VMT
1¢/VMT
$1.00 Fee
$1.00 Fee
$1 per TEU
1% of current taxes
1% of current taxes
1¢/gal
1¢/gal
0.1% Tax
10% Increase
$1.00/Bbls
1.0% of Sales
1.0% of Sales
1.0% of Sales
1.0% of Sales
1.0% of Sales
1% of Receipts
$1.00 Fee
1¢/ton
1¢/ton
1¢/ton-mile
1¢/ton-mile
1% of Sales
10% Increase
1% of Sales
1% of Sales
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
$5.00
2.0¢
3.0¢
$10.00
$15.00
$15.00
1.0%
1.0%
15.0¢
10.0¢
0.5%
15.0%
$1.00
1.0%
8.4%
10.6%
1.0%
1.0%
1.0%
$3.00
25.0¢
25.0¢
0.5¢
0.5¢
5.0%
10.0%
1.0%
1.0%
Total Revenues $ 173,465 $ 191,137 $1,146,819
Funding and Financing Solutions for Surface Transportation in the Coming Decade | v
In addition, the forum examined the following financing tools for surface transportation:
W Tax-exempt Bonds
W Direct Federal Credit (e.g. TIFIA)
W Grant Anticipation Borrowing (e.g. GARVEE bonds)
W State Infrastructure Banks
W Private Activity Bonds
W Build America Bonds and other tax-credit bonds
W Public-private Partnerships
W National Infrastructure Bank
CONCLUSION
As with other discussions on funding and financing surface transportation, the forum showed that
there is no shortage of options when it comes to supporting investments at Federal, state, and local
levels. A distinguishing element of this discussion, however, was real-life innovation in financing
concepts illustrated through case studies from across the country that Congress could draw upon
immediately in crafting reauthorizing legislation for the surface transportation program. Indeed,
providing a variety of examples and illustrations of these options was a key objective of the forum,
so that Congressional leadership and staff could be more conversant with them when considering
legislation. The creative solutions considered at the forum are detailed in the speaker white papers
in Appendix A.
Some of the highlights of the alternatives discussed include: conversion of the current volume-based
excise tax on gasoline by volume to a sales tax levied proportionately to the price of fuel, more efficient use of Federal-aid highway apportionments to leverage every dollar of Federal investment, value
capture-based public-private partnerships, use of the tax code to accelerate financing of transportation
investments, and expansion of existing programs such as TIFIA.
As Congress continues its deliberations on the next surface transportation reauthorization, the intended purpose of the forum and this report is to provide a series of viable funding and financing considerations to support surface transportation investments in the coming decade and to serve as a reference
platform for the national policy discussion on how the country can forge a path forward in this period
of transportation funding uncertainty.
vi | Center for Excellence in Project Finance: Conference Report
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
PART I—WHERE ARE WE HEADED?
Introduction
“Since its creation in 1956, the Highway Trust Fund (HTF) generally has provided stable,
reliable, and substantial highway and transit funding. In recent years, however, the stability and adequacy of the HTF has diminished. Projections of future Federal investment needs
and HTF revenues suggest that the situation will continue to deteriorate if nothing is done
to boost revenues.”
This statement from Paying Our Way: A New Framework for Transportation Finance—
Report of the National Surface Transportation Infrastructure Financing Commission (February 2009) summarizes the confluence of events—declining revenue at a time of increasing
investment needs—that is creating deep concern at all levels of government about the
outlook for adequate funding for maintenance and capacity improvements in highway and
transit assets in the United States.
While addressing the looming transportation investment crisis will require sustained
commitment from a broad range of stakeholders, a key component in this effort is the funding and financing mechanisms that are, or could become, available to support investment
in transportation infrastructure. In recognition of the need to discuss a broad range of tools
to address the transportation “funding gap,” the AASHTO Center for Excellence in Project
Finance convened a forum on September 30, 2010, at the Capitol Visitor Center in Washington, DC, for members of Congress, Congressional staff, and transportation industry stakeholders.
Discussions were organized around six sessions that addressed:
W Near- and medium-term funding options for the Federal surface transportation
programs
W Current and potential future applications of Federal financing tools
W Funding and financing initiatives that are meeting with success at state and local
levels of government and whose use could be expanded
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 1
Forum speakers included members of Congress, representatives of state and local governments, and
professionals from educational and private sector transportation-focused organizations and businesses.
The AASHTO Center for Excellence in Project Finance would like to recognize partnership and funding
support for the forum from the following organizations:
W America 2050 at the Regional Plan Association
W Fels Institute of Government at the University of Pennsylvania
W Georgia Institute of Technology
W Humphrey Institute at the University of Minnesota
W Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California
W Meridiam Infrastructure
W Nossaman LLP
W U.S. Department of Transportation
Following a brief review of the history, current status, and outlook for Federal transportation funding, these proceedings summarize the presentations and discussion in each of the six forum sessions.
White papers prepared by session speakers are included in Appendix A, and a forum participant list is
provided in Appendix C.
Background
Since its inception in 1956, the HTF has helped to ensure that Federal highway user fees are spent
for transportation purposes. The HTF was created by the Highway Revenue Act of 1956 to ensure
a dependable source of funding for the National System of Interstate and Defense Highways (the
Interstate Highway System) and to serve as a source of funding for the remainder of the Federal-aid
Highway Program. In the original Highway Revenue Act, the crediting of user taxes to the HTF was to
expire at the end of FY1972. Subsequent legislation has, however, periodically extended the imposition
of transportation-related user fees and their transfer to the HTF. Most recently, the Safe, Accountable,
Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) extended the program
provisions through September 30, 2009, with a series of short-term extensions since then. Originally,
the HTF was generally dedicated to building the Interstate Highway System. Following establishment
of the Mass Transit Account in the HTF in April 1983, a portion of the revenue accruing to the HTF is
directed to this account for expenditure on transit needs.
Historically, the great majority of Federal funds are used to support capital spending in surface transportation—accounting for close to half of the investment in highway and transit assets in recent years
(44 percent for each mode in 2006, with long-term averages of 45percent for highways and 50percent
for transit). Nearly 90 percent of Federal surface transportation funding is provided from the HTF,
whose revenues come from Federal excise taxes on motor fuels (currently 18.4 cents per gallon for
gasoline/gasohol and 24.4 cents per gallon for diesel fuel) and taxes on truck tires, sales of trucks and
tractor trailers, and a heavy vehicle use tax. Motor fuels taxes account for about 89percent percent of
HTF net receipts.
With balances and annual receipts being sufficient to fund obligations authorized by Congress in
sequential surface transportation legislation, the HTF funding mechanisms enabled the United States
to meet a significant portion of its transportation infrastructure needs for many decades. However, for
a series of reasons—current and projected—the HTF is struggling with unprecedented challenges:
W As a result of significantly below-forecast economic growth, HTF receipts have fallen behind levels
assumed in SAFETEA-LU to support authorized funding levels. Reduced inflows have created
a structural deficit in the HTF, reducing cash balances in both the Highway and Mass Transit
Accounts and causing a series of immediate-term solvency crises.
W Because the tax rate on motor fuels has not been increased since 1993, and is not indexed to any
measure of inflation, the purchasing power of these tax receipts has been reduced by about 33
percent over the last 17 years based on the Consumer Price Index.
2 | Center for Excellence in Project Finance: Conference Report
W A multitude of analyses of projected HTF operations conclude that the HTF can continue to
support a strong Federal role in surface transportation investment only through increases in
current revenues or an infusion of new revenues.
The next section of these proceedings addresses the foregoing observations.
Current Status of the Highway Trust Fund
In the early years (FY 2004–2007) of SAFETEA-LU, HTF receipts and outlays tracked relatively closely.
However, HTF spending has generally exceeded revenues since 2007, resulting in steadily declining
unspent balances in both the Highway and Mass Transit Accounts.
Figure 1. Highway Trust Fund: Receipts and Outlays Discrepancy
Source: American Association of State Highway and Transportation Officials
The noted revenue decline is attributable to: (i) the weak U.S. economy triggering an unprecedented
drop in vehicle miles traveled in 2008 (with relatively flat travel levels since then) leading to lower
motor fuel consumption and lower motor fuel tax collections and (ii) a significant drop in the non-motor
fuel component of HTF revenue—specifically, a sharp decline in revenue from the retail sales tax on
trucks in 2008.
Note: Excludes $8.017 billion transfer from General Fund to Highway Account of HTF in September 2008; $7 billion transfer from General Fund to Highway
Account of HTF in August 2009; $19.5 billion transfer from General Fund to Highway and Mass Transit Accounts of HTF in March 2010.
Total Outlays Total Receipts
Highway Trust Fund: Receipts and Outlays Discrepancy
$40.4
$35.0
38
43
48
53
58
$40.4
$35.0
33
38
43
48
53
58
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
($ billions)
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 3
Figure 2. Vehicle Miles Traveled—October 2004 to October 2010
Source: American Association of State Highway and Transportation Officials
The discrepancy between receipts and outlays has created a solvency crisis in the HTF. Without three
intra-governmental transfers from the general fund of the U.S. Treasury, totaling $34.5 billion since
2008, balances in the Highway and Mass Transit Accounts would have fallen close to zero over the
course of the last several years.
Vehicle Miles Traveled—October 2004 to October 2010
(Moving 12 Month Total)
2,900
2,920
2,940
2,960
2,980
3,000
3,020
3,040
3,060
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Billi
o
ns of Mil
es
4 | Center for Excellence in Project Finance: Conference Report
Figure 3. Truck, Buses, and Trailer Retail Tax Receipts (1957–2010)
Source: American Association of State Highway and Transportation Officials
Given that the HTF cannot incur a negative balance, absent Congressional action to increase revenue
designated for deposit in the HTF (or to continue general fund transfers), deep cuts in highway and
transit spending would be required to re-establish balance between outlays and current-law receipts.
Because most HTF outlays in a given year are required to fund prior year commitments—reflecting
the multi-year expense reimbursements typically associated with Federal-aid funding commitments
provided under contract authority—at some point in the relative near-term, current-year funding will
need to be cut drastically to enable the liquidation of prior-year commitments. Such a significant,
concentrated cutback in the Federal-aid highway program would have widespread negative impacts
for states’ ongoing highway and transit programs and for both public and private sector employment.
Once current-year funding commitments have been reduced, subsequent year spending could rise
modestly to track the very gradual expected growth in annual HTF receipts.
Assuming no significant increase in revenue for the HTF, the timing of a severe reduction in Federal
funding will depend primarily on the rate of outlay from the HTF. This rate was unusually low in
FY2010 due to a combination of factors including: late enactment of the FY2010 apportionment of
Federal-aid highway program dollars to states, weather-related slowdowns in state highway construction programs, and some shift to spending funds made available by the American Recovery and Reinvestment Act of 2009 (ARRA). While reduced outlays in FY 2010 created “breathing room” in the HTF,
expenditure levels are likely to increase in FY2011 as states attempt to make up for delayed activity
and investment.
In sum, the potential for severe cutbacks in Federal funding for state highway and transit programs
combined with the significantly reduced purchasing power of motor fuels taxes is creating a near-term
Truck, Buses, and Trailer Retail Tax Receipts (1957–2010)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
Milli
o
ns of D
ollars (2010
C
o
nsta
nt)
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 5
crisis for investment in our nation’s transportation assets. Yet at the same time, as described below,
investment needs continue to grow.
Outlook for the Highway Trust Fund
In response to its Congressional mandates, the Financing Commission examined the need for HTF
resources and developed long-term forecasts of HTF revenues under current law. Taken together, the
Financing Commission’s revenue and need projections identify a chronic—and very large—funding gap.
Long-term Needs of the Surface Transportation Program. The Financing Commission’s Base Case
Investment Scenario assesses total (all levels of government) and Federal long-term capital investment needs for highway and transit based on current policies and programs and the historical Federal/
non-Federal (45 percent/55 percent) spending roles. As prelude to developing its needs forecast, the
Financing Commission reviewed data from the U.S. Department of Transportation’s 2006 Conditions
and Performance report, updates accomplished through the National Cooperative Highway Research
Program, and a range of estimates of capital investment needs developed by the National Surface
Transportation Policy and Revenue Study Commission (NSTPRSC).
The Financing Commission report summarizes its estimates of the total funding requirement for annual
highway and transit investment to maintain current conditions and performance and to improve the
system, along with the estimates from the USDOT and the NSTPRSC. As seen in the exhibit below,
according to the Financing Commission, current revenues provide enough resources to meet only 44
percent of the requirements to maintain the current system; similarly, such revenues fund only 36
percent of the costs to improve the system.
Figure 4. Average Annual Capital Needs and Gap Estimates—All Levels of Government, 2008–35
Source: National Surface Transportation Infrastructure Financing Commission
AVERAGE ANNUAL CAPITAL NEEDS AND GAP ESTIMATES—
ALL LEVELS OF GOVERNMENT, 2008–35 (in 2008 dollars)
134
57% 44% 39% 40% 36% 29%
172
194 189
214
262
Gap Revenues Percent of
Needs Met
2006 USDOT
Conditions
and
Performance
Report
National
Surface
Transportation
Infrastructure
Financing
Commission
National
Surface
Transportation
Policy and
Revenue Study
Commission
2006 USDOT
Conditions
and
Performance
Report
National
Surface
Transportation
Infrastructure
Financing
Commission
National
Surface
Transportation
Policy and
Revenue Study
Commission
0
50
100
200
250
2008 $ in Billions 150
Maintain (Medium) Improve (High)
6 | Center for Excellence in Project Finance: Conference Report
Numerous other analyses from Federal government agencies and private sector researchers show similar results—suggesting coalescence around concern for the viability of the extant Federal transportation funding program.
Highway Trust Fund Revenue Projections. As context for the Financing Commission’s work with
respect to revenue projections, it is useful to note that estimates of HTF revenues have been steadily
adjusted downward in recent years. The following graph shows HTF/Highway Account revenue
projections since enactment of SAFETEA-LU:
Figure 5. Highway Trust Fund/Highway Account Revenue Projections since SAFETEA-LU
Source: National Surface Transportation Infrastructure Financing Commission
Against this background, the Financing Commission developed baseline and conservative forecasts of
HTF revenues under current law:
W The Baseline Forecast assumes: (i) continued near-term decline in vehicle miles traveled and motor
fuel consumed as a result of continuing weakness in the U.S. economy; (ii) a resumption of steady
travel growth over the foreseeable future related to population and economic growth and land use
patterns; and (iii) historical levels of vehicle fleet turnover rates.
W The Conservative Forecast addresses the Financing Commission’s view that the primary driver of
uncertainty about HTF revenues is not travel growth but, rather, average vehicle fuel efficiency—
which is expected to improve significantly in the future. This forecast, which assumes accelerated
fleet turnover rates based on increased public willingness to invest in high efficiency or alternative
fuel vehicles, results in reduced revenue generation reflecting lower fuel consumption associated
with an increase in fleet fuel efficiency.
The Baseline Forecast projects an increase in current-law HTF net revenues from $36.4 billion in 2008
to $46.2 billion in 2035, an average annual growth rate of 0.9 percent. Assuming a 2.0 percent average
annual inflation rate, Federal program purchasing power in 2008 dollars would drop to $27.1 billion by
2035, a 25.5 percent decline from 2008.
HIGHWAY TRUST FUND/HIGHWAY ACCOUNT REVENUE
PROJECTIONS SINCE SAFETEA-LU Nominal $ in Billions
Actual
Aug. ‘05
Jan. ‘07
2008
Preliminary
2004 2006 2008 2010 2012 2014 2016 2020
30
35
40
Jan. ‘08
Jul. ‘08
Jan. ‘09
X X
X X X X
SAFETEA-LU Assumptions (8-05)
FY 2008 Budget (1-07)
FY 2009 Budget (1-08)
FY 2009 Midsession Review (7-08)
CBO Winter 2009 Baseline (1-09)
Actual Revenues
X
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 7
The Conservative Forecast shows $36.1 billion of receipts in 2035 which, assuming the same inflation
rate, yields Federal purchasing power of $21.2 billion in 2008 dollars, a 41.8 percent decline from 2008.
The Financing Commission concludes its analysis of near- and long-term funding gaps by stating that
“while an immediate increase in existing Federal revenue sources is an essential short-term step, longterm solutions must involve new ways of funding surface transportation infrastructure.”
8 | Center for Excellence in Project Finance: Conference Report
PART II—WHAT CAN WE DO ABOUT IT?
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE: CONFERENCE REPORT
The status of funding and need for capital investment in our nation’s surface transportation systems is well documented. In addition to the work of the Financing Commission,
whose February 2009 report served as the primary source of information for the long-term
revenue projections and needs assessments referenced in Part I of these proceedings,
research conducted by AASHTO, the Transportation Research Board, the Congressional
Budget Office, the Government Accountability Office, the Congressional Research Service,
the National Surface Transportation Policy and Revenue Study Commission, and numerous
industry and private sector research organizations highlights a chronic funding problem in
the near term and grave uncertainty with respect to funding the maintenance and modernization of our surface transportation infrastructure over the coming decades.
Against this backdrop, the AASHTO Center for Excellence in Project Finance convened the
September 30th forum to enable transportation policymakers and professionals to discuss
funding and financing strategies and tools that are likely to be critical in addressing the
above-noted concerns.
Throughout these proceedings, the terms funding and financing refer to distinct processes. Funding means revenue available to pay for investment in transportation assets or
programs. Financing relates to the use of financial tools or techniques to leverage project
revenues, accelerate project development, and match the costs and benefits of long-lived
assets. We are fortunate to have efficient access to cost-effective investment capital from
both public and private sector sources in the United States. The primary challenge for
transportation sponsors at all levels of government is not how to finance projects and
programs but, rather, how to fund them, i.e., generate sufficient revenue to pay for the
delivery of planned investment.
In Part II of these proceedings, the report briefly describes funding and financing sources
and opportunities. Part III summarizes related discussion from each of the forum’s sessions.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 9
Funding Sources and Opportunities
Among others, the Financing Commission and AASHTO have examined the potential magnitude of
numerous sources of revenue that could augment funding for investment in surface transportation
systems. Many transportation professionals (including the participants in the September 30th forum)
agree that the traditional HTF funding sources, particularly the motor fuels tax, hold the greatest
potential for addressing the current discrepancy in receipts and outlays in the HTF. An array of other
sources, with particularly strong potential accorded to a vehicle miles traveled (VMT) fee, present
opportunities for addressing the long-term investment requirements of maintaining and modernizing
our national surface transportation systems.
The following information generally summarizes revenue sources by the categories used in the Financing Commission’s report.
W Existing HTF Sources. HTF funding comprises motor fuel taxes, truck and trailer sales taxes,
truck tire tax, and heavy vehicle use tax. The strength of these sources derives from a long history
of raising significant funds for highways and transit, low-cost collection mechanisms, and the
ability to accommodate rate increases efficiently and inexpensively. In addition to rate increases,
indexing one or more of these existing sources would enable collections to maintain purchasing
power over time.
W Vehicle-related Sources. A broad range of driver and vehicle-related taxes, fees, and charges are
used at state and local levels to generate dedicated transportation revenue. These include vehicle
registration fees, drivers’ license surcharges, and various vehicle-related sales taxes and fees—
mechanisms that, while not related to system or individual facility use, are related to transportation, generally.
W Motor Fuel-related Taxes. In addition to increasing and/or indexing current Federal motor fuel tax
rates, opportunities for generating revenue through taxes on motor vehicle fuels include carbon
tax/cap and trade programs, a tariff on imported oil, and a sales tax on motor fuels that may better
preserve purchasing power than the existing flat excise tax.
W Broad-based Taxes and General Fund Revenues. Broad-based funding strategies include a national sales tax, dedicated income taxes, and annual general fund transfers. In this category, the large
base to which taxes or transfers would be applied means that relatively low rates would generate
large amounts of revenue.
W Freight-related Taxes. Revenue options related to freight activity include new mechanisms such
as a national container fee and a freight-related sales tax, as well as expansion or diversion of
existing sources such as customs duties and the harbor maintenance tax.
10 | Center for Excellence in Project Finance: Conference Report
W Tolling and Comprehensive Road Pricing Options. Tolling and cordon pricing (imposition of local
access charges for designated urban areas) refer to direct user fee mechanisms administered at the
local, regional, or state level to price access to and/or distance traveled on individual facilities or
regional road networks. Comprehensive road pricing refers to the imposition of direct user charges,
in the form of a VMT fee, on all roads and all driving. Such charges could be either a flat fee (fixed
number of cents per mile regardless of where or when travel occurred), a variable fee based on
time of travel, level of congestion, type of road traveled, type and weight of vehicle, and vehicle
emissions levels—or a combination of these pricing approaches.
W Value Capture Strategies. Better monetization of economic growth that is directly related to
infrastructure investment can be implemented through a variety of local devices such as tax
increment financing districts and special assessment districts that collect a portion of increased
asset value to pay for infrastructure. Such financing structures could be facilitated beyond the local
level through state or federal tax credits to projects that are repaid through increased tax revenues
resulting from economic growth.
The “Surface Transportation Funding Options Matrix” (Figure 6) is one means of illustrating the revenue generation potential associated with the categories described above. Virtually all of these revenue
alternatives were addressed during the September 30th forum, as detailed in Part III.
Figure 6. Surface Transportation Funding Options Matrix
Source: American Association of State Highway and Transportation Officials
Annual Drivers License Surcharge
Annual Highway Miles Traveled Fee (All Light Duty Vehicles)*
Annual Highway Miles Traveled Fee (All Trucks)*
Annual Registration Fee (Light Duty Vehicles)
Annual Registration Fee (Trucks)
Container Tax
Dedicated Income Tax–Personal
Dedicated Income Tax–Business
Diesel Tax Increase
Gas Tax Increase
Harbor Maintenance Tax
HVUT Increase
Imported Oil Tax
Sales Tax on Auto-related Parts & Services
Sales Tax on Gas
Sales Tax on Diesel
Sales Tax on New Light Duty Vehicles
Sales Tax on New and Used Light Duty Vehicles
Share of US Customs Revenues
Tire Tax on Light Duty Vehicles
Ton Freight Charge—All Modes
Ton Freight Charge—Truck Only
Ton-Mile Freight Charge—All Modes
Ton-Mile Freight Charge—Truck Only
Truck/Trailer Sales Tax Increase
Truck Tire Tax Increase
US Freight Bill—All Modes
US Freight Bill—Truck Only
*VMT fee estimates refer to miles traveled on Interstate System.
Surface Transportation Funding Options Matrix
(all revenue estimates in $ millions)
Illustrative Revenues Revenues Revenues
Average Total
Rate 2011 2011–2016 2011–2016 Funding Mechanisms Mechanism Yield
(2011)
286
2,288
1,017
399
80,843
6,993
18,120
16,448
63,946
71,285
24,172
36,309
84,183
39,485
26,138
16,938
185,671
68,903
15,427
23,021
37,009
26,592
18,340
140,678
41,174
9,174
49,236
42,745
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,165
13,474
3,020
2,741
66
10,658
11,881
4,029
6,052
14,030
6,581
169
4,356
2,823
30,945
11,484
2,571
3,837
381
6,168
4,432
3,057
23,446
6,862
1,529
48
8,206
7,124
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,110
13,075
2,931
2,613
66
9,076
11,301
3,832
5,794
13,795
6,181
146
4,217
2,567
25,091
9,198
2,337
3,515
333
5,880
4,111
2,835
21,748
6,365
1,095
33
7,612
6,608
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
222
6,538
977
261
4.4
605
1,130
383
386
1,379
1,236
97
4,217
2,567
2,987
868
2,337
3,515
333
1,960
164
113
43,497
12,731
219
33
7,612
6,608
$1.00 Surcharge
1¢/VMT
1¢/VMT
$1.00 Fee
$1.00 Fee
$1 per TEU
1% of current taxes
1% of current taxes
1¢/gal
1¢/gal
0.1% Tax
10% Increase
$1.00/Bbls
1.0% of Sales
1.0% of Sales
1.0% of Sales
1.0% of Sales
1.0% of Sales
1% of Receipts
$1.00 Fee
1¢/ton
1¢/ton
1¢/ton-mile
1¢/ton-mile
1% of Sales
10% Increase
1% of Sales
1% of Sales
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
$5.00
2.0¢
3.0¢
$10.00
$15.00
$15.00
1.0%
1.0%
15.0¢
10.0¢
0.5%
15.0%
$1.00
1.0%
8.4%
10.6%
1.0%
1.0%
1.0%
$3.00
25.0¢
25.0¢
0.5¢
0.5¢
5.0%
10.0%
1.0%
1.0%
Total Revenues $ 173,465 $ 191,137 $1,146,819
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 11
Financing Tools and Potential Opportunities
As noted above, financing refers to the use of financial tools or techniques to leverage project revenues, accelerate project development, and match the costs and benefits of long-lived assets. Sponsors
of surface transportation projects in the U.S. have had efficient access to low-cost investment capital
through the tax-exempt bond market for many decades. Beginning in the 1990s, an array of Federallyenabled financial products (often called “innovative finance tools”) has been made available to these
same project sponsors. The following information briefly summarizes the U.S. tax-exempt bond market
and Federal innovative finance tools.
Tax-exempt Bonds. Tax-exempt bonds are the traditional mechanism for debt financing of transportation infrastructure in the United States. The exemption of interest earned on such bonds from Federal
and, in many cases, state and local income taxes enables them to be sold at very favorable interest
rates, thereby affording state and local governments access to low-cost financing. Since 2005, the
municipal bond market has averaged approximately $410 billion, with transportation issuers (of highway, toll facility, transit, airport, and seaport bonds) accounting for about 12 percent of this volume.
Innovative Finance Tools. The Federal innovative finance tools developed over the last 20 years
provide broad and flexible financial support for state and local transportation projects.
W Direct Federal Credit. The Transportation Infrastructure Finance and Innovation Act (TIFIA)
program provides Federal credit assistance through direct loans, loan guarantees, and standby
lines of credit for surface transportation projects of national and regional significance. For projects
with dedicated revenue streams, TIFIA credit assistance improves capital market access, provides
favorable pricing based on U.S. Treasury rates, and offers flexible repayment terms. TIFIA can help
advance qualified projects that otherwise might be deferred because of size, complexity, or uncertainty over the timing of revenues. Many categories of surface transportation projects, including
highway, transit, railroad, intermodal freight, and port access, are eligible for assistance.
W Grant Anticipation Borrowing (Grant Anticipation Revenue Vehicles or GARVEE Bonds and
Grant Anticipation Notes). Grant anticipation financing structures enable public agencies to
borrow against future Federal grants to generate upfront proceeds for capital investment. For highway projects, the anticipated revenue stream is Title 23 Federal-aid grants; for transit projects, Title
49 funding.
12 | Center for Excellence in Project Finance: Conference Report
W State Infrastructure Banks. State Infrastructure Banks (SIBs) are lending structures initially capitalized with Federal grants and/or state funds and operated at the state level. SIBs enable Federal
and state funds to be leveraged by lending (rather than granting) Federal-aid funds, which can
then attract non-Federal public and private investment. SIB funds can be loaned at below-market
interest rates, secured by a broad range of revenue streams, and used to provide credit enhancement to projects through loan guarantees, reserve funds, and other means. As loans or other forms
of credit assistance are repaid to the SIB, its initial capital is replenished and can be re-loaned to
support a new cycle of projects.
W Private Activity Bonds. Private activity bonds (PABs) enable private parties to access tax-exempt
debt for qualified surface transportation projects. Authorized by SAFETEA-LU, the program
permits USDOT to allocate up to $15 billion to qualified highway and surface freight transfer facilities. The PAB designation enables bonds issued to finance projects with significant private sector
participation to retain tax-exempt status, thereby enabling private sector sponsors to secure significantly lower cost financing than that available in the corporate bond or private equity markets.
Pursuant to the “AMT holiday” in the American Recovery and Investment Act (see below), interest
on PABs issued through December 31, 2010 is exempt from the alternative minimum tax.
W Build America Bonds. Build America Bonds (BABs) were authorized in the ARRA, which was
signed into law on February 17, 2009. BABs are Federally subsidized taxable bonds that can be
issued by state and local governments to finance qualified projects. The subsidy can take the form
of either tax credits provided to holders of the bonds or refundable tax credits paid to issuers of the
bonds. The vast majority of BABs have used the latter structure, pursuant to which issuers receive
a 35percent interest rate subsidy from the U.S. Treasury (direct payment BABs). ARRA authorized
the sale of BABs through December 31, 2010, with total issuance volume surpassing $181 billion.
While BABs provided a lower cost of capital to many municipal issuers, the program was discontinued at the end of 2010.
Additional/Potential Tools. An evolving category of financial tools is public-private partnerships (P3).
Private sector participation in delivering surface transportation infrastructure can be viewed as a
continuum, ranging from construction work under traditional design-bid-build contracting methods,
to expanded partnerships in design-build development, to comprehensive responsibility for design,
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 13
finance, construction, and long-term operation and maintenance through concession structures. As P3s
do not generate revenue in and of themselves (they are not funding mechanisms), private participants
are compensated by collecting user charges or by receiving annual payments from state and/or local
taxes or fees (availability payment structures).
Two potential new Federal financing tools are tax credit bonds and a national infrastructure bank. Tax
credit bonds are securities where the project sponsor’s borrowing cost is reduced by a Federal government subsidy of all or a portion of interest expense. The subsidy takes the form of investor tax credits. In
lieu of cash interest payments, the investor in such debt receives annual Federal tax credits that can be
applied to offset other Federal tax liability. While there is currently no qualified tax credit bond program
for surface transportation investments, such programs are in place for forestry conservation, renewable
energy projects, energy conservation, qualified zone academies, and new school construction.
A variety of transportation policy makers and industry participants have proposed creation of a national infrastructure bank or investment corporation to help address infrastructure investment needs.
While specifics on structure, capitalization, scope, and type of financial assistance vary among proposals, primary objectives appear to be accelerating investment in critical infrastructure that is regional
and national in scope and improving the allocation of limited Federal resources.
14 | Center for Excellence in Project Finance: Conference Report
PART III—SESSION SUMMARIES FROM THE FORUM
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
Session 1: Funding the Surface Transportation Program
from 2011 to 2015
Moderator: Lee Munnich, University of Minnesota
Speakers: Representative John Mica (R-FL), Ranking Member,
House Transportation and Infrastructure Committee
Gov. Ed Rendell (D-PA), Commonwealth of Pennsylvania
Representative Mica and Governor Rendell opened the forum by emphasizing the importance of a strong nationwide surface transportation system to economic competitiveness,
public safety, quality of life, and job creation. Citing the importance of Federal transportation funding to state and local governments across the country, both speakers stressed
the need for Congress to develop a multi-year reauthorization of the Federal-aid highway
program.
Informed by decades of experience related to funding transportation assets and systems,
Representative Mica and Governor Rendell were straightforward about the challenges
inherent to the reauthorization process, as well as about differences in their own approaches to the topic. That being said, they agreed on the need to consider a broad range of funding options, ranging from increasing and/or indexing motor fuels taxes to tolling existing
and/or new interstate capacity, among others. The speakers also agreed on the importance of a continued strong Federal role in funding transportation investment and on the
importance of multi-year authorizations to state transportation departments’ planning and
contracting programs, with both of these factors pointing to the need for timely Congressional action on reauthorization.
While the focus of the Session 1 discussion was on the need for increased funding, Representative Mica and Governor Rendell each referenced existing Federal surface transportation financing programs, including TIFIA, the Railroad Rehabilitation and Improvement
Financing (RRIF) program, PABs, and BABs. The speakers noted the role of each of these
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 15
programs in leveraging existing funding sources and expressed their interest in seeing continued and
expanded support for these and other innovative financing tools. Discussion moved on to the role of
public-private partnerships and the potential role of a national infrastructure bank in the transportation sector. Another area of discussion and agreement was on means by which the currently protracted
delivery schedules for major transportation projects could responsibly be accelerated.
In conclusion, Representative Mica and Governor Rendell returned to the main theme of this first
forum session—the need to address reauthorization of surface transportation funding in a full and
timely manner.
Session 2: Funding the Surface Transportation Program
from 2016–2025
Speakers: John Horsley, Executive Director, AASHTO
Representative Earl Blumenauer (D-OR), House Ways and Means Committee
Mr. Horsley and Representative Blumenauer reinforced the importance of restoring sufficiency and
stability to the Highway Trust Fund through a multi-year reauthorization bill. They then moved on to a
discussion of the need to transition to a new system for funding surface transportation over the medium term.
For many decades, the HTF’s dedicated revenues (motor fuel taxes, taxes on truck tires and sales of
trucks and tractor trailers, and heavy vehicle use taxes) provided solid funding for its obligations. The
severe reduction in the purchasing power of motor fuel tax revenues (resulting from no adjustments to
the tax rates since 1993 combined with increases in commodity and construction prices) and reduced
motor fuel consumption from decreases in vehicle miles traveled and increases in fuel efficiency
have severed the link between fuel consumption and associated revenue generation and investment
requirements, creating the need to re-evaluate existing funding mechanisms.
A presentation in Session 2 explored the concept of converting from an excise tax to a sales tax on
motor fuels to enable the HTF to generate sufficient revenue, over the next 5–6 years, to support a
robust surface transportation program without raising taxes. The proposal illustrated a sales tax set,
initially, at a level designed to be revenue neutral based on the prevailing price of motor fuel with the
expectation that, over time, sales tax-generated revenue would increase as a result of increasing motor
fuels prices. In order to protect against a sharp increase or decrease in the price of fuel, revenue could
be “bracketed” by establishing floor and ceiling levels on the price of fuel. While increasing vehicle
fleet efficiency is expected to be a major factor in fuel consumption and associated revenue generation
over the medium and long terms, such increases are not anticipated over the next 5-6 years. Based on
assumptions presented, a sales tax-based system would generate $43 billion more than revenues estimated to result from the current excise taxes on motor fuels by 2016. In addition, this presentation also
compared the recent performances of excise and sales taxes in California, which showed an inverse
relationship between growing sales tax receipts and flat or declining excise tax receipts.
The session’s speakers also looked farther ahead by presenting the concept of moving to a more direct
user fee charging system through the mechanism of a VMT fee. The VMT concept has been studied
extensively by numerous research organizations and has been the subject of detailed study and testing, through a pilot program, in Oregon. While the primary goal of a national VMT-based system would
be to generate significant and sustainable revenue by re-establishing the relationship between travel
and revenue generation, the concept could also lead to more efficient use of our surface transportation
system.
In closing, Representative Blumenauer and Mr. Horsley returned to the distinction between funding
and financing to emphasize the need to develop reliable funding sources to support near- and intermediate-term investment in essential surface transportation systems.
16 | Center for Excellence in Project Finance: Conference Report
Session 3: Expanding Existing Federal Programs for Funding and
Financing Transportation
Moderator: Jack Basso, Director of Program Finance and Management, AASHTO
Speakers: Polly Trottenberg, Assistant Secretary for Transportation Policy, USDOT
Geoff Yarema, Partner, Nossaman LLP
David Seltzer, Principal, Mercator Advisors
On September 6, 2010, the President announced his intention to reform and expand the nation’s investment in transportation infrastructure and return the Highway Trust Fund to solvency though a longterm reauthorization bill. As part of his announcement, the President announced his intention to work
with Congress to fully pay for the transportation plan.
Session 3 began with a description of certain features of the Obama Administration’s infrastructure
investment plan including: multi-modal emphasis with continued support for development of high
speed rail corridors, a national infrastructure bank, emphasis on performance-based systems and
increased reliance on cost-benefit analysis as part of project evaluations, and a focus on projects of
strategic national importance that meet USDOT priorities such as safety, economic competitiveness,
and livable communities.
With the discussion of reauthorization as background, the session’s focus turned to the current and
future role of Federal financing tools in leveraging funding sources.
The presentation on existing Federal financing tools and potential improvements to these tools
addressed TIFIA, PABs (including the “AMT holiday”), SIBs, and BABs, and continued to a discussion
of enabling states to leverage their Federal-aid highway apportionments and defining the role and
scope of a potential national infrastructure bank, including its relationship with existing Federal credit
programs such as TIFIA.
The presentation on new tools focused on development of a tax credit bond program to finance transportation infrastructure. Qualified tax credit bonds (QTCBs) are intermediate- to long-term taxable rate
debt securities issued by state and local governments and other qualified entities to finance specified capital investments. In lieu of cash interest, bondholders receive a tax credit that can be applied
against the investor’s Federal income tax liability. To date, Congress has authorized QTCB programs
for a number of purposes but not for investment in surface transportation. This discussion included a
summary of the budgetary impacts of tax credit bonds compared with other Federal funding tools.
For a detailed treatment of the concepts discussed in Session 3, the following white papers are included in Appendix A: Enhancing the Ability of States to Finance Transportation Projects of National and
Regional Significance by Geoff Yarema and Evolving Role of the Federal Government and Utilizing a
New Tax Credit Program for Transportation Infrastructure by David Seltzer.
Luncheon Keynote: Future of Build America Bonds
Senator Ron Wyden (D-OR)
By late third quarter 2008, the municipal market—along with the capital markets generally—was being
severely impacted by the nation’s credit crisis. In response to spreading financial and economic stress,
Congress enacted the American Recovery and Reinvestment Act of 2009, which was signed into law
on February 17, 2009. Among ARRA’s key provisions was authorization for state and local governments
to issue BABs, which are Federally subsidized taxable governmental bonds available to finance qualified projects. The subsidy could take the form of either tax credits provided to holders of the bonds
or refundable tax credits paid to issuers of the bonds. The vast majority of BABs have used the latter
structure, pursuant to which issuers receive a 35 percent interest rate subsidy from the U.S. Treasury
(direct payment BABs).
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 17
The BABs program has greatly exceeded expectations. As taxable securities, BABs enabled state and
local governments to attract financing for infrastructure investment from multiple new classes of investors, accomplishing the program’s goal of stimulating and stabilizing the depressed municipal bond
market. In addition, the shift of approximately 21 percent of long-term municipal debt issuance from
the tax-exempt to the taxable market over the course of the BABs program has resulted in lower interest rates in the municipal market, generally, through a rebalancing of supply and demand.
From February 2009 through September 2010, over $137 billion of BABs have been sold by state and
local governments across the county. Transportation-related issuance for highway, toll road, transit, and airport projects constitutes up to 31 percent of all BABs. ARRA authorized the sale of BABs
through December 31, 2010. The program, currently under discussion in the year-end Congressional
session, will sunset absent extension.
Session 4: “Solving Several Problems Together” Approach
Moderator: Mark Pisano, Senior Fellow, University of Southern California
Speakers: Richard Little, Director, Keston Institute for Public Finance and Infrastructure Policy,
University of Southern California
Shin-Pei Tsay, Director, Leadership Initiative for Transportation Solvency,
Carnegie Endowment for International Peace
Bob Yaro, President, Regional Plan Association
David Thornburgh, Executive Director, Fels Institute of Government,
University of Pennsylvania
Session 4 bridged the forum’s morning and afternoon sessions by considering transportation funding
and finance in the context of broad national challenges and then by linking these topics to activity and
opportunity at the state and local level.
Key themes of this session included the following.
Message and Communication. The speakers recommended recasting the national transportation
discussion to recall that investing in transportation has always been about investing in economic
development and productivity and about connecting people and businesses to opportunities. The
importance of communicating directly with voters to convey both the reasons and the consequences
of decreased Federal transportation funding as well as the benefits to be derived from strategic investment in our surface transportation systems was emphasized.
Opportunity to Accomplish Multiple Goals. Speakers identified relationships between transportation
investment and other national goals—such as reducing energy consumption and carbon emissions—
and presented strategies for achieving mutually beneficial goals through strategic investment and
pricing decisions. Relevant international pricing and investment practices were described as part of
this discussion. A specific example examined the possibility of pension fund investments in transportation infrastructure that could simultaneously stabilize pension assets over a longer time period and
achieve beneficial societal goals.
Importance of Appropriate Pricing and Partnerships. The panelists spoke to the importance of allocating transportation costs across the entire spectrum of beneficiaries through a combination of user
fees and broad-based revenue generation. A number of large-scale regional transportation projects,
and the Federal, state, regional, and local funding and financing commitments that supported their
development, were described. Emphasis was placed on targeted Federal investment that can continue
to leverage such partnership efforts across the country. The use of value capture systems to finance
transit and rail projects was also addressed in this portion of the session’s discussion.
18 | Center for Excellence in Project Finance: Conference Report
White papers expanding on the concepts discussed in Session 4 are included in Appendix A as
follows: Towards a New Federal Role in Infrastructure Investment: Using U.S. Sovereign Wealth to
Rebuild America by Richard G. Little; Leadership Initiative for Transportation Solvency: Multiple Opportunities in Pricing Transportation by Shin-pei Tsay; Toward a New Model for Transportation Finance by
Robert D. Yaro; and Investing in Transportation by David Thornburgh.
Session 5: What Can We Learn from Recent Experiments in Transportation Finance Throughout the Country?
Moderators: Lowell Clary, P3 Development Company; Former Assistant Secretary for Finance and
Administration, Florida DOT and Mort Downey, PB Consult
Mort Downey, PB Consult
Speakers: Phil Russell, HW Lochner; Former Assistant Executive Director for
Innovative Partnerships, Texas DOT
Jim Preusch, Chief Financial Officer, Alameda Corridor, California
Mike Parker, Managing Director, Jeffrey A. Parker and Associates
Scott Polikov, Principal, Gateway Planning Group, Inc.
David Levinson, Associate Professor and RP Braun/CTS Chair of Transportation,
University of Minnesota
In Session 5, the forum’s focus segued to a discussion of state, regional, and local funding and financing initiatives. The unifying theme in this session was the creative efforts being used by transportation
sponsors to deliver infrastructure projects.
A review of state and local funding approaches included: increases in state motor fuel taxes, indexing
state and local option motor fuel taxes, tolling, development of high occupancy toll (HOT) lanes on both
new and existing roadway capacity, and use of availability payment and value capture structures.
The discussion of financing strategies addressed the full range of Federal financing tools (tax-exempt
debt, PABs, BABs, SIBs, and loans and other Federal credit support available through the TIFIA and
RRIF programs) as well as flexible procurement approaches such as design build and a varied range of
public-private partnership structures. A recurring theme was the value of each of these tools (often in
combination with public and/or private sector equity) to major project development, the layered use of
multiple tools in one project, and the importance of continuing – and expanding – the current array of
financing tools and techniques.
The session addressed “traditional” and availability payment-based public-private partnerships in
some detail, including project characteristics that suggest the utility of one approach versus the other,
increased focus on risk transfer and revenue sharing, focus on both project development and long-term
operation and maintenance requirements, and emerging trends in this area of transportation finance.
Another area of emphasis for this session was value creation through facility design and local planning
and value capture through assessment and fee structures applied to multiple revenue streams.
The following white papers are included in Appendix A: Innovations that Work: Funding and Financing Transportation in Florida by Lowell R. Clary; The ACTA-USDOT Loan Experiment by Jim Preusch;
Availability Payments and Other Forms of P3s for Surface Transportation by Michael Parker; The Role
of Sustainable Development in Sustaining Transportation by Scott Polikov and Mike Krusee; and Value
Capture by David Levinson.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 19
Session 6: Is There Another Way?
Moderator: Jane Garvey, North American Chairman, Meridiam Infrastructure
Speakers: Paul Sorenson, Operations Researcher, RAND Corporation
Paul Hanley, Director of Transportation Policy Research Program and Associate Professor,
Urban and Regional Planning, Department of Civil & Environmental Engineering, University of Iowa
Glenn Deitiker, President, Televant Caseta
The forum’s final session looked forward with a discussion of comprehensive road pricing through the
use of vehicle miles traveled fees.
As described in earlier sections of these proceedings, and as discussed throughout the forum, the longestablished system of funding the HTF primarily through Federal motor fuel excise taxes is not generating annual receipts sufficient to pay for necessary spending. Without significant increases in such
taxes, the gap between HTF receipts and outlays will continue to grow. The time to reconsider how we
pay for Federally-supported investment in surface transportation systems is upon us.
A broad array of transportation professionals and policymakers believe that the most viable methodology for change is comprehensive road pricing through a VMT fee. The goal for a VMT-based pricing
system is to re-establish the connection between road usage and investment requirements by shifting
from an indirect user fee system based on fuel consumption to a direct user fee system based on travel.
While a VMT system will not obviate the need to periodically increase fees or to index fees, it would be
unaffected by increasing fuel economy or changes in fuel type, and is expected to provide a significant
and sustainable source of highway revenue to fund both investment and major maintenance of surface
transportation assets.
Numerous studies and pilot projects have demonstrated the general feasibility of implementing VMT
fees at the Federal or state level. The national VMT discussion is now shifting to the design of trials
to assess the many factors—technical, financial, institutional, and political—that will need to be
addressed prior to implementation of VMT pricing on a large scale. Reflecting this trend, the speakers in Session 6 described a national pilot program designed to test feasibility and public acceptance
of a mileage-based charging system, proposed research to test use of a VMT pricing system through
trials in four to six states, and discussed alternative technologies for measuring travel and collecting
mileage-based fees.
A white paper entitled Examining Options for Implementing Mileage-Based User Fees by Paul Sorensen
of the RAND Corporation is included in Appendix A.
20 | Center for Excellence in Project Finance: Conference Report
PART IV—CONCLUSION
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
As with other discussions on funding and financing surface transportation, the forum
showed that there is no shortage of options when it comes to supporting investments at
Federal, state, and local levels. A distinguishing element of this discussion, however, was
real-life innovation in financing concepts illustrated through case studies from across the
country that Congress could draw upon immediately in crafting reauthorizing legislation
for the surface transportation program. Indeed, providing a variety of examples and illustrations of these options was a key objective of the forum, so that Congressional leadership
and staff could be more conversant with them when considering legislation. The creative
solutions considered at the forum are detailed in the speaker white papers in Appendix A.
Some of the highlights of the alternatives discussed include: conversion of the current
volume-based excise tax on gasoline to a sales tax levied proportionately to the price of
fuel, more efficient use of Federal-aid highway apportionments to leverage every dollar of
Federal investment, value capture-based public-private partnerships, use of the tax code
to accelerate financing of transportation investments, and expansion of existing programs
such as TIFIA.
As Congress continues its deliberations on the next surface transportation reauthorization,
the intended purpose of the forum and this report is to provide a series of viable funding
and financing considerations to support surface transportation investments in the coming
decade and to serve as a reference platform for the national policy discussion on how the
country can forge a path forward in this period of transportation funding uncertainty.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 21

APPENDIX A—SPEAKER WHITE PAPERS
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
Session 3: Expanding Existing Federal Programs for
Funding and Financing Transportation
W Geoff Yarema, Partner, Nossaman LLP
Enhancing the Ability of the States to Finance Transportation Projects of National
and Regional Significance: The Evolving Role of the Federal Government
W David Seltzer, Principal, Mercator Advisors LLC
Evolving Role of the Federal Government and Utilizing a New Tax Credit Program for
Transportation Infrastructure
Session 4: “Solving Several Problems Together” Approach
W Richard Little, Director, Keston Institute for Public Finance and Infrastructure Policy,
University of Southern California
Towards a New Federal Role in Infrastructure Investment: Using U.S. Sovereign Wealth to
Rebuild America
W Shin-Pei Tsay, Director, Leadership Initiative for Transportation Solvency,
Carnegie Endowment for International Peace
Leadership Initiative for Transportation Solvency: Multiple Opportunities in Pricing
Transportation
W Bob Yaro, President, Regional Plan Association
Toward a New Model for Transportation Finance
W David Thornburgh, Executive Director, Fels Institute of Government,
University of Pennsylvania
Investing in Transportation
Session 5: What Can We Learn from Recent Experiments in Transportation
Finance Throughout the Country?
W Lowell Clary, P3 Development Company; Former Assistant Secretary for Finance and
Administration, Florida DOT
Innovations that Work: Funding and Financing Transportation in Florida
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 23
W Jim Preusch, Chief Financial Officer, Alameda Corridor, California
The ACTA-USDOT Loan Experiment
W Mike Parker, Managing Director, Jeffrey A. Parker and Associates
Availability Payments and Other Forms of P3s for Surface Transportation
W Scott Polikov, Principal, Gateway Planning Group, Inc.
The Role of Sustainable Development in Sustaining Transportation
W David Levinson, Associate Professor and RP Braun/CTS Chair of Transportation,
University of Minnesota
Value Capture
Session 6: Is There Another Way?
W Paul Sorenson, Operations Researcher, RAND Corporation
Examining Options for Implementing Mileage-Based User Fees
 ENHANCING THE ABILITY OF THE STATES TO FINANCE TRANSPORTATION PROJECTS OF NATIONAL AND REGIONAL SIGNIFICANCE: THE
EVOLVING ROLE OF THE FEDERAL GOVERNMENT
W Geoff Yarema, Partner, Nossaman LLP
Introduction—Transportation Funding in Crisis
Current funding levels fall far short of meeting the nation’s surface transportation infrastructure needs.
Short term solutions based on the use of the General Fund undermine the continued existence of the
Highway Trust Fund (HTF), which has provided financial stability essential to today’s highway and
transit systems. Yet, increases in the Federal fuel and related taxes, even if enacted, would not reach a
level sufficient to meet the nation’s future surface transportation needs.
The report of the Budget Commission looking at the projected national deficit is likely to paint a very
dark picture, making the enactment of a major new transportation bill with substantial additional
funding even more difficult. This reality places huge pressure on the nation’s ability to deliver transportation projects of national and regional significance that are by definition capital intensive and critical
to mobility, goods movement and economic growth, a fact the National Surface Transportation Infrastructure Financing Commission (Commission) addressed head-on in its February 2009 report, Paying
Our Way: A New Framework for Transportation Finance.
In arriving at the means to the desired end, the states and the Federal government each have their role
to play. The states are charged with the primary responsibility for planning, delivering and operating
the physical infrastructure. The role of the Federal government is: (a) to provide partial funding; (b) to
offer financing assistance; (c) to regulate state activity to the extent of a clear and legitimate Federal
interest; and (d) to incentivize states and localities to achieve otherwise difficult results.
The following proposals respond to the fact that the Federal government is, in effect, asking the states
to do more with less Federal resources—and indeed less predictable resources. They are doing so by
offering states greater flexibility in finding innovative ways to pay for transportation, attracting private
capital beyond what the public sector can produce, maintaining the user fee approach to transportation funding, and ensuring the long-term quality of the transportation system.
The only legislative proposal for comprehensively reauthorizing the highway and transit programs
is the Surface Transportation Authorization Act of 2009 (STAA 2009), now pending before the House
Transportation and Infrastructure Committee. For each proposal below, a brief commentary is provided
noting how STAA 2009 treats the issue.
24 | Center for Excellence in Project Finance: Conference Report
Enhance the TIFIA Program
The Transportation Infrastructure Finance and Innovation Act (TIFIA) program, in essence an existing and valuable national infrastructure bank, provides credit assistance from the U.S. Department of
Transportation (DOT) for highway, transit, intercity passenger facilities, freight rail, and freight transfer
facilities. To help project sponsors assemble capital for projects of national and regional significance
in excess of $50 million, DOT provides long term, patient financial assistance (loans, loan guarantees
and letters of credit) to projects that have dedicated revenue sources available for repayment. TIFIA
financial assistance is available for only 33 percent of a project’s cost, and the applicant must demonstrate that at least two-thirds of eligible project costs will be covered by direct investment, commercial
loans, Federal-aid highway or transit grants. Thus, TIFIA loans significantly reduce reliance on Federal
grant funds by providing foundational financing that encourages other investors to participate in funding the project. Because the budgetary cost (sometime called the subsidy cost) of TIFIA credit assistance is not its face value, but rather the combined cost of issuing the credit instrument and the risk of
non-repayment, the budgetary cost to the Treasury or “score,” is typically about 10 percent of the face
value of the credit. Thus, TIFIA offers substantial value at a very low cost to the Federal budget.
The potential for TIFIA to further spur non-Federal public and private investment in the U.S. transportation system would be facilitated by several improvements, much of which follows the recommendation of the Commission.
W Increase the funding cap to reflect current demand. This program leverages limited and Federal
dollars by attracting private and non-Federal public capital to infrastructure investments. The
current cap of $122 million, plus additional funds provided by the American Recovery and Reinvestment Act of 2009 (“ARRA”) and TIGER 2, is demonstrably insufficient. The funds obligated
for TIFIA should rise to meet current and anticipated demands, without requiring borrowers to
pay credit subsidy costs. The annual allocation should be increased to $300 million. Note that the
Commission recommended this amount and others have suggested as much as $500 million.
STAA 2009 would increase the allocation, but has not specified the amount (§1302).
W Expand TIFIA’s utility by allowing: (1) TIFIA funding for up to 50 percent of eligible project costs,
(2) TIFIA funding of planning and preliminary design costs at 100 percent of project cost, and (3)
the flexibility to fund projects even if senior debt is not “of investment grade.” The alternative to
a TIFIA loan is typically a grant, which is far more costly to the Treasury. Issues of risk should be
reflected in the subsidy cost, and not by excluding TIFIA financing for otherwise worthy projects.
STAA 2009 would make TIFIA loans available for up to 49 percent of eligible project costs, but otherwise
makes no additional changes (§1302).
W Eliminate the “springing lien,” which puts Federal debt on a par with senior, commercial debt in
case of insolvency. This increases the cost of obtaining commercial debt for borrowers and thus
undermines the very purpose of the TIFIA program. Again, the Federal interest is protected in any
case by the establishment of the subsidy obligated from TIFIA funds for the loan.
No similar provision in STAA 2009.
W Eliminate Administration–developed “policies” which effectively impose supplemental requirements on eligible projects. TIFIA is merely an alternative source of financing and should be treated
as such. The current Administration seems determined to subject TIFIA projects to an undetermined public benefit review, vague “livability” and “sustainability” requirements, and, indeed,
to be favoring its use primarily for transit. These policies are applied only to TIFIA loans and not
grant-funded projects. They should not apply to TIFIA loans either.
W Although STAA 2009 does not make direct changes to current TIFIA provisions, it creates substantial additional procedural burdens on a decision to use tolls or to develop a project through publicprivate partnerships. Many TIFIA projects involve one or both of these. The most troublesome proviFunding and Financing Solutions for Surface Transportation in the Coming Decade | 25
sions are §1204, which creates the Office of Public Benefit, §1301, relating to tolls, and §1504, dealing
with public-private partnerships.
Private Activity Bonds (PABs)
PABs are bonds issued by states and municipalities to finance long-term capital improvements such
as docks, wharves, and airline terminals used by a private entity. Interest on these PABs is tax exempt
if the project falls within one of 22 Congressionally-approved categories. SAFETEA-LU added qualified highway and freight rail transfer facilities to the list of approved PABs, and provided authority to
issue up to $15 billion in transportation PABs (Highway PABs). The Secretary of Transportation is given
authority to allocate this $15 billion, but these PABs are otherwise subject to rules administered by the
Internal Revenue Service. This was the first time highway facilities have been allowed to benefit from
PABs, which have been available to the other major modes of transportation, e.g., airports, seaports,
and various types of rail for decades. The new Highway PABs have become a very effective financing
tool for major projects across the country. The Commission recognized the value of Highway PABs and
recommended their extension and other improvements to this program.
W Lift the cap on Highway PAB funding. For PABs to continue to benefit highway surface transportation projects and the jobs they produce, the $15 billion cap now limiting the use of PABs should
be eliminated. To date, DOT has approved $6.3 billion in commitments but pending requests will
likely soon absorb the remaining PAB ceiling. Eliminating the cap on PABs would provide additional national benefits.
W Make Highway PABs permanent law. The current Highway PABs program expires once the $15
billion is used. Given the effectiveness of this program, it should become permanent.
W Make permanent the exemption for PABs from the Alternative Minimum Tax (AMT). Before enactment of ARRA, the interest income from tax-exempt PABs was included in the AMT base and was
taxable for taxpayers whose income was high enough to be subject to the AMT. Interest income
from other governmental bonds was not included in the AMT, thus putting PABs at a competitive
disadvantage in capital markets. ARRA leveled the playing field by making qualified PABs issued
in 2009 and 2010 exempt from the AMT. This provision, expiring at the end of 2010, would need to
be extended if the program is to realize its full potential.
W Allow deferred interest on Highway PABs. New toll roads often do not generate sufficient initial
revenue to cover interest payments. Recognizing this, private lenders and the Federal TIFIA credit
assistance program allow borrowers to defer interest payments for the first few years of operation
by adding the interest to the principal. PAB interest cannot be deferred and added to the principal. PABs should be on equal footing with other credit instruments and reflect how transportation
funding actually works. Otherwise, the utility of the PAB program is reduced. STAA 2009 does
not contain provisions related to PABs. These provisions are outside of the jurisdiction of the House
Transportation and Infrastructure Committee and will need to be addressed by the Ways and Means
Committee.
Allow States to Leverage their Federal-aid Highway Apportionments
The leveraging mechanism of the TIFIA program has allowed a relatively small amount of funding ($122 million a year in SAFETEA-LU) to support loans worth billions of dollars for transportation
infrastructure projects across the country. States should be able to leverage their Federal-aid highway
apportionments in this way to greatly expand the funds available for needed transportation projects at
no additional cost to the HTF. More specifically:
W States would be given the option to use their apportionments to borrow from the Federal Highway
Trust Fund, instead of simply using their apportionments for grants. These loans would be available for the same types of projects eligible for funding under the apportionment providing the loan.
26 | Center for Excellence in Project Finance: Conference Report
They would have to be repaid from non-Federal sources, and carry a favorable interest rate comparable to TIFIA loans.
W By borrowing against their apportionment instead of using the apportionment for grants, states
would be able to leverage the money available for transportation projects about ten-fold. This is
because the amount that would be obligated from the state’s apportionment for a loan is only its
budgetary (subsidy) cost. For example, if a state wishes to build a project using $500 million in
National Highway System (NHS) funds, it could borrow this money from its NHS apportionment.
If the project is backed by a secure funding source (such as tolls), that $500 million loan would
require an obligation of only $50 million in NHS funds. To build the same project today, using the
NHS funds as a grant, the state would have to find obligation authority for the entire amount of
Federal funds it wishes to use on the project (in this example, $500 million).
W Current law should be changed to provide that repayments flow to the HTF. The HTF would be
the source of the subsidy, and directing repayments to the HTF would provide another long-range
income stream for the Fund. The repayments (principal and interest) should be credited to the unobligated balance of the state’s Federal-aid highway apportionment from which the loan was made.
This will encourage states to be frugal in the projects they select, provide additional Federal-aid
highway funding for future projects in the state, and keep the revenues available to the state that
generated them. There is no similar provision in STAA 2009.
National Transportation Infrastructure Bank (iBank)
There has been considerable discussion of a national infrastructure bank as another source of funds for
important projects. This discussion focuses on a bank (iBank) aimed at transportation projects.
W Legislation authorizing an iBank should: (i) identify dedicated funding sources; (ii) streamline
the application/evaluation process for existing programs; (iii) give preference to applications that
draw in new financing and/or revenue streams from private and other non-Federal sources; (iv)
offer up-front assistance for early planning, feasibility studies, environmental clearance, and other
development-stage activities; and (v) provide gap funding for user-fee backed projects.
W The iBank must not mix transportation projects with other types of public works. If a National
Infrastructure Bank is created to support several kinds of public works projects, the different types
of projects should be funded separately to avoid an unworkable competition between dissimilar
public works activities.
W There has been a great deal of discussion about how to fund the iBank. Some principles that should
guide this discussion are: (i) funds should not come from already stressed dedicated transportation
funds, such as the HTF—these funds are designed to flow to the states, and not to be a source for
a national discretionary program; (ii) to the extent that projects are funded with credit assistance
from the iBank, the cost of credit should be below commercial rates and transactional costs should
be kept to a minimum, not reflecting the subsidy costs as some TIFIA credits are requiring today;
and (iii) to the extent that the iBank is used as a fund for competitive grants, such as the TIGER I
and II programs, decision procedures should be objective, transparent and kept free of earmarking.
W All of the many funding approaches now under consideration should be explored, and, if appropriate, additional ideas should be proposed. For example, in H.R. 2521, noted below, the National
Infrastructure Bank it would create would issue debt securities directly. Up to $5 billion annually of
these securities could be purchased by the Treasury Department, but not exceeding 10 percent of
the debt securities issued by the Bank.
W A TIFIA program, enhanced as proposed in Section I, would offer much of the benefits of the iBank,
except for financial assistance falling short of the existing repayment assurances DOT requires,
such as grants and “quasi-grants.”
STAA 2009 would not establish a national infrastructure bank. However, Congress has expressed an
interest in this concept. Senator Dodd in 2007 introduced a bill (S. 1926 “National Infrastructure Bank
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 27
Act of 2007”)1
and has stated his commitment to pursuing the creation of such an entity. Representative DeLauro has been actively pushing her bill (H.R. 2521, the “National Infrastructure Development
Bank Act of 2009”)2
as an alternative to the Administration’s proposal (the $4 billion “National Infrastructure Innovation and Finance Fund”)3
. Although President Obama’s FY 2011 Budget included $4
billion for a National Infrastructure Bank, Congressional Appropriations Committees rejected this item
in their deliberations. 
 UTILIZING A NEW TAX CREDIT PROGRAM FOR
TRANSPORTATION INFRASTRUCTURE
W David Seltzer, Principal, Mercator Advisors LLC
With increasing budgetary constraints on grant funding, Congress in recent years has looked
to the Federal tax code as a means of stimulating investment in the infrastructure sector. The American
Recovery and Reinvestment Act (ARRA) authorized or expanded the authority to issue various forms of
tax preferred bonds, subsidizing part or all of an issuer’s interest expense. These programs range from
Build America Bonds, unlimited issuance volume with a 35 percent interest subsidy, to “qualified tax
credit bonds” that are volume-capped and offer subsidies of 70 percent to 100 percent of interest cost.
Qualified tax credit bonds (QTCBs) are intermediate-to-long-term taxable rate debt securities for
designated capital purposes sold by state and local governments or other entities. In lieu of cash
interest, bondholders receive a tax credit that can be applied against the investor’s Federal income tax
liability. Principal repayment is the issuer’s responsibility, using non-Federal revenue sources.
Earlier this year, Congress authorized issuers of most types of QTCBs to elect to offer them as “directpay” bonds, with a refundable tax credit that the issuers could present to the Treasury Department for
cash. This feature allows the bonds to be sold to investors as interest-bearing obligations, substantially enhancing their marketability.
Subsidizing the interest cost is an important investment incentive, since it expands the capital-raising
capacity of project sponsors. Depending on the term of the bonds and prevailing market conditions,
interest cost can represent anywhere from 50 to 80 percent of the financial cost of long-term borrowing.
A 100 percent Federal interest subsidy can more than double the level of investment supportable by
any given revenue source.
QTCBs differ from other Federally-subsidized bonds such as Build America Bonds in several important
respects. Build America Bonds (BABs) were designed principally to stabilize the market for general
municipal bond issuers, which had been severely disrupted by the credit crisis of 2008. By opening up
new categories of investors who don’t purchase tax-exempt securities, BABs have resulted in a modest
subsidy (approximately ½ percent) compared to traditional tax-exempt municipal bonds. BABs are not
volume-constrained, and may be issued for any general governmental purpose through year-end 2010.
(Congress currently is considering extending the BABs program for another year, but with a somewhat
lower subsidy rate).
In contrast, QTCBs are designed to stimulate investment and generate jobs in specifically-targeted
sectors through a much deeper subsidy. To date, Congress has authorized QTCB programs totaling in
excess of $36 billion for forestry conservation, renewable energy projects, energy conservation, qualified zone academies and new school construction. Unlike BABs, the QTCB issuance volume is legislatively capped for each program. While the interest rate is market-set, the maximum Federal subsidy
1 http://thomas.loc.gov/cgi-bin/bdquery/z?d110:SN01926:|/bss/110search.html
2 http://thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.02521:
3 http://www.dot.gov/budget/2011/budgetestimates/niiff.pdf
28 | Center for Excellence in Project Finance: Conference Report
(tax credit rate) is established daily by the U.S. Treasury at a level designed to allow the bonds to be
sold at their face (par) amount, without interest cost to the issuer. In addition, in contrast to BABs, the
maximum maturity date is prescribed by the Treasury on a monthly basis, so as to result in an effective
50 percent maximum Federal subsidy.
From a Federal policy viewpoint, tax credit bonds have several attractive attributes. Like investment tax
credits, they rely on market discipline to attract private capital investment (in this case, debt capital).
However, QTCBs can be sold at a much lower yield than equity-based investment tax credits because
they are both less risky and more liquid (readily tradable). And although they receive a greater subsidy
than tax-exempt municipal bonds, QTCBs are viewed by Federal policymakers as being more efficient,
since the project sponsor receives 100 percent of the benefit of the Federal subsidy, rather than sharing
it with the investor.
Tax credit bonds do not require direct appropriations like grants, but they do entail a fiscal cost to the
Government, in the form of “tax expenditures”. The annual tax credits reduce Federal tax receipts in
the year they are claimed. But because the budgetary charge for subsidizing a long-term investment
is spread over the life of the bonds used to finance that project, the fiscal cost is borne by both current
and future beneficiaries. This arguably is more equitable than grants, whose cost is “expensed” in the
year of outlay. And under budget scoring rules, QTCBs have a more favorable treatment. Depending on
the assumed issuance pattern, a tax credit bond program might be scored at 25-to-35 cents per dollar
of bonds issued vs. grants, which are scored at 100 cents on the dollar.
Presently, there is no QTCB program for surface transportation investments. Many observers believe
that a program would be warranted—especially for socially desirable investments such as intercity rail
and major public transportation programs that confer substantial public benefits like pollution reduction
and energy conservation. Given the long-lived nature of transportation investments and their extensive spillover benefits, a strong argument can be made for allowing longer-term bonds, and therefore
a higher effective Federal share, perhaps commensurate with the 80 percent Federal match for current
highway and transit grants. As noted above, this would allow issuers to support over twice the investment level compared to traditional municipal borrowing. At the same time, a new QTCB program would
alleviate pressure on the Highway Trust Fund by accommodating many major projects that otherwise
would seek more grant funding.
A key decision point for any new program is how the defined issuance volume cap is to be allocated.
Some QTCB programs are entirely formula-distributed based on demographic factors (e.g., school
construction). Others are entirely discretionary (clean renewable energy projects, conservation). It
may well be that a new QTCB program for surface transportation would combine elements of both:
One portion (for large projects with regional or national benefits) could be discretionary based on the
project’s societal returns and the level of local effort. The other portion could be formula-allocated to
the States, to be designated for smaller projects. The discretionary portion could be selected by the
Secretary of Transportation (similar to the current $15 billion Highway and Intermodal private activity bond program). Or, to the extent Congress decides to establish a National Infrastructure Bank, the
Bank could select the projects, with the bonds being sold by state or local entities.
In summary, a QTCB program could be an effective tool to encourage additional investment in the
nation’s surface transportation infrastructure, without further consuming limited funding capacity through the Highway Trust Fund. Projects would rely on the market discipline of the investment
community as one of the key litmus tests of feasibility. The budgetary cost of the program would be
a fraction of that associated with attempting to fund such investments through traditional Federal
grants. And the expansion of QTCBs would provide additional investment opportunities for major
sources of capital such as life insurance companies, pension funds and endowments which currently
do not purchase tax-exempt bonds. 
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 29
 TOWARDS A NEW FEDERAL ROLE IN INFRASTRUCTURE INVESTMENT:
USING U.S. SOVEREIGN WEALTH TO REBUILD AMERICA
W Richard Little, Director, Keston Institute for Public Finance and Infrastructure Policy
and Infrastructure, University of Southern California
As the United States continues to emerge from the economic collapse of 2008, the question of how to
address years of chronic underinvestment in infrastructure remains a pressing issue. The American
Recovery and Reinvestment Act of 2009 (ARRA) called for the expenditure of $787 billion in stimulus
funds including more than $100 billion for “shovel ready” infrastructure projects. ARRA, however,
was not a comprehensive reinvestment plan for U.S. infrastructure. For the foreseeable future, annual
investment in public and quasi-public infrastructure systems of 4 to 6 percent of GDP ($500–$700
billion) will probably be necessary. At the same time, no funding source, either dedicated such as
the Highway Trust Fund, or general, such as the budget of the United States, is projected to have the
capacity to generate funds sufficient for infrastructure investment at these levels. Private capital,
broadly deployed through various forms of public-private partnerships (PPP or P3) could address a
portion of the shortfall but PPP have been slow to find widespread acceptance and have generated
considerable opposition within elements of the U.S. Congress. As a result, the long-term viability of
this model is unclear.
At the same time, there is a clear and immediate need for public and institutional pension funds to
invest in instruments that can generate stable, low-risk returns over the long-term. Similarly, there
have been various proposals to increase the returns on Social Security payroll taxes through the establishment of private investment accounts that would have placed a portion of individual payroll contributions into the equities market. During times of rapidly rising stock market valuations, this appeared
to be a sure fire means of addressing projected shortfalls in revenues versus future pay-outs. Although
social security privatization never generated substantial political support, it is a fact that returns on
social security investments have been several hundred basis points lower than historical returns in the
U.S. stock market.
This paper attempts to weave together these multiple strands to begin a dialogue on a conceptual
approach that could have the capacity to supply significant additional capital for infrastructure investment while at the same time addressing the retirement needs of all Americans. The core idea of the
proposal is to utilize a combination of public and institutional pension funds, individual retirement
accounts, and other private investment capital, together with Social Security Trust Funds to provide
senior debt to fund projects and programs supported by user fees or other reliable and sustainable
revenue streams. For most of the United States, this would require the states to develop new revenue
streams, either directly from tolls or some other source such as a dedicated parcel, sales, or other form
of tax not subject to re-appropriation. Revenues thus collected would be used to retire national infrastructure bonds and repay (with interest) loans from Social Security trust funds. A National Infrastructure Bank (NIB) could be established to administer such a program. Modeled on other development
banks, the NIB would be empowered to invest only in financially sound, revenue-backed projects that
met pre-determined funding criteria. The NIB would be managed by an independent board that would
hire professional investment counselors and money managers to ensure that all investments met strict
funding and performance, and not political, criteria.
Because this paper is intended to stimulate discussion of a new and novel way of raising the massive
amounts of capital that will be necessary to recapitalize America’s transportation infrastructure, the
many political and legislative issues associated with actually implementing this proposal are not
addressed. However, the blurring lines between the roles and responsibilities of the public and private
sectors that emerged during the national financial crisis show that a new role for Federal participation
in infrastructure investment as both banker and broker may not be as radical as it would have once
appeared. Although precise, up-to-date figures are not available, there is on the order of $15 trillion
held in public pension systems, individual retirement accounts and the Social Security Trust Fund.
30 | Center for Excellence in Project Finance: Conference Report
Investing as little as 10 percent of these funds as described in this paper would unleash almost $1 trillion for immediate investment in U.S. infrastructure. This would have a major beneficial impact on the
transportation network and over time, add hundreds of millions of dollars to combined U.S. retirement
accounts. At the same time, it would create jobs and generate growth through personal savings and
investment.
By focusing on revenue-backed projects, this proposal also shifts the primary source of infrastructure
funding away from the current tax allocation model where everyone pays regardless of usage to a
more equitable model where people pay only for their actual use of the system. Our political process
needs to forthright with voters on this matter and let them know that absent a move to revenue-based
models or a massive increase in fuel or other taxes, necessary renewal and expansion of the transportation system will be long-delayed, if provided at all.
This proposal will strike some as impossible to consider seriously let alone implement. However, as
noted in the most recent Transportation Revenue Commission report, this is a time to seek out and
discuss innovative new approaches, not to rely on proven but now obsolete methods from the past.4
Continuing to focus on meeting the nation’s combined transportation wants and needs from a reauthorization process that can only provide $35 to $40 billion annually to the Highway Trust Fund only
guarantees that we will never address the real question. That is, what does a 21st Century transportation policy look like, how will we fund it, and who will pay for it? 
 LEADERSHIP INITIATIVE FOR TRANSPORTATION SOLVENCY:
MULTIPLE OPPORTUNITIES IN PRICING TRANSPORTATION
W Shin-Pei Tsay, Director, Leadership Initiative for Transportation Solvency,
Carnegie Endowment for International Peace
The Leadership Initiative for Transportation Solvency is an effort to create the political space to finance
the Federal transportation program. It makes the case for internalizing costs caused by the existing
transportation system while better targeting transportation investments and fully funding transportation programs on a pay-go basis. These costs will be captured by pricing transportation carbon, either
through a single source (such as a gas tax or sales tax on transportation fuels) or by a combination of
strategies such as removal of oil and gas subsidies and a suite of upstream and downstream pricing
schemes. Pricing schemes that have the net result of reducing transportation carbon, such as emission-based tolling or congestion pricing, will also be considered.
The Initiative is directed by a three-person leadership team: former Senator Bill Bradley, former Homeland Security Secretary Tom Ridge, and former U.S. Comptroller General Dave Walker. Bi-partisan
leadership is critical to create political space to achieve reform of the Federal transportation. As a
deficit reduction strategy, the first phase of the project targets President Obama’s Fiscal Responsibility
Commission, which is expected to release recommendations to reduce the national deficit on December 1, 2010. The second phase of this project will be dedicated to influencing the next transportation
reauthorization.
It is well understood that the highway trust fund does not have enough to fund the transportation
program, but what is not as well known is that the Federal transportation program currently contributes around $90 billion annually to our national deficit. In the last two years, Congress has transferred
$34.5 billion from the general fund to the highway trust fund. In addition, other direct appropriations
have funded a variety of other surface transportation programs outside of the Highway Trust Fund,
from Amtrak, stimulus programs, earmarks, and tax expenditures for free parking and commuter choice
programs. Total general fund expenditures for surface transportation now amount to $25–$35 billion
4 Revenue Study Commission. (2007, December). Transportation for Tomorrow. Report of the National Surface Transportation
policy and Revenue Study Commission. Retrieved Decem¬ber 7, 2009, from http://www.transportationfortomorrow.org/
final_report/
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 31
annually, depending on how ARRA funds are accounted. Deferred maintenance for highways and
transit add an estimated $57 billion (USDOT Conditions and Performance Report) to $118 billion
(National Surface Transportation Policy and Revenue Study Commission) to the annual deficit. While
the Federal government does not own and manage transit and highway facilities, it funds road reconstruction, so deferred maintenance counts as a Federal expenditure.
Outside of OPEC and Russia, every other country in the world prices use of the transportation system
so that revenue not only funds the country’s entire transportation system itself, but it also funds additional programs such as education and health care. A survey conducted by the World Bank in 2007
showed that in Europe the average fuel tax collection across the 26 countries is 142 percent of a single
country’s average total road expenditures.5
Germany’s average highway users revenue is the third
largest source of government revenue and is 2.6 times greater than its surface transportation spending.6
Canada collected $11.7 billion in gas tax revenues in 2008; its national transportation system cost
$4.1 billion for the same year.7
There are also examples closer to home. The Texas State Constitution
commits 25 percent of its state gas tax revenue to its state education program.8
Reforming transportation finance has enormous potential to contribute to climate mitigation. Surface
transportation is 95 percent reliant on petroleum and represents 70 percent of the country’s oil
consumption.9
The country’s transportation system is responsible for 30 percent of all carbon emissions in the United States. Of that 30 percent, 86 percent of transportation carbon emissions are
attributed to the surface transportation system. Recent published research from NASA Goddard
Space Center and a literature review by the Carnegie Endowment found that the surface transportation sector emits more net radiative forcing carbon in the near-term (20 year outlook) compared to any
other sector in our economy, including power generation. Radiative forcing is the chemical process that
warms the planet’s atmosphere and is recognized as the main cause of climate change. This does not
negate the necessity to also restructure power generation infrastructure, which is shown to have the
most net radiative forcing effect in the long-term (100 year outlook). But what this significant finding
does is answer questions in the climate change debate over where the United States should dedicate
its resources to address climate change, in which timeframe should it design its policies, and what
steps should be taken to curb carbon. In conclusion: in the short-term, road-based transportation
should be the center of attention for reducing carbon emissions.
The insolvency of the U.S. transportation program is an opportunity to examine revenue sources for
transportation that are linked to reducing carbon emissions. There is no single solution. The project
will examine the range of potential strategies and assess its economic and distributional impacts as
well as their political salience.
Because transportation is dependent on petroleum, the project will look at upstream (referring to
exploration and production) and downstream (including selling and distribution, including at the gas
pump) opportunities in the petroleum industry. Some early research shows that the oil and gas industries currently receive disproportionately high subsidies. The marginal tax rate for income derived from
investments in gas and oil structures is 9.2 percent, while the average tax rate for such income in all
5 Cesar Queiroz, Barbara Rdzanowska, Robert Garbarczyk, and Michel Audige, “Road User Charges: Current Practice and
Perspectives in Central and Eastern Europe,” Transport Paper 23, World Bank Group, November 2008
6 “Making Transport Sustainable: Insights from Germany” Brookings Institution Metropolitan Policy Program, April 2009
7 “Transportation in Canada 2008: An Overview,” Minister of Public Works and Government Services, Government of Canada,
2008
8 Peggy Fikac, “Proposal Gives Voters a Say on Gas-Tax Increase,” Houston Chronicle, 30 August 2010
9 “Annual Energy Review,” Energy Information Administration (EIA), 2009
32 | Center for Excellence in Project Finance: Conference Report
industrial sectors is 26.3 percent.10 The overall U.S. tax rate for oil and gas industries is 13.3 percent,
the sixth lowest among 20 industries according to a 2004 Institute on Taxation and Economic Policy.11
Downstream, the gas tax paradox continues: it is the best, and most politically toxic, strategy to raise
revenues in the short term. Economists across the board agree that pricing carbon is necessary, though
not necessarily sufficient, to reduce carbon emissions from all sources. They also agree that the gas tax
is the most transparent and direct form of carbon pricing available. The report examines the viability of
a percentage sales tax versus a flat gas tax increase.
Another revenue generation option is to open the Interstate highway to tolling programs. Possibilities
within this include pricing by weight. USDOT’s Highway Cost Allocation report shows that the heaviest tractor-trailer combination trucks, weighing over 100,000 pounds, pay only 50 percent of their road
costs.12 Opening up road systems for tolling options also makes it possible to ease in congestion pricing and a more sustainable revenue generation strategy, VMT fees.
In addition to revenue generation strategies, there are opportunities to reduce the transportation
program’s impact on the national deficit, which would reap overall economic benefits through a bigger
GDP, higher tax revenues, and lower future costs for social services. One major burden on the national
deficit is deferred maintenance. According to the Sacramento Metropolitan Transportation Plan, the
average life-cycle cost of an under-maintained road is $3,640,000, which is 26 percent higher than a
properly maintained road.13 This cost is borne by the users as well—the average urban motorist pays
an additional $400 per year due to badly maintained roads.14
In addition, there is a growing body of research that demonstrates that the current structure of the
transportation program has induced sprawl, which in turn has eroded economic benefits and added to
costs, adding to the nation’s deficit.
On balance, the U.S. transportation program has tremendous potential to be fiscally, environmentally,
and economically solvent. In order to achieve this triumvirate of national priorities, revenue strategies
to fund and restructure the transportation program should incorporate transportation’s close ties with
U.S. energy policy and its role in global climate change. Making these connections transparent to all
the users and providers of the system will not only reform the U.S. transportation system in the longterm, but also achieve numerous short-term economic and environmental goals. 
 TOWARD AND NEW MODEL FOR TRANSPORTATION FINANCE
W Bob Yaro, President, Regional Plan Association
The current model of transportation finance in the United States is broke. SAFETEA-LU, the
long-term authorization for Federal funding of surface transportation, expired one year ago,
and the transportation trust fund has essentially run out of money. Continuing resolutions and limited
stimulus funding for transportation projects since then have been financed out of the general fund at a
time when the Federal government is borrowing more than a trillion dollars a year. We are essentially
borrowing money from our children in the long run—and from the Chinese in the short-run—to meet
today’s transportation needs.
Nearly everyone agrees that we are not even maintaining existing roads, rails and runways at a state
of good repair, much less making the bold investments in these systems needed if America is going
10 “Statement of Alan B. Krueger,” Press Room, U.S. Department of the Treasury, 10 September 2009
11 “Corporate Income Taxes in the Bush Years,” Institute on Taxation and Economic Policy, September 2004
12 “Why is the HVUT Important?,” Federal Highway Administration (FHWA)
13 Road Maintenance,” Issue Brief, Sacramento Region Metropolitan Transportation Plan, October 2006.
14 Ibid.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 33
to compete globally in the first half of the 21st century. At the same time, virtually all of our major
competitors in Asia and Europe and in developing countries around the world are making these investments.
All of our major economic competitors have adopted large gasoline taxes, highway tolls and other user
fees to finance infrastructure investments. Europe has supplemented these with carbon taxes that
are helping to make huge investments in high-speed, regional and metro rail systems and in bridges,
tunnels and other transportation facilities. The Federal gas tax was last raised in 1993 to 18.4 cents per
gallon. In addition, the average state gasoline tax is 45.6 cents per gallon. The gas tax in the United
States remains a tiny fraction of fuel taxes in most other developed countries.
At the heart of this challenge is the reality that the American people simply do not support increasing
the gasoline tax and other user fees, or see this issue as a priority when compared with the many other
fiscal and economic challenges facing the country. Countless reports and commissions have underscored the growing need for these investments, punctuated by an occasional bridge collapse, to no
avail. Meanwhile, the leadership from both parties in the Congress has ducked this issue. The Obama
Administration has also not made this a priority until recently, when it announced its support for creating a National Infrastructure Bank, and “front-loading” $50 billion for “roads, rails and runways” in a
new multi-year transportation authorization. The Administration has not specified how it intends to
capitalize an infrastructure bank, however, leaving this detail to the Congress. Which brings us back to
square one: a transportation finance system that is broke.
So, how could the Federal transportation trust fund be reconstituted to meet the nation’s current and
future transportation needs? Can Federal transportation funds be redirected in a way that incentivizes
state and local investments? This will be difficult to achieve at a time when states and cities across the
country also face rising deficits. But here are some thoughts on ways that this goal could be achieved.
W Create a bold vision for the future of the transportation system, similar to the vision for the Interstate Highway System that built public and political support for creation of the Highway Trust
Fund in the first place. This new vision could be built around targeted investments in high-speed
rail, supporting transit investments and relieving highway bottlenecks and extremely congested
links in the Interstate system. Clearly the public has not been inspired by bold visions from the
transportation reform community built around “performance-based, outcome-driven” project selection. We’ve got to create a more inspiring vision which has the potential to improve people’s lives
and livelihoods.
W Shift all Federal funds currently directed to earmarks to competitive, discretionary programs,
similar to TIGER grants or the U.S. Department of Education’s “Race to the Top” program. This
would clearly not be popular in the Congress, but it could eliminate some of the most wasteful and
poorly targeted spending.
W Reduce “red tape” associated with Federal transportation grants, estimated to add years of delay
and perhaps one-third or more to the cost of projects.
W Level the Federal matching share for new capacity projects to 40-50 percent across modes, to
weed out poorly performing projects.
W Create Federal programs that reward and incentivize local and regional revenues for transportation programs: In dozens of cities and regions across the country, the public has supported
new user fees directed towards local transportation priorities. Voters in many cities have passed
referenda creating local or regional taxes and user fees for these projects. Incentive-based Federal
grants can help leverage local funds and help build public support for these investments.
W Levy and target user fees to support transportation capital programs. Tolls or congestion fees
can be used to build or maintain highways, or be used to cross-subsidize transit investments.
Airports and seaports can use landing fees, departure taxes or container fees to finance the capital
34 | Center for Excellence in Project Finance: Conference Report
needs. Transit is always tougher to finance, since these systems can seldom recover their initial
capital investments.
W Share transportation costs among those who benefit. Broad-based income, sales or payroll tax
revenues can also be used to build and operate transit systems or other investments. New York, for
example has adopted a .002 percent Payroll Mobility Tax, a regional payroll tax to provide $2 billion
annually for the capital and operating needs of its Metropolitan Transportation Authority.
W Use value capture to finance new transit and rail projects. Various kinds of value recapture
systems can be used to finance transit investments. Tax Increment Financing (TIF) districts, for
example can pay for transit improvements, using projected increases in property tax revenues
around station areas to finance these investments. Regional Plan Association has developed a
regression model to estimate the increase in property values associated with transportation investments. New Jersey’s ARC commuter rail tunnel to New York, for example, would add $18 billion
to home values around stations served by this facility, and double the number of households with
commuter rail access to Manhattan.15
None of this will succeed, however, unless we can convince the American people that America’s global
competitiveness and their own economic wellbeing depends on making these investments. They also
need to be convinced that Federal, state and local funds will be highly targeted and well spent. And
they will need to feel that these investments will provide real benefits to their own region, community,
and household measured in terms of reduced congestion and travel times, increased convenience, and
better access to jobs and services. 
 INVESTING IN TRANSPORTATION
W David Thornburgh, Executive Director, Fels Institute of Government,
University of Pennsylvania
Sometimes I wonder why we need to keep proving to ourselves that investing in transportation makes economic sense and helps spur economic growth. In fact, investing in transportation has
always been about investing in economic development, productivity, and connecting people and businesses to opportunities.
The Erie Canal? Opening up western goods to eastern markets. The transcontinental railroad? Same
thing. The Interstate Highway system? While motivated by the mushroom cloud, it still has had an
enormous impact on connecting products to market and, by making Americans more mobile, connecting them to unprecedented economic opportunity.
My own neighborhood in Philadelphia was built in the 1860s by speculative developers who understood the economic value of the new Reading Railroad that could whisk commuters from the leafy
green suburb-in-the-city to downtown Philadelphia in under a half hour. Transit-oriented development,
19th century style (and one reason why today I can walk a block to hop the commuter train, connect
with Amtrak at 30th Street Station and go from my kitchen table to my seat at this table in 2.5 hours,
working all the while).
Here is another simple observation. Look at real estate listings if you need to be convinced that transportation investments have economic value. Ever seen a listing that said “walk to Metro” or “EZ
access to turnpike” or “minutes to airport”? Why would the listing include those phrases if those
transportation improvements didn’t add to the value of the property?
If expert research contradicted this kind of common sense we would have to be worried. But it doesn’t.
Time and again after the smoke settles on the latest econometric analysis (analysis that only high
15 Regional Plan Association (2010). “The Arc Effect: How Better Transit Boosts Home Values and Local Economies.” http://
www.rpa.org/pdf/RPA-The-ARC-Effect.pdf
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 35
priests of the profession can understand and interpret) we see, in fact, that transportation pays off.
You’ve heard that today and you’ll hear it again.
I am not a transportation expert, though in a previous professional life I’ll admit to having ventured
into the thicket of transportation economics on projects close to my home in Philadelphia, like the I-95/
PA Turnpike interchange (the biggest missing link in the Interstate Highway System) or the longdebated light rail proposal in the Schuylkill Valley corridor west of Philadelphia. Each foray reminds
me, though, how important it is to make transportation policy and financing discussions about something other than just transportation. As someone who has spent most of his career thinking and doing
something about regional competitiveness and regional growth issues, I’m firmly convinced that transportation has to be viewed as a means to that end. As I said, it’s not a difficult conceptual point to
make. An easier, better way to get from here to there makes both here and there more valuable. Faster,
more efficient ways to get goods to market, or people to their work, lowers cost and increases productivity. You can do a lot of business in your car (not legally, of course, in many states) but you can do a
lot more when you’re actually in an office, or meeting with a client.
But transportation discussions are too important to leave to transportation experts. Unless we can
bring today’s discussions down to earth—to include, at a regional level, entrepreneurs and corporate
CEOs and cultural leaders and labor leaders and soccer moms and hockey dads this discussion will
continue to play like the transportation version of that classic movie Groundhog Day, where the same
day repeats itself over and over and over and over again.
Two colleagues of mine at Penn, Richard Shell and Mario Moussa, have recently written a great book
called the Art of Woo: Using Strategic Persuasion to Sell Your Ideas. One of their central points is that
we all have different styles of persuasion, which can be delivered through several different channels
to the intended audience. The problem comes when a message developed in one style is relayed over
a channel that the listener isn’t tuned to, that he or she literally doesn’t get. Think of a mathematician
explaining the theory of relativity to an artist by whipping out the formulas, charts and graphs. It’s
only when the message and channel connect with the audience, the authors suggest, that persuasion
takes place.
There’s a lesson for the transportation discussion we’re having here, I’m convinced. We need to use
the basic economic message of connectivity, mobility, and productivity, at a regional scale, delivered by
the right messengers over the right channels, to the right audience. Only then will be able to tap the
will—that I think is out there—to make the big investments we are discussing here today.
I would suggest we begin by looking at what’s worked (what the author Chip Heath in his new book
refers to as the “bright spots” approach to problem solving). In 2006 and 2007 I served as CEO of the
Alliance for Regional Stewardship, a coalition of regional leadership organizations dedicated to building globally competitive sustainable regions in this country. (Bob Yaro was one of our Board members).
In that tenure I had the chance to learn from and work with regional leaders from Silicon Valley to
Austin to Milwaukee to my hometown of Pittsburgh. The ones who were successful in getting things
done (the FasTracks project in Denver, light rail initiatives in Phoenix, Austin and Salt Lake City,
regional cultural funds in Pittsburgh, Charlotte, and St. Louis, open space bond funding in Greater
Philadelphia) saw these efforts as coordinated civic campaigns. These campaigns brought coalitions
together—sometimes, I have to say, odd bedfellows—around a particular actionable, often audacious
goal. They usually drew their leadership from respected long-time leaders in their community, men and
women who were known, respected and trusted to “do the right thing” in the interest of the greater
community. They stuck with it, did their homework, and persisted in the face of long odds. These
campaigns can take time. It took 24 years from idea to reality for Philadelphia to build its world class
convention center; and almost 50 years for voters of Louisville and Jefferson County, Kentucky to agree
to consolidate their governments in the interest of regional efficiency and economic development.
36 | Center for Excellence in Project Finance: Conference Report
In the transportation area, the FasTracks effort in Denver stands out—a voter-approved, $4.7 billion,
12-year program to expand rail and bus service throughout the Regional Transportation District.
Scheduled for completion in 2017, the RTD FasTracks program will add 119 miles of light rail and
commuter rail by creating six new transit corridors and extending three existing corridors, add 21,000
new parking spaces, and expand bus service across the RTD District. My predecessor at ARS, John
Parr, was deeply involved in organizing and executing the civic campaign necessary to make that
happen. (Sadly, John and his wife and child were killed in a tragic car accident in December 2007). The
campaign for FasTrack was built brick by brick with a shrewd blend of messengers, messengers and
coalition-building that ultimately led to its approved by the voters in 2004. The goodwill endures, as
evidenced by the FasTracks 2009 public opinion poll that reported that 83 percent of metro-area residents say that approving FasTracks funding in 2004 was a good decision.
I was struck by Denver Mayor John Hickenlooper’s comments at the time the FasTracks referendum
passed. FasTracks he said “helps people have a shorter [commute] time so they spend more time with
their families” and “It helps focus development in certain areas so that we keep more open space.”
Hickenlooper, in his folksy brewpub owner style, was talking to people in terms they understood and
cared about. He was interpreting the importance of this big transportation project through the lens of
important values embraced by his constituents.
In closing, I’d simply suggest the semi-obvious truth that as we think creatively and deeply about
the way we fund and finance transportation investments for the future we’ll get little traction unless
we pay even more attention to tapping the will, the popular and political will necessary to get where
we’re going. We have to assume the will is there, at least until proven otherwise. So our job is to
unleash that will with the right message delivered by the right messengers over the right channels.
Now, as we struggle to leave the Great Recession behind us, we have a powerful message to tell, in
simple terms, about the economic value of transportation investments. But only with a well-crafted
plan for persuasion, that learn from the bright spots around the country, can we find a way to get done
what needs to be done. 
 INNOVATIONS THAT WORK: FUNDING AND
FINANCING TRANSPORTATION IN FLORIDA
W Lowell Clary, P3 Development Company; Former Assistant Secretary for Finance and Administration, Florida DOT
Background
The Federal Highway Trust Fund has been unable to support a continued level of funding for highway
and transit since 2007. Congress has added general funds to supplement the funding for highway and
transit since that time in growing amounts over time.
Almost all states and local governments have experienced budget shortfalls since 2008 and these are
forecasted to continue for at least two or more years. In Florida the transportation program peaked at
over $7.5 billion in 2007 and has since dropped to just over $5.7 billion in 2010. The estimates for future
gas tax collections in Florida have dropped at every forecast update except one since 2006, with an
overall reduction in the expected collections dropping about 18 percent from the 2006 forecast to the
latest forecast in 2010.
At the same time local governments in Florida have faced dropping property taxes, gas taxes, and
sales taxes, creating a major struggle to meet annual operating needs. This has created problems in
funding infrastructure projects.
The factors are no doubt the result of the current economic conditions in the nation and specifically in
the State of Florida where unemployment continues at approximately 11 percent.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 37
To add insult to injury, the State of Florida has grown dramatically over the past 50 years from a
population of 4.9 million in 1960 to 9.7 million in 1980 to 16 million in 2000 to over 19 million in 2010.
Transportation facilities in Florida have been overwhelmed during this time period. As a result, every
possible option to improve transportation facilities has been considered, and where feasible, implemented to add capacity to the transportation system.
Unmet needs have been a common theme in Florida when it comes to the transportation system. You
can check web sites at the state and local levels and it is a recurring item.16
Innovations that Work
A series of options have been identified, developed and implemented in the State of Florida to help
address pressing transportation needs. Some key options include:
Indexing the State Motor Fuel Tax. The State of Florida has indexed two statewide motor fuel taxes
to the annual general Consumer Price Index. This has been in effect with some modifications since the
early 1990s.
Tolling. A total of 765 centerline miles of expressways in Florida are supported by toll revenues. This
forms almost 19 percent of Florida’s roadway portion of the Strategic Intermodal System. Toll revenues
in 2009 totaled $1.05 billion, or the same as 11 cents of state gasoline tax in the State of Florida.17
Local Option Taxes. In the 1990s a series of optional local tax sources were provided to the 67 Florida
counties to help address much needed transportation improvements. Every county in the State took
advantage of these sources.
W Local Option Motor Fuel Tax—These taxes generated over $750 million for transportation in Fiscal
Year 2009–10.18
W Local Option Sales Tax—The taxes associated fully or in part with transportation totaled over $800
million in Fiscal Year 2009–10.19
95 Express. The State of Florida converted a section of I-95 in Miami-Dade County from 5 lanes to 6
lanes, and making the new lane plus the prior High Occupancy Vehicle lane into High Occupancy
Tolled lanes. This was all done within the existing roadway footprint. This project has been well
received and Southeast Florida is planning and implementing a series of Express Lanes to create a
network in the highly populated area of Southeast Florida.
State Infrastructure Bank (SIB). The State of Florida has a very active SIB that has loaned over $323
million supporting a total $1.08 billion in projects from the Federal SIB account and over $761 million
supporting a total of over $7.2 billion in projects from the State SIB account. The Florida SIB is the only
transportation infrastructure bank in the nation to issue bonds backed by the loan portfolio to create
funds to make additional loans.20
Development Districts and Tax Increment Financing. Well over 200 development districts exist in
Florida as well as many examples of tax increment financing. A portion of the proceeds have been
spent or pledged to transportation improvements. It should be noted these type structures have
struggled since the economic slowdown in 2008.
16 State of Florida DOT. (2009) “Current and Future Heavily Congested Corridors.” http://www.dot.state.fl.us/planning/
systems/fihs/pdf/HeavilyCongestedCorridor_2010_4-8.pdf
17 Florida DOT, “How State Departments of Transportation can Partner with Toll Agencies to Build Toll Facilities.” www.dot.
state.fl.us/financialplanning/finance/tfrtf/FDOT percent20Assisted percent20Toll percent20Facilities.pdf
18 “Florida’s Transportation Tax Sources: A Primer” www.dot.state.fl.us/financialplanning/revenue/taxprimer/201001/Tax
percent20Primer percent202010 percent20JAN percent20.pdf
19 Florida Legislative Committee on Intergovernmental Relations. (2009) Issue Brief: Utilization of Local Option Sales Tax by
Florida Counties in FY 2009-10. www.floridalcir.gov/UserContent/docs/File/reports/localoptsales09.pdf
20 Florida DOT, “State Infrastructure Bank Federal Funded Projects.” www.dot.state.fl.us/financialplanning/finance/sib/SIB_
Project_List.pdf
38 | Center for Excellence in Project Finance: Conference Report
Public-Private Partnerships. Florida has implemented a number of P3s with some examples including:
W Miami Intermodal Center that merged funding sources from Federal, state, local, toll revenues,
airlines, car rental users, and joint development together to deliver a new Intermodal Center in
Miami that totals over $1.6B and merges the mode of air, car (personal and rental), bus, commuter
rail, Metrorail, and in the future high speed rail into one intermodal center. This utilized two TIFIA
loans, the SIB, and other creative financing solutions.21
W I-ROX. One of the first uses of Design-Build-Finance (DBF) merged a series of improvements into
one project that advances the delivery of these improvements by over 5 years and totaled over
$450 million.22 There has been a series of DBF projects since this project that total over $2 billion of
improvements.
W Port of Miami Tunnel and I-595 Improvements. These two projects were the first to utilize the
availability payment approach in the United States. The availability payment approach typically
combines payments during construction or at completion of construction; annual payments are
then based on the “availability of the facility” to the public according to established operating
standards. These two projects total over $2 billion of improvements.23
What do States and Locals Need from Congress?
Everyone under the sun has agreed that the big picture is the funding issue. My suggestions are that
all options should be put on the table as the needs in one local area are very different than another
area in the same state and this various greatly from state to state. It is critical that all options are on
the table. Some examples include:
W Tolling;
W Express/HOT lanes;
W Flexible procurement approaches like design-build-finance and P3s;
W Flexibility in combining different funding sources such as highways, transit, rail, etc.; and
W Focusing Federal program on strategic needs. 
 THE ACTA–USDOT LOAN EXPERIMENT
W Jim Preusch, Chief Financial Officer, Alameda Corridor, California
The Alameda Corridor is a 20-mile long multi-track rail cargo expressway, joining the Ports
of Long Beach and Los Angeles to the main lines of the Union Pacific and Burlington Northern Santa Fe transcontinental rail network in downtown Los Angeles. Completed on time and under
budget in 2002 at a cost of $2.4 billion, the corridor eliminated at grade conflicts at more than 200
grade crossings, improved train speed, and provided many safety and environmental benefits.
Project financing involved contributions of about $394 million from the Ports, a taxable and tax-exempt
bond offering in 1999 totaling about $1,170 million, Los Angeles Metropolitan Transportation Authority
grant money of about $347 million, a U.S. DOT loan of $400 million, construction period interest earnings of about $90 million, and $27 million from several smaller sources. Key features of the USDOT loan
were its scheduled, but flexible amortization and fixed rate (6.79 percent). The loan became the basis
for the USDOT TIFIA program.
In 2004, the Alameda Corridor Transportation Authority (ACTA) refunded the USDOT loan with the
proceeds of a subordinate taxable and tax-exempt financing. $686 million in bond proceeds repaid
$573 million to the USDOT ($400 million in principal and $173 million of accrued interest), funded $45
21 See: www.micdot.com
22 See: www.irox75.com
23 See: www.portofmiamitunnel.com and www.i-595.com
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 39
million for the cost of issuance, and created a $69 million debt service reserve. While the interest rate
was lower than the USDOT loan, the 2004 bonds provided far less flexibility going forward. Following
strong historical cargo volume trends, the annual debt service payment schedule was also accelerated.
With the downturn in 2008 and 2009, Port cargo volume and ACTA revenue declined somewhat. While
the TEU volume through the Ports is now growing again, and ACTA revenue is returning to healthier
levels, the scheduled increases in ACTA’s debt service will require some level of support over the next
several years while the economy strengthens. Money advanced by the Ports for that purpose triggers
a 5 percent increase in the ACTA fee and diverts funding from other much-needed projects resulting in
the loss of thousands of construction and other jobs. A better option involves restructuring of ACTA’s
debt. The result—ACTA applied for a Federal Rail Administration Railroad Rehabilitation and Improvement Financing (RRIF) loan.
A RRIF loan may be used to acquire, improve, or rehabilitate intermodal or rail freight or passenger
equipment or facilities, including track, components of track, bridges, yards, buildings, and shops. It
may also be used to refinance outstanding debt incurred for these purposes. When evaluating RRIF
applications, the FRA will give priority consideration to projects that enhance public safety, enhance
the environment, promote economic development, and make U.S. businesses more competitive in international markets. The interest rate on RRIF loans is set at closing to the rate on Treasury securities of
a similar term. ACTA meets the RRIF loan purposes and priority consideration criteria. In short, RRIF
appears to be a viable, attractive option for ACTA. Further, the RRIF program may be a funding option
for other rail or rail related transportation projects and agencies around the country.
The Ports of Long Beach and Los Angeles handle 40 percent of the nation’s waterborne trade and 60
percent of Asian imports. Thirty-five percent of that cargo uses the Alameda Corridor. In 2008, container trade through the Ports was $287 billion and generated 3.3 million jobs nationwide. Forty-four
percent of the trade and 42 percent of the employment occurs in states on or east of the Mississippi
River. A RRIF loan to ACTA would be beneficial to the country for maintaining cargo volume, protecting trade and employment, and avoiding an ACTA fee increase.
ACTA has applied for a $553 million RRIF loan in order to restructure about a third of its debt. The
intent of the restructuring is to reduce debt service during the next 10 years and move some debt
service payments out to future years. The RRIF loan would eliminate the need for the Ports to advance
money to ACTA for debt service. The restructuring would involve portions of the 1999 A and D, and
2004 A and B bonds. The structure proposed in the application includes refunding of two larger maturities which improves the economics of the transaction. While there are other financing options, and
while not refunding these two maturities would reduce the loan proposal amount by almost half, doing
so would raise the cost of the transaction and result in a less advantageous overall restructuring.
The FRA RRIF loan program appears to be very promising and we are encouraged by the opportunity
the program offers. There are a few technical concerns with the program, and some enhancements
would make the RRIF program more workable for borrowers. First, review and processing of our application has been time consuming. ACTA submitted its comprehensive application on March 2, 2010.
Second, the RRIF program requires the applicant to pay a credit risk premium. While the concept is
reasonable, the model FRA has used for loan scoring and to determine the credit risk premium appears
to favor applications that offer property and equipment as loan collateral. Most public agencies, including ACTA, are precluded by law from mortgaging property and/or equipment. Adjusting the FRA scoring model to account for structural differences between public agencies and private companies such
as a regional railroad (which are able to mortgage property) would likely make scoring and the credit
risk premium more accurately reflective of the risk involved in each loan.
Subordination of the RRIF loan is also important to ACTA. It is our understanding that both policy
and regulations permit a subordinated RRIF loan. It is not clear that RRIF has completed and closed a
subordinated RRIF loan before. This is another area of opportunity for RRIF program development.
40 | Center for Excellence in Project Finance: Conference Report
The FRA RRIF program has money to loan. The FRA staff has been helpful and resourceful in promoting ACTA’s application. We are excited about the opportunity and the potential to restructure its debt
with a RRIF loan. Other transportation agencies and entities may also find RRIF to be a practical and
cost effective source of project funding. 
 AVAILABILITY PAYMENTS AND OTHER FORMS OF P3S FOR
SURFACE TRANSPORTATION
W Mike Parker, Managing Director, Jeffrey A. Parker and Associates
Introduction
There is no “one size fits all” solution to America’s surface transportation financing and project delivery needs. In this time of constrained and volatile markets, the tool kit for financing surface transportation should be diverse and flexible enough to allow states and localities to use the most efficient and
appropriate forms of contracting for each given project.
Ongoing experimentation at the state level and lessons learned from abroad are leading to approaches
that address many of the concerns raised by early public-private partnerships (“P3s”) transactions. For
the right projects, P3s can provide the public sector with greater flexibility and efficiency in building,
financing and managing infrastructure assets—provided that P3 contract structures and procurement
processes are properly designed to ensure these goals are achieved.
Figure A1. Differences in Contracting and Financing Structure
Many public entities view P3 as a desirable option for transferring risk, gaining cost certainty for initial
construction and over the project life cycle, matching cash outlays to available revenues, and assuring
DIFFERENCES IN CONTRACTING AND FINANCING STRUCTURE
Concessionaire Lenders
DB Contractor Maintainer
Government
Equity Investors
DBFOM
Government Public Debt
Maintainer(s) and/or Government
Contractor(s)
Traditional
Designer
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 41
high service quality. Achieving on-time, on-budget delivery and targeted performance and state-of good repair levels for major infrastructure projects could also increase public confidence and long-term
support for transportation funding.
Recent P3s in the United States already have yielded increased competition (particularly for technically challenging projects and those too large for conventional surety bonding), substantial financing,
upgraded technology, thousands of jobs and the promise of higher service standards—all while meeting Federal mandates regarding labor practices, Buy America, civil rights and other social equity goals.
The term P3 is used here to refer to the implementation of projects using private capital that is directly
at-risk for the cost, development and long-term performance of the project through a turn-key design build-finance-operate-maintain contract (DBFOM). Current P3 practices build on international experience as well as earlier domestic successes with alternative project delivery and innovative finance,
such as: Denver’s T-REX and Utah’s I-15 design-build projects; New Jersey’s Hudson-Bergen light rail
system and Minneapolis’ Hiawatha Light Rail; the Miami International Airport’s Intermodal Center;
and Seattle’s Union Station among many others.
Availability Payment-based P3s
While a number of recent domestic P3 transactions involve toll roads, the transfer of demand/revenue
risk to a private concessionaire is not inherent to a P3. Many P3s involve projects that generate no
revenues from users or inadequate revenues to cover their full cost of construction and ongoing operation. For example, in the I-595 Corridor Improvements and Express Lanes Project in South Florida, the
facility will generate user fees, but those fees are not part of the P3 arrangement (the “concession”).
Instead, Florida will set and retain all tolls, and will pay the private partner (the “concessionaire”) an
availability payment. The Port of Miami Tunnel, Presidio Parkway and Denver RTD Eagle P3s all also
involve availability payments to some extent.
The availability payment model is appropriate for projects that do not involve user fees or are not
feasible or not advisable to procure via a user-fee based concession for reasons related to policy, cost of
capital, public perception, alignment of incentives and/or profitability.
In addition to highway facilities and transit systems, availability payment P3s can be used for self-contained components of larger systems (e.g. rolling stock, vertical circulation systems, or fare collection systems). In the United Kingdom, Canada, Scandinavia and Australia, among other countries, well
over 500 projects have been initiated using availability payment frameworks, including P3s for roads,
mass transit and street lighting, as well as school buildings, hospital buildings,24 courthouses, water
and other infrastructure.
P3s don’t necessarily increase the participation of the private sector in design, construction, maintenance, or even financing—these activities are often already performed by private firms and investors. Rather P3s assign most of the responsibility and risks for integrating these diverse activities to a
unified entity (see Figure A1) under a single contract focused on long-term performance.
This encourages otherwise unrelated private parties to work together more closely and places the
project’s financiers at risk for long-term results. Lenders and equity investors finance the construction
of projects with availability payment revenue streams solely based on the expectation of earning the
future payments. This aligns their incentives with the public sector performance goals for the facility—
poor performance reduces the payment stream and places their expected returns at risk. For example,
since payments begin when the construction phase is completed, a delay could reduce the number
of availability payments received over the course of the concession period. Similarly, investors closely
monitor performance during operations in order to avoid reductions in the availability payment for failures to adhere to agreed service levels.
24 Under these international availability payment frameworks, the schools or hospital buildings are procured as P3s, while the
teaching and medical services are provided by public servants.
42 | Center for Excellence in Project Finance: Conference Report
The availability of a facility is generally defined in several ways. “Pure availability” requires the asset,
or a section of the asset, to be open, functioning and unobstructed, permitting full use by the public.
Measures of “constructive availability” go further, evaluating the extent to which the asset, or a
section of the asset, is meeting key performance indicators including safety and quality criteria specified in the contract. For example, in the case of a tunnel, the tunnel must be open and the lanes must
be passable (pure availability), but the facility must also be clean, safe, well-ventilated, properly lit,
etc. (constructive availability).
If the concessionaire fails to meet the pure or constructive availability requirements, the payment
for the given year is reduced by a pre-determined formula taking into account the duration, time-of day, and severity of the failure. Persistent problems lead to contract termination. In many cases, this
approach provides the public owner with stronger metrics and management tools to assure a high
quality service than typically applied to services they self-perform.
Availability payment deal structures offer a number of other important benefits, including:
W The ability to implement a project today and only begin paying for it once it enters service;25
W Guaranteed, long-term budget certainty for the public owner (payments will never exceed the
maximum 100 percent availability level);
W A long-term, assured standard of service (with payments reduced when something goes wrong);
W Maintenance and future capital renewal and replacement that are fully funded, typically leading to
lifecycle cost efficiency;
W The public partner maintains complete control over user fees, if any, and because the payments to
the private partner are not subject to demand risk, there is:
_ Enhanced feasibility and a lower cost of capital;
_ Curtailed opportunity for an unexpected private sector windfall; and conversely
_ Less risk of bankruptcy (when demand is below expectation).
Reconsidering User Fee-based Concessions
Availability payments are not appropriate in all cases, particularly when the public sector counterpart
cannot provide a strong, creditworthy commitment to make the future payments, or when demand for
the project will be strongly linked to the concessionaire’s management decisions. In these cases, user
fee concessions can be preferable. However, there has been strong public emotion about user fee-based
(or “revenue risk”) concessions. Financial market risk aversion in recent years also has impaired the
feasibility of concessions involving revenue risk transfer and resulted in higher and more costly levels of
private equity investment.
Substantial public effort also has been invested in trying to find ways to determine the “fair” valuation
of future toll revenue. To the extent making large investment choices contingent upon even “investment grade” traffic and revenue forecasts can be avoided, public confidence in decision-making will
be enhanced. Events have shown that forecasts are rarely accurate and highly leveraged bets can go
spectacularly right or wrong leading to windfalls and bankruptcies.
For several clients we are examining transaction structures involving variable length concessions that
set firm targets for expected gross revenues through a competitive process. If traffic and revenue is
more favorable than forecast, the concession terminates earlier and, if reality proves less favorable,
the concession can be extended until the agreed targets are achieved. At the same time, if the public
decides to terminate the concession for any reason, the compensation is simply the difference between
the agreed targets and the amounts collected to date. We believe a “present value of revenue”
25 Provided that the commitment of the procuring agency to pay the availability payments over the long term must be legally
certain and sufficiently credit worthy for equity investors and their lenders to participate in the contract and provide attractively priced financing.
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 43
approach could yield a favorable cost of capital and greater transparency. These concepts have been
proven in other countries and testing in the United States may be timely.
In addition, the most recent U.S. revenue-risk concessions include revenue sharing arrangements that
will also help to mitigate many concerns. However, these arrangements must be set transparently in
order to avoid “gaming” and to maintain public confidence.
However, communities also should not view revenue-based P3s as a way to finance or fund projects
that fall outside of revenue forecasts—that somehow the private sector will invest the resources to
allow marginal or otherwise uneconomic projects with strong political constituencies to advance.
Financing Tools and Opportunities
In this time of constrained and volatile markets, the tool kit for financing surface transportation should
be diverse and flexible enough to allow states and localities to use the most efficient and appropriate
forms of contracting for each given project.
The more financing tools and flexibility states and localities have available, the greater the opportunity
to devise efficient finance and project delivery arrangements suited to the characteristics of individual
projects.
From a Federal perspective, any project developed with the proceeds of tax-exempt, municipal debt or
Build America Bonds enjoys a Federal subsidy, while P3s involving equity and private debt generate
tax revenue for the Treasury at the expense of state and local governments and/or toll payers. Private
Activity Bonds (PABs) and the TIFIA and RRIF credit programs help mitigate this distortion. However,
limitations in these programs have reduced their utility relative to the demand (from both private and
public sector borrowers) while new applications for them have arisen.
Federal Credit Programs. Of 39 projects submitting letters of interest for FY2010 TIFIA loans (not
grants), only four were invited to apply; almost $35 billion of projects we passed over. Amidst the
current financial market turbulence many publicly and privately-financed projects are challenged by
reduced liquidity in conventional markets. TIFIA also proved to be a critical success factor in achieving
financial close when the financial markets were disrupted in the aftermath of the Lehman bankruptcy.
As conditions in the capital markets hopefully continue to stabilize, TIFIA’s role may become less
important. Today, due to the global flight of investors to quality, the taxable TIFIA/RRIF interest rate
is often lower than a tax-exempt AAA municipal borrowing rate. When this relationship reverses,
demand for Federal credit programs may slacken. However, TIFIA, RRIF and other potential Federal
lending programs will always remain critical counter-cyclical tools that should be adequately funded,
and administered consistently and transparently.
Private Activity Bonds. By approving $15 billion of transport Private Activity Bond (“PAB”) capacity
and subsequently exempting these bonds from the Alternative Minimum Tax (AMT), Congress created
an important new tool for transportation financing. Capital market disruption precluded the use of
PABs to the extent hoped, but we have now seen issuances for several major projects. Going forward,
expansion of the PABs capacity and continuation of the AMT exemption are important to meet the
growing need.
Build America Bond PABs. The successful Build America Bond program should be expanded to PABs,
creating a “BAB-PAB”. This type of credit instrument offers an opportunity for commercial banks,
pension funds, foreign investors and the broader market for BABs to provide competitively priced
debt for infrastructure projects. Many of these entities cannot benefit from and/or hold tax-exempt
Private Activity Bonds, but possess considerable expertise in the realm of transportation infrastructure
finance. The introduction of such an instrument would increase liquidity for infrastructure investment,
bear little or no additional cost to the Treasury over “regular” tax-exempt Private Activity Bonds, and
44 | Center for Excellence in Project Finance: Conference Report
could reduce the appetite for TIFIA and RRIF loans over the long-term by allowing private lenders to
“compete” more effectively with the Federal credit programs.
These expert lenders are able to understand complex infrastructure transactions, not only providing
liquidity but stronger diligence and oversight – functions that banks offer and were also previously
performed by monoline bond insurers. They also can lend to projects on a draw-down schedule (like
TIFIA and RRIF) that avoids the “negative carry” resulting from escrowing bond proceeds, which, in
turn, reduces financing costs and the Federal subsidy. BAB-PABs would lower the cost of financing
now indirectly borne by states such as Florida on projects like the Port of Miami Tunnel and I-595. A
sample bank loan that today bears a seven percent interest rate would have an effective rate under
five percent if it were executed through a BAB-PAB.
Tax Treatment of P3s. In the future, Congress also may wish to seek comment on and potentially clarify the tax treatment for equity returns from availability payment and other forms of P3s. As it stands,
investors in concessions involving availability payments, variable length concessions or concessions
with significant revenue sharing may face greater tax uncertainty and less favorable treatment than
investors in pure, revenue risk arrangements.
Conclusion
Continuing and growing Federal appropriations that are matched at the state and local levels by
appropriations and user fees will be needed to meet the transport infrastructure needs of the country.
However, in many, but not all cases, P3s can help deliver, finance, operate and maintain large, essential projects in order to get more value for the money and higher levels of service for the public. Well-designed P3 contracts can improve project efficiency, provide financing flexibility, increase life cycle
cost certainty, assure maintenance standards are met and improve schedule and budget adherence.26
Various forms of P3s, and particularly availability payment based P3s, can play an increasingly valuable role in the delivery of major surface transportation projects. It is important to provide the tools
needed to efficiently finance them – as well as to track and promulgate lessons learned from experimentation as the first generations of P3 projects advance through construction and into operation. 
 THE ROLE OF SUSTAINABLE DEVELOPMENT IN
SUSTAINING TRANSPORTATION
W Scott Polikov, Principal, Gateway Planning Group, Inc.
Modern transportation funding began with the Eisenhower Interstate System. Financing was intended to be based on tolling, but at the time, tolling technology required frequent stops.
Instead, a national gas tax was imposed. This effectively de-linked price and cost: the price paid by
drivers for specific facilities (roads) from the cost of building and maintaining those facilities.
The Interstate System provided the world unprecedented access to the American market, and likewise
provided all Americans access to the world’s economies. Fiscally, the gas tax could sustain the interstate distribution system as long as three conditions were present: (1) periodically raising the gas tax
to keep pace with inflation; (2) the total vehicle miles traveled by the public continually increased; and
(3) fuel efficiency did not appreciably increase (thus lowering the amount paid by drivers per mile). By
2007, all three conditions had failed, hastening the collapse of the highway trust fund.
26 A study on P3s in the UK found 22 percent of such projects had cost overruns vs. 73 percent of traditionally procured
construction projects (National Audit Office, PFI: Construction Performance. London, UK: Stationary Office, 2003), with the
P3 overruns primarily arising from owner changes. A similar study on P3 projects in Australia found P3s were completed
3.4 percent ahead of schedule on average, with no significant cost overruns as compared to traditional projects, which
were completed 23.5 percent behind schedule on average and were AU$673mil over budget for the AU$4.9bil in traditional
projects studied (The Allen Consulting Group, Performance of PPPs and Traditional Procurement in Australia, Melbourne,
Australia: The University of Melbourne, 2007).
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 45
A far worse problem than fiscal unsustainability is the undermining of the interstate system’s chief
outcome, the efficient distribution of goods that has been the basis of our economy. Metropolitan
commuter traffic congestion has slowed goods movement and is decreasing economic productivity—
and doing so at just the moment in history when other economies are challenging America’s lead in
productivity. Interstate congestion is the direct result of Post-WWII development patterns: the unintended use of the U.S. Highway System as a means of intra-regional movement between single-use
residential and commercial destinations. This was made possible by the de-linking of transportation
planning and land development planning.
Transportation funds are appropriated based on need, which is putatively defined as relieving congestion. Congestion is often caused by inefficient development patterns. Thus, the more inefficient local
development is, the more funds are allocated to that area—ironically reinforcing failure. In this context,
the development of large-scale residential subdivisions, retail malls and employment centers—all
disconnected from one another—would not have been possible if the interstate system had not provided a subsidized means of movement for individuals.27
This subsidy is funded in large part by those who pay the gas tax while driving on city roads that
currently do not receive Federal funding. Thus, the great irony: over a period of 50 years, city dwellers
have literally paid for the road of exodus for people and wealth from our cities. And in the process, this
dynamic has greatly suppressed the efficient movement of goods from city to city on the U.S. Highway
System. For the United States to remain globally competitive, the efficient movement of goods is necessary. This is not possible under the current twin de-linking: (1) cost from price, and (2) transportation
planning from development patterns.
Understandably, developers have profited by purchasing inexpensive land far away from city centers
linked by roads subsidized by the American taxpayer. This particular development pattern—wherein
highways are used for daily routines—quickly devours highway capacity and creates demand for
continual lane-mile expansion that is not fiscally sustainable. Accordingly, development patterns must
heretofore be disciplined by interconnected street networks with multimodal capacity (i.e., rail transit,
bus, cycling, walking) in order to cease reinforcement of failure caused by the dendritically configured
regional transportation design and the related single-use development patterns.
Interconnected transportation facilities—roads and rail—can generate profitable adjacent development, especially when coupled with town planning practices encouraging walkable urbanism and
convenient access to transit. However, the land development wealth created by those facilities generally will not be used to help finance the facility, especially when those facilities are not designed in
a manner to maximize and sustain long-term adjacent development patterns and resulting value.
Combining transportation design and town planning, can serve to (1) finance funding gaps for specific
transportation projects; (2) ensure that development patterns are sustainable; and (3) generate longterm revenue for local governments.
This Value Capture Approach is a type of public-private partnership. The public side is the transportation facility owner. It uses the public process to define the need for a given facility, and uses its powers
to acquire the right-of-way. Its goal is to further the public’s interest by maximizing all four attributes
of transportation: connectivity, access, social good and economic vitality. Using its knowledge of
markets, the private side designs the transportation facility and defines land development patterns in
a manner that furthers the public purpose: neighborhood integrity and economic opportunity—all in a
sustainable manner, economically and environmentally.
27 In general, the cost of travel in suburban sprawl development patterns is roughly ten times the price individuals pay in
gas taxes: drivers pay about 2 cents/mile on roads that cost 20 cents/mile to build and maintain. These average figures
were determined by TxDOT analyzing the level of roadway subsidy per car per mile for a typical state highway in Texas in
response to a request by Mike Krusee while he served as Chairman of the House Transportation Committee of the Texas
Legislature.
46 | Center for Excellence in Project Finance: Conference Report
For redevelopment, financing is needed for facility redesign. Roads built strictly for mobility—or those
widened over time to accommodate increasing traffic without regard to adjacent context—can be redesigned to generate redevelopment opportunities for the adjacent private properties. Complemented
with a form-based walkable context, the concomitant redesigns of road and property serve to catalyze
one another. Thus, unrealized future revenue streams can be monetized to finance redesign and reconstruction, all while creating a sustainable pattern of development.
For Greenfield projects, the value capture approach is particularly beneficial when combined with
a concession-based tolling model. Toll financing is based on traffic-and-revenue (T and R) studies;
i.e., monetizing the future toll revenue paid by drivers. It does not, however, capture the surrounding
increased property value made possible by the road itself. This approach seeks to partner with both
local government jurisdictions and property developers to monetize unrealized revenue in tax streams
and land development profits. This approach also increases the concession’s value and provides the
public with an income-producing asset rather than a future liability. It can also provide additional efficiencies to fund transportation across modes in a regional multimodal system.
In this context, Reauthorization could support a more sustainable funding environment by:
W Incentivizing DOTs and MPOs to allocate Federal funds to transportation facilities that support
sustainable development patterns rather than simply “reducing” congestion
W Allowing for the flexing of Federal funds to support “off system” street networks that improve the
efficiency of development patterns and, as a result, value capture for regional transportation
W Providing prioritized funding to Regions that facilitate investment linkages among interconnected
streets, transit, housing and employment, and walkable mixed-use neighborhoods in both urban
and suburban locations 
 VALUE CAPTURE
W David Levinson, Associate Professor and RP Braun/CTS Chair of Transportation, University
of Minnesota (based on work with Jerry Zhao, Adeel Lari, and Michael Iacono)
Large public investments in transportation infrastructure—such as a new freeway interchange or transit station—can increase the value of adjacent private land, sometimes substantially.
Capturing the value of this benefit through various tools is gaining interest as a finance mechanism
for infrastructure investments. But many questions remain: Does “value capture” promote or hinder
economic development? How does it affect different segments of society? Is the revenue substantial,
stable, or predictable? How feasible is adoption and implementation?
Transportation and Value Creation
Accessibility to desired destinations by customers and employees tends to play a major role in location
decisions and, therefore, drives up the value of land in highly accessible locations. Convenient transportation facilities, depending on use, can come in the form of highway interchanges, public transportation lines or stations, and freight rail facilities.
Increases in the capacity of each transportation mode in response to rising demand lead to increases
in land value, whereas allowing congestion to worsen leads to declining values.
From Value Creation to Value Capture
A general principle sometimes referred to as the “benefit principle,” holds that systems are more efficient if their costs and benefits are better related to each other. Given this principle, the long-used gas
tax would seem like a reasonable funding source, given the assumption that transportation benefits are
proportional to vehicle operations (and vehicle operations are proportional to gasoline consumption).
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 47
However, in addition to creating benefits for travelers, transportation improvements also create value
for owners and developers of nearby property in the form of higher land values and/or property prices,
or enhanced development opportunities. In order to better conform to the benefit principle, a portion of
these gains could be recovered to help fund transportation improvements. This is “value capture.”
Value Capture Policy Evaluation and Implementation Considerations
The paper considers each of eight value capture techniques in relation to economic efficiency, equity,
sustainability, and feasibility.
Land Value Tax (LVT). Rather than being assigned to a specific project, land value taxes more generally capture the value created by the provision of public goods, including the accessibility afforded
by transportation networks. A tax on land would be preferred to a tax on buildings, as the former
would result in less economic distortion due the fixed supply of land. A pure tax on land is possible,
though rarely used. While land value taxes are desirable from the standpoint of economic efficiency
and sustainability, they would most likely be slightly regressive in terms of ability-to-pay. Further, land
value taxes may prove politically challenging due to high visibility and potential unpopularity.
Tax Increment Financing (TIF). Tax increment financing uses taxes levied on the increment in property value within a development to finance development-related costs. Tax increment financing is most
commonly used by local governments to promote housing, economic development, and redevelopment
in established neighborhoods. Tax increment financing has been used, however, in some instances to
finance transportation projects. The paucity of evidence on the effectiveness of TIF districts for transportation purposes makes it difficult to evaluate the efficiency of this tool. Evidence from Chicago
suggests that, in certain cases, the increment in property value that can be captured from a transportation improvement may be large, though this case involved some unique circumstances (e.g., a heavy
rail system in a very dense, central city area). While TIF districts may promote benefit equity, they may
raise some unique issues related to geographic equity, as some overlapping jurisdictions (e.g., school
districts) often do not share in the benefit from a TIF district. TIF districts may be limited to specific
Beneficiaries
Transportation improvements create benefits for three groups of beneficiaries:
W The general public, which benefits from broad economic and social returns. Such benefits create a rationale
for use of general fund financing. Because the growth of the general tax base occurs through the life cycle
of a transportation facility, the corresponding general fund revenues are suitable for both initial capital
costs and ongoing operations and maintenance (O&M) costs.
W Transportation users, who benefit from reduced travel times and enhanced safety. Such benefits create a
rationale for the use of gas taxes, mileage charges, vehicle sales and property taxes, wheelage charges,
tolls, and transit fares. Typically, users receive the bulk of the benefits through the use of facilities,
indicating that these types of charges may be assigned to users to cover most (O&M) costs.
W Property owners and developers, who benefit from increased property values generated by transportation
improvements. Such benefits create a rationale for the use of value capture policies such as land value
taxes (LVT), tax increment financing (TIF), special assessments (SA), transportation utility fees (TUF),
development impact fees (DIF), negotiated exactions, joint development (JD), and air rights. For these
beneficiaries, value gains are mostly realized upon the completion of transportation projects; therefore,
these strategies may be used more often for capital costs.
While multiple value capture policies can be applied simultaneously, the total level of value capture cannot
exceed the total benefits derived from a transportation improvement. Otherwise, the financial instruments
would negate the economic rationale for development.
48 | Center for Excellence in Project Finance: Conference Report
projects and one-time capital costs. TIF districts may be politically feasible, as they are perceived to
promote projects that “pay their own way.”
Special Assessments (SA). Special assessments impose charges on property owners near a new or
improved transportation facility based on geographic proximity or some other measure of special
benefit. Various methods have been used to determine which properties receive special benefit and
how to allocate charges among these beneficiaries. Some of these methods include measurement of
distance from an improved facility, property frontage adjacent to an improved facility, and property
acreage. Special assessments generally promote economic efficiency and equity along several dimensions. However, given the location-specific nature of the mechanism, the amount of revenue generated
in each instance is relatively small and limited in use to initial capital costs. Political feasibility may be
an issue with special assessments, as they are highly visible to affected property owners
Transportation Utility Fees (TUF). Transportation utility fees derive from the notion that transportation networks can be treated like a utility, similar to other local services such as water and wastewater
treatment, which are financed primarily from user charges. Transportation utility fees are assessed on
characteristics more closely related to transportation demand than property taxes, which currently
account for a large share of local transportation revenues. Utility fees have the potential to improve efficiency by shifting the cost burden from residential to commercial and industrial properties, which tend
to consume more transportation services than their relative tax contributions would imply. In principle,
transportation utility fees could help promote equity, but only if a link can be established between the
various characteristics that form the basis of utility fees and the value of the benefits received from
consumption of transportation services, a link that in the past has not been strongly established. The
revenue from transportation utility fees would be relatively stable, as the demand for travel is not terribly sensitive to cyclical economic trends. Transportation utility fees are politically feasible, as shifting
the cost burden to non-residential properties would most likely be popular among existing residents of
a jurisdiction. Enforcement of utility fees may prove difficult, as it would be hard to deny transportation
services to a delinquent property owner.
Development Impact Fees (DIF). Development impact fees are one-time charges collected by local
governments from developers for the purpose of financing new infrastructure and services associated
with new development. They are similar to negotiated exactions in that they are charged primarily to
new development to help recover growth-related, public service costs, but differ in that impact fees
can be levied for off-site services, such as local roads, schools, or parks. The efficiency of impact fees
can be established to the extent that they pass along the marginal costs of land development, including the provision of transportation infrastructure, to the primary beneficiaries. Impact fees promote
benefit equity, but may have other undesirable equity effects if developers cannot recover the costs
associated with impact fees and are forced to abandon low-and moderate-income segments of the
housing market. Impact fees are not a primary source of revenue for transportation in most jurisdictions, but can help finance the share of transportation budgets attributable to new development. They
are also aided by the fact that they are politically and administratively feasible.
Negotiated Exactions. Negotiated exactions are functionally similar to development impact fees, with
the exceptions that they are not determined through a formal, formulaic process and are typically not
applied to off-site infrastructure provision. Exactions can take the form of in-kind contributions to local
road networks, parks, or other public goods as a condition of development approval, or can be requested in the form of in-lieu fees. Exactions generally promote economic efficiency and social equity. In
most cases, negotiated exactions should be seen as a supplemental source of revenue, rather than a
large-scale replacement for more traditional sources of revenue. Negotiated exactions are generally
politically feasible, as they are seen as a way to make new residents “pay their own way.”
Joint Development (JD). Joint development, as typically applied in discussions of value capture, refers
to the spatially coincidental development of a transportation facility (e.g., a public transit station) and
adjacent private real estate development, where a private sector partner either provides the facility or
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 49
makes a financial contribution to offset its costs. The term “joint development” could also be used to
refer to jointness in timing of development or ownership of transportation infrastructure, though for the
purposes of this report, the above definition is used to refer to various forms of cost-sharing or revenuesharing arrangements. JD arrangements generally promote efficiency, as the voluntary nature of the
transaction ensures that the expected benefits of the private sector partner exceed the cost (or share of
costs) of the transportation improvement that he or she anticipates. This characteristic also promotes
benefit equity among participants. Since the nature of JD arrangements is often location-specific, the
tax base is rather narrow and the amount of revenue generated is relatively small. Joint developments
are often politically feasible, due to their narrow impact, but entail a higher degree of administrative
complexity.
Air Rights. Air rights are a form of value capture that involves the establishment of development rights
above (or in some cases below) a transportation facility that generates an increment in land value.
Air rights agreements promote efficiency to the extent that the increment in land value generated by
the facility exceeds the cost of its development. The sale of air rights may also promote benefit equity,
since the costs of a transportation improvement can be allocated more proportionally among non-user
beneficiaries. Similar to joint development, air rights agreements tend to provide a narrow tax base
and a relatively small amount of revenue, though they can provide some or all of the initial capital costs
of a specific project. The narrow scope of impact of air rights projects indicates that they should be
politically feasible, though they share some of the administrative complexities associated with joint
development arrangements. 
 EXAMINING OPTIONS FOR IMPLEMENTING
MILEAGE-BASED USER FEES
W Paul Sorenson, Operations Researcher, RAND Corporation
In recent decades, Federal and state excise motor fuel taxes have not been raised often
enough or with sufficient magnitude to offset the combined effects of inflation and improved fuel
economy, leading in turn to growing highway revenue shortfalls. Looking forward over the next several
decades, the expected introduction of more efficient conventional vehicles along with alternative fuel
vehicles dim the prospects for continued reliance on gasoline and diesel taxes to provide enough funding for constructing and maintaining the nation’s highway system.
Against this backdrop, many have suggested shifting to a system of highway user fees based on
vehicle miles of travel (VMT fees) rather than fuel consumption (see, for example, the National Surface
Transportation Infrastructure Finance Commission report, Paying Our Way).28 While VMT fees would
still need to be indexed or periodically increased to account for inflation, they would be unaffected by
fuel economy or fuel type and should thus provide a more sustainable source of highway revenue in
the coming years. VMT fees might also be structured to vary with certain vehicle or travel attributes
to help reduce traffic congestion, harmful emissions, and excessive road wear (e.g., by charging higher
per-mile fees for peak-hour travel in congested corridors or lower per-mile fees for lower emissions
vehicles). Additionally, a VMT-fee system might supply a rich source of (anonymously reported) travel
data to support improved planning and operational management, and the in-vehicle metering equipment could accommodate many additional value-added services (e.g., pay-as-you-drive insurance,
automated payment of parking fees, traveler safety alerts, routing assistance, and the like).
As explored in a recent NCHRP study, Implementable Strategies for Shifting to Direct Usage-Based
Charges for Transportation Funding, a range of technical options for implementing VMT fees would be
possible.29 At the simple end of the spectrum, motorists might be required to submit to annual odom28 National Surface Transportation Infrastructure Finance Commission (2008). Paying Our Way. http://financecommission.dot.gov/
29 Sorensen et. al. (2009) “Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding.”
Contractor’s Final Task Report for NCHRP Project 20-24(69).
50 | Center for Excellence in Project Finance: Conference Report
eter inspections as a basis for levying annual fees. At the opposite extreme, it would be possible to
equip vehicles with sophisticated GPS-based metering devices capable of levying and apportioning
fees based on the jurisdiction, route, and time of travel. There are also multiple options for collecting
fees, preventing evasion, and protecting driver privacy. Broadly speaking, the alternative mechanisms
for implementing VMT fees present tradeoffs in terms of metering capabilities (and in turn the ability
to support policy goals beyond revenue collection), cost to implement and operate the system, administrative complexity, and public acceptability.
The results of recent mileage-based user fee pilot projects conducted by the Oregon Department of
Transportation, the Puget Sound Regional Council, and the University of Iowa, along with similar operational deployments in several European nations and New Zealand, demonstrate the general feasibility of implementing VMT fees at the Federal or state level. Yet planning and executing a transition from
fuel taxes to VMT fees would be extremely complex, involving numerous technical, financial, institutional, and political uncertainties. Examples include the types of fee structures that the system would
be intended to support (e.g., flat per-mile fees vs. fees that vary by jurisdiction or by route and time of
travel), the cost required to develop and operate the various possible implementation approaches at
scale, appropriate roles for public and private sector participants in implementing and administering
the system, and the prospects for building public support for a shift to VMT fees.
To further assess and prepare for a possible transition to VMT fees in the coming years—that is, to
determine whether such a transition would be desirable, whether it would be acceptable to the public,
and how to develop the system in the most cost-effective manner—it would be important to resolve
such uncertainties. The aforementioned NCHRP report suggested five complementary activities that
could be helpful in this regard: planning and policy guidance, analytic studies, targeted research and
development support, expanded system trials, and education and outreach. In a follow-on NCHRP
study currently in the final stages of review, the research team was asked to further elaborate on the
types of system trials that would be helpful to conduct toward this end. In broad strokes, the approach
in the follow-on study was to identify the range of issues that might be helpful to explore in trials and
then solicit the perspectives of stakeholders and subject matter experts on how to design the trials to
address the most critical uncertainties.
An overarching insight that emerged from the study is that the appropriate structure for the trials
would depend in part on the envisioned pathway for the transition to VMT fees. Would, for example,
VMT fees first be implemented by the Federal government or instead by individual (or groups of
adjacent) states? And would the transition rely solely on a mandated adoption process (e.g., requiring the installation of VMT metering devices with new vehicle purchases) or instead include an initial
period of incentivized voluntary adoption to build confidence in the system and foster a greater degree
of public acceptance. Recognizing that such questions could influence the set of issues that would
be helpful to examine in the trials, the research outlined three possible frameworks for organizing the
trials to support different implementation pathways: (a) helping states develop their own VMT-fee
systems; (b) examining the issues involved in developing a national system of VMT fees; and (c) fostering a market for in-vehicle metering devices that would support VMT fees along with a host of valueadded services with the aim of providing functionality that would motivate voluntary adoption.
The research then addressed, in greater specificity, how the trials might be organized under these
three alternate frameworks. For certain issues the details would vary from one framework to the next,
but there would also be considerable commonality. Highlights of the options for designing and executing the trials that emerged from the research include:
W Funding for participation in the trials would be awarded through a competitive process to a small
number of perhaps four to six states.
W To examine the full range of functionality required to implement and operate a system of VMT fees
(e.g., including the collection of actual revenue along with strategies to detect and prevent fee
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 51
evasion), the trials would last on the order of four to six years, including one to two years of planning
and preparation, two to three years of active trials, and an addition year for post-trial evaluation.
W To evaluate the feasibility and cost of alternate implementation mechanisms at scale, the trials
would include at least tens of thousands of participants (e.g., perhaps ten to twenty thousand per
state, and fifty to a hundred thousand in total).
W The trials would likely cost on the order of $2,000 to $4,000 per participant. Assuming fifty to a
hundred thousand participants in total, the cost over the duration of the trials might fall in the
range of $100 million to $400 million. 
52 | Center for Excellence in Project Finance: Conference Report
W AASHTO. American Association of State Highway and Transportation Officials
W ACTA. Alameda Corridor Transportation Authority
W AMT. Alternative Minimum Tax
W ARC. Access to the Region’s Core
W ARRA. American Recovery and Reinvestment Act of 2009
W ARS. Alliance for Regional Stewardship
W BAB. Build America Bonds
W DBFOM. Design-Build-Finance-Operate-Maintain
W DIF. Development Impact Fee
W FHWA. Federal Highway Administration
W FRA. Federal Railroad Administration
W HOT. High Occupancy Toll
W HTF. Highway Trust Fund
W JD. Joint Development
W LVT. Land Value Tax
W NASA. National Aeronautics and Space Administration
W NCHRP. National Cooperative Highway Research Program
W NIB or iBank. National Infrastructure Bank
W NSTIFC (Financing Commission). National Surface Transportation Infrastructure
Financing Commission
APPENDIX B—LIST OF ACRONYMS
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 53
W PAB. Private Activity Bonds
W PPP or P3. Public-private Partnership
W O&M. Operations and Maintenance
W OPEC. Organization of Petroleum Exporting Countries
W QTCB. Qualified Tax Credit Bonds
W RRIF. Railroad Rehabilitation and Improvement Financing
W RTD. Regional Transportation District (Denver, CO)
W SA. Special Assessment
W SAFETEA-LU. Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users
W SIB. State Infrastructure Bank
W STAA. Surface Transportation Authorization Act of 2009
W TIF. Tax Increment Financing
W TIFIA. Transportation Infrastructure Financing and Innovation Act
W TUF. Transportation Utility Fee
W USDOT. United States Department of Transportation
W VMT. Vehicle Miles Traveled
54 | Center for Excellence in Project Finance: Conference Report
W Sirat Attapit, Rep. Xavier Becerra
W Sharon Barkeloo, House Committee on Transportation & Infrastructure
W Jack Basso, AASHTO Center for Excellence in Project Finance
W Ellen Beares, Senate Appropriations Committee
W Rep. Earl Blumenauer, U.S. House of Representatives
W Tom Boast, FirstSouthwest
W Deborah Brown-Davis, Federal Highway Administration
W Thomas Bulger, Government Relations Inc.
W David Burwell, Carnegie Endowment
W Homer Carlisle, American Public Transportation Association
W Strat Cavros, American Association of State Highway and Transportation Officials
W Winnie Chang, Senate Budget Committee
W Lowell Clary, P3 Development Company
W Gregory Cohen, American Highway Users Alliance
W Allison Dane Camden, House Transportation and Infrastructure Subcommittee on
Highways and Transit
W Glenn Deitiker, Telvent Caseta
W Nicholas Devereux, Sen. Mark Warner
W Mort Downey, PB Consult
W Stephen Finnegan, Auto Club / Mobility 21
W John Fischer, Congressional Research Service
W Griffin Foster, Rep. Judy Biggert
W Wendy Franklin, AASHTO Center for Excellence in Project Finance
W Sue Gander, National Governors Association
W Laurie Garrow, Georgia Institute of Technology
W Jane Garvey, Meridiam Infrastructure
W Yoav Hagler, America 2050
W Paul Hanley, University of Iowa
W Patrick Hatch, House Appropriations Committee
APPENDIX C—LIST OF PARTICIPANTS
THE FORUM ON FUNDING AND FINANCING
SOLUTIONS FOR SURFACE TRANSPORTATION IN
THE COMING DECADE CONFERENCE REPORT
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 55
W JayEtta Hecker, Bipartisan Policy Center
W Alex Herrgott, Senate Environment and Public Works Committee
W John Horsley, American Association of State Highway and Transportation Officials
W Ryan Hosie, Rep. Chris Lee
W Susan Howard, North Carolina Department of Transportation
W Kylah Hynes, New York State Washington Office of the Governor
W Clint Jordan, Mitsui & Co (USA), Inc.
W Matthew Kelly, Amtrak
W Robert Kirk, Congressional Research Service
W Sarah Kline, Reconnecting America
W Todd Kohr, House Transportation Committee
W Joung Lee, AASHTO Center for Excellence in Project Finance
W David Levinson, Department of Civil Engineering, University of Minnesota
W Richard Little, Keston Institute for Public Finance and Infrastructure Policy, University of Southern
California
W Deron Lovaas, Natural Resources Defense Council
W Caroline Macheska, American Society of Civil Engineers
W William Mallett, Congressional Research Service
W Bud McDonald, AASHTO Center for Excellence in Project Finance
W Ryan McGinness, Nevada Washington Office
W Rep. John Mica, U.S. House of Representatives
W Kevin Mills, Rails to Trails Conservancy
W Billy Moore, Transportation Transformation Group
W Edward Mortimer, URS Corporation
W Richard Mudge, Delcan Corporation
W Lee Munnich, Humphrey Institute of Public Affairs, University of Minnesota
W Nathan Musick, Congressional Budget Office
W Peter Nonis, AAA
W Kerry O’Hare, Building America’s Future
W Ken Orski, Innovation Briefs
W Sean O’Shea, Building America’s Future
W Mike Parker, Jeff Parker and Associates
W David Parkhurst, National Governors Association
W Laura Perrotta, American Traffic Safety Services Association
W Mark Pisano, School of Policy, Planning, and Development, University of Southern California
W Scott Polikov, Gateway Planning Group
W Jim Preusch, Alameda Corridor Transportation Authority
W Marnie Primmer, Mobility 21
W Sarah Puro, Congressional Budget Office
W Zachary Radford, Sen. Jon Tester
W Gov. Edward Rendell, Commonwealth of Pennsylvania
W Alex Renjel, Senate Environment and Public Works Committee
W Christine Riffle, Rep. Lummis
W Darrin Roth, American Trucking Associations
W Kathy Ruffalo, Ruffalo and Associates, LLC
W Phil Russell, Lochner
W Melissa Savage, National Conference of State Legislatures
W Joshua Schank, Bipartisan Policy Center
W Paul Schmid, Sen. Tom Carper
W David Seltzer, Mercator Advisors
W Lilly Shoup, Transportation for America
56 | Center for Excellence in Project Finance: Conference Report
W Meredith Slesinger, American Public Transportation Association
W Paul Sorensen, RAND Corporation
W Kristina Swallow, Sen. Tom Udall
W Eric Swedlund, Gov. Arnold Schwarzenegger
W David Thornburgh, Fels Institute of Government, University of Pennsylvania
W Darren Timothy, Federal Highway Administration
W Petra Todorovich, America 2050
W Kimberlee Trzeciak, Rep. John Dingell
W Shin-pei Tsay, Carnegie Endowment for International Peace
W Jim Tymon, House Transportation Committee
W Alan van der Hilst, Congressional Budget Office
W Mitch Warren, Senate Banking Committee
W Tim Warren, Sen. Bernard Sanders
W Brian Watson, AASHTO Center for Excellence in Project Finance
W Hank Webster, American Road and Transportation Builders Association
W Anne Wingate, The Brookings Institution
W Sen. Ron Wyden, U.S. Senate
W Geoff Yarema, Nossaman LLP
W Robert Yaro, Regional Plan Association
W Shirley Ybarra, Reason Foundation
W Jessica Yearous, Sen. John Thune
W Erika Young, National Association of Regional Councils
W Eric Zulkosky, Sen. Mike Johanns
Funding and Financing Solutions for Surface Transportation in the Coming Decade | 57
AASHTO Center for Excellence in Project Finance
444 North Capitol Street, NW, Suite 249
Washington, DC 20001
www.transportation-finance.org
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