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Vol. 17, No. 1; Jan/Feb 2006

January/February 2006

The Challenge Ahead: Looking Beyond SAFETEA-LU

Unlike several past authorizations whose primary objective was to grow the program, the next bill will have to tackle some tough policy issues. These include, first, finding new sources of revenue to supplement the eroding resources of the Highway Trust Fund; second, developing a long-term strategy to preserve and enhance the aging Interstate Highway System and relieve congestion on the nation’s highways; and third, formulating a meaningful national transportation policy to guide infrastructure investment in the years ahead.

This last challenge, in our judgment, is particularly important. There is a real danger that if no clear goals for the future federal highway program are set, Congress will be tempted to continue earmarking an ever larger portion of the program. While earmarking may please local constituencies and special interest groups, it diverts badly needed resources from the states’ core programs and creates a public perception that the federal-aid program is a grab bag of pork barrel projects. Unless we succeed in changing this perception, public support for the highway program will erode, and any hope of increasing federal financial support (whether in the form of a gas tax increase or some substitute revenue measure) may evaporate.


New Transportation Visions for the 21st Century (I. Mary Peters)

As we note in a companion brief ("The Challenge Ahead"), it is not too early to start thinking about the future of the surface transportation program. Apparently the same thought has crossed the minds of various think tanks and advocacy groups, to judge by a large number of reports and conferences in various stages of preparation— all focused on the future of the federal transportation program. Congress, no doubt, has contributed to this mindset by creating a commission with a mandate to study and make recommendations concerning "the future needs of the surface transportation system." How successfully the commission will fulfil its task— and therefore what kind of a transportation policy and program the nation can expect in the years ahead— will depend in a large measure on the flow of ideas generated by the transportation community and the program’s stakeholders. In the last issue, we announced our intention to contribute to this dialogue by opening our pages to opinions and ideas from our readers. It is with great pleasure that we inaugurate this new series with a commentary by Mary Peters who until recently served with great distinction as Federal Highway Administrator. Prior to her federal appointment in 2001, Ms. Peters headed the Arizona Department of Transportation, and currently serves as the national director for transportation policy at the engineering and consulting firm HDR.


Private Toll Road Financing: Will the U.S. Transportation Community Rise to the Challenge?

Macquarie, Cintra, Transurban—these names are acquiring a familiar ring to the U.S. highway community even if they still mean nothing to the general public. All three are foreign companies  that are pioneering new approaches to highway financing, construction and operation in this country— and helping to speed up development of highway infrastructure that otherwise might have stayed on the drawing board for years to come.

The U.S. highway community is watching these developments warily, with a mixture of interest and caution. The approaches followed by the foreign firms are novel to our financiers and road contractors who have been reared in a risk-averse environment of the U.S. municipal bond market and its tax benefits. With the Highway Trust Fund providing a large and steady stream of dedicated revenue, investment banks and road builders have seen no reason to risk their own capital. While Wall Street banks help to underwrite tax-free municipal bond issues, they usually exit after raising the money without taking an equity position. Road contractors, subject to traditional design-bid-build procurement practices of state and local government, likewise have seen no benefit in placing their own money at risk. Once a road is built, state government or a public toll road authority takes over the operation and maintenance of the facility, relieving the contractor of any further responsibility— risk or gain.

Clearly, there is a need for more innovation and risk taking in toll road financing than is offered by the municipal bond market and the so-called “innovative financing” tools such as TIFIA loans and state infrastructure banks. As we rethink traditional approaches to developing road infrastructure and financing highway needs in the 21st century, we must ask ourselves:  Are there additional incentives that government could offer to encourage private risk capital to flow into highway investment? What would it take to persuade private equity funds and institutional investors to participate in toll road financing? Or are we content allowing the future of the nation’s transportation infrastructure to depend increasingly on foreign capital and the initiative of our friends abroad? 


Amtrak’s Uncertain Future

At an invitational meeting in late November hosted by the Heritage Foundation  and featuring a presentation by JayEtta Hecker, author of the GAO report, participants expressed a wide range of views. The meeting was attended by congressional staff, senior executives from Amtrak, U.S. Department of Transportation and OMB, and representatives from research institutions and the business community. Most participants agreed with Transportation Secretary Norman Y. Mineta that the status quo must not continue. “The passenger rail system in the United States today is an antique,” the Secretary said in a November 17 address before the Association for a Better New York. “The United States is not Europe or Japan. Passenger rail cannot compete with air travel in most markets in the United States. The country is simply too large; our population centers are too distant... You do not ride Amtrak from New York City to Los Angeles...or Denver...or probably even Chicago. Not when you can make the trip by air in hours, rather than days, and in most cases at a lower price.”

Attendees thought that internal reform is a necessary but not sufficient condition to make passenger rail service in the United States viable. Certain structural problems are not of Amtrak’s making and are beyond its ability to resolve. For example, what role should long distance passenger rail service play in the nation’s transportation system? What structure and organization are best suited for the provision of such service? What should be the extent of federal involvement and the use of federal resources in an intercity passenger rail system? These are questions that only Congress can answer.

Regrettably, there is little indication that Congress is inclined to address these broader policy issues. Indeed, as one participant at the Heritage Foundation meeting suggested, Congress, the railroad unions  and the passenger rail lobby are quite content with the status quo— providing Amtrak with just enough money in annual appropriations to keep the railroad from sinking into insolvency—but unwilling to abandon the concept of a continent-spanning passenger rail network with its uneconomical money-losing long distance trains. Yet, focusing on discrete high-density short- and medium-distance corridors offers the best hope of restoring Amtrak to any semblance of financial self-sufficiency.


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