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Posts from the "Infrastructure" Category

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The Indiana Toll Road and the Dark Side of Privately Financed Highways

This is the first post in a three-part series on the Indiana Toll Road and the use of private finance to build and maintain highways. Part two takes a closer look at how Australian firm Macquarie manages its infrastructure assets. Part three examines the incentives for consultants to exaggerate traffic projections, making terrible boondoggles look like financial winners.

Who owns the Indiana Toll Road? Well, as of the bankruptcy filing in September, Macquarie Atlas Roads Limited (MQA Australia), which is joined at the hip to Macquarie Atlas Roads International Limited (MQA Bermuda) on the Australian stock exchange, has a 25 percent stake. Macquarie’s investment bank arm brokers the various transactions related to ownership of the road, collecting fees on each one. Welcome to the world of privately financed infrastructure. Graphic: Macquarie prospectus

In September, the operator of the Indiana Toll Road filed for bankruptcy, eight years after inking a $3.8 billion, 75-year concession for the road with the administration of Governor Mitch Daniels.

The implications of the bankruptcy for the financial industry were large enough that ratings agency Standard & Poor’s stepped in immediately to calm nerves. In a press release, the company attempted to distinguish the Indiana venture from similar projects, known as public-private partnerships, or P3s: “We do not believe this bankruptcy will slow the growth of current-generation transportation P3 projects, which have different risk characteristics.”

But the similarities between the Indiana Toll Road and other P3s involving private finance can’t be ignored. And as we’ll see, even the differences aren’t all good news for the American public. Once hailed as the model for a new age of U.S. infrastructure, today the Indiana deal looks more like a canary in a coal mine.

At a time when government and Wall Street are raring to team up on privately financed infrastructure, a look at the Indiana Toll Road reveals several of the red flags to beware in all such deals: an opaque agreement based on proprietary information the public cannot access; a profit-making strategy by the private financier that relies on securitization and fees, divorced from the actual infrastructure product or service; and faulty assumptions underpinning the initial investment, which can incur huge public expense down the line. Though made in the name of innovation and efficiency, private finance deals are often more expensive than conventional bonding, threatening to suck money from taxpayers while propping up infrastructure projects that should never get built.

For the parties who put these deals together, however, the marriage of private finance and public roads is incredibly convenient. Investors are increasingly impatient with record-low returns on conventional bonds, and are turning to infrastructure as an asset class that promises stable, inflation-protected returns over the long run.

Meanwhile, governments are eager to fix decaying infrastructure — but without raising taxes or increasing their capacity to borrow. On the occasion of yet another meeting intended to drum up investor interest, Transportation Secretary Anthony Foxx recently wrote on the U.S. Department of Transportation’s blog: “With public investments in our nation’s important transportation assets steadily declining, we need to find better ways to partner with private investors to help rebuild America.”

Those investors are lining up to get in the infrastructure game. According to the Congressional Budget Office, about 40 percent of new urban highways in America were built using the private finance model between 1996 and 2006. Since 2008, that figure has jumped to almost 70 percent.

In an attempt to get even more deals done, the current federal transportation bill ramped up funding for the TIFIA program — which offers subsidized federal loans and other credit assistance, often to projects that also receive private backing — by a factor of eight.

Major private investors have stepped up their lobbying efforts to close more of these lucrative deals. Meridiam North America recently hired Ray LaHood, Foxx’s predecessor as Transportation Secretary, and Macquarie Group — which orchestrated the Indiana fiasco — hired away a White House deputy assistant to “continue strengthening our relationships with key elected officials… while also exploring new investment opportunities.”

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President Obama’s Hollow Push for Infrastructure Investment

With the Tappan Zee Bridge behind him, President Obama made his case for more infrastructure spending. Photo: ##https://twitter.com/TheObamaDiary/status/466676032834387969/photo/1##TheObamaDiary/Twitter##

With an old highway bridge and the cranes building its replacement behind him, President Obama made his case for more infrastructure spending. Photo: TheObamaDiary/Twitter

This afternoon, President Obama stood by New York’s Tappan Zee Bridge and made a speech pressing Congress to do something about infrastructure investment. It’s part of his Infrastructure Week push for Congress to pass a fully funded transportation reauthorization bill. Many other groups are spending this week sounding the same horn.

“If they don’t act by end of summer, federal funding for transportation projects will run out. The cupboard will be bare,” Obama said today. “Nearly 700,000 jobs will be at risk.”

“So far, at least, the Republicans who run this Congress seem to have a different priority,” he said. “Not only have they prevented, so far, efforts to make sure funding is still in place for what we’ve already got, but their proposal would actually cut job-creating grant programs that funded high-priority transportation projects in all 50 states — they’d cut ‘em by about 80 percent.”

Indeed, Obama has submitted a bill to Congress calling to increase federal transportation investment to $302 billion over the next four years. The problem is, his plan to pay for it — using what he calls “pro-growth” business tax reform and the repatriation of offshore profits — is falling on deaf ears in Congress. Advocates criticize the plan as a one-time gimmick, not a long-term funding source.

The most obvious and simple method of raising more revenue in the long run is to increase the gas tax, which hasn’t been raised since 1993 and has lost an estimated 37 percent of its purchasing power. Experts say an increase of 10 to 15 cents per gallon is needed to fill the gap in the nation’s transportation funding.

But the Obama administration has been adamant in its refusal to raise the gas tax. Though former Transportation Secretary Ray LaHood came out in favor of a 10 cent hike almost as soon as he left office, he toed the official line while at U.S. DOT, insisting that a hike was a non-starter. At a Commerce Committee hearing last week, LaHood’s successor, Anthony Foxx, disappointed senators by dodging a question about increasing the gas tax, saying only that he would “listen to Congress.”

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Stuck With No Bike Lane? Your Complaint to Congress Is Three Clicks Away

stuck margins

Instead of just shaking your fist, let BAF bring your demand for better bike infrastructure to Congress.

A few months ago, we told you that Building America’s Future had released an app called, “I’m Stuck!” It allowed you to send a quick email to your Congressional representatives, telling them that you were stuck in traffic, or on an overcrowded bus or a delayed train, and you wanted Congress to approve more funding to upgrade infrastructure. At the time, we noted that there was no bike/ped component to the app, but BAF has changed that — halfway, at least.

Among the new features of their app redesign, BAF has added a way to tell Congress you need better bicycle infrastructure. Here’s their sample message you can send with a few simple clicks (or taps) to your reps:

I’m stuck on my bike without a safe route to travel. Bicyclists like me need safe routes, such as dedicated bike lanes — and we need your help. Please include funding for additional bicycle infrastructure in any new transportation and infrastructure investments.

It’s important. It’s your decision. It’s past time.

If it were up to me, the message would add that by riding a bike, the person sending the message is doing a big favor to everyone else using the transportation system — or breathing the air, for that matter. And it would include an option for pedestrians.

According to BAF, the app has been downloaded 11,000 times and 3,500 messages have been sent to Congress. The old version didn’t let them track how many were complaining about sitting in traffic versus how many were complaining about inferior transit. And as we mentioned last time, you’ll have to customize your message if you want to make sure Congress knows that you’re not asking for more car lanes but rather a transit line that would get you off the road altogether.

And remember, distracted driving rules apply. Even if you’re on a bike, please pull over before sending this message!

You can download the app here.

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Senators Warner and Blunt Take Another Stab at an Infrastructure Bank

You’d be forgiven for being cynical about big plans in Washington to create an infrastructure bank.

Sen. Mark Warner is behind a new attempt to create an infrastructure bank. Photo: ##http://www.dailykos.com/story/2013/02/18/1187984/-VA-Sen-Mark-Wanrer-D-Elizabeth-Warren-D-MA-Push-For-Action-On-Consumer-Credit-Reporting##DailyKos##

Sen. Mark Warner is behind a new attempt to create an infrastructure bank. Photo: DailyKos

President Obama has been talking about it for years. Every so often he comes out with a new big “push” for infrastructure investment, and it includes a bank of some kind. Multiple Senate bills have proposed an infrastructure bank or fund, sometimes housed under U.S. DOT and sometimes independent, sometimes with grant-making authority and sometimes without. Republican opposition has strangled all of them.

Virginia Democrat Mark Warner and Missouri Republican Roy Blunt introduced a new bill in the Senate last week, and the one really new thing about it — the thing that might give it legs — is the fact that Blunt is on board, along with four other Republicans. The only Republican to previously get behind an I-bank effort, Kay Bailey Hutchison, is no longer in the Senate.

The BRIDGE Act’s sponsor list so far is evenly split between Rs and Ds. In addition to Blunt and Warner, the bill has been co-sponsored by Sens. Lindsey Graham (R-S.C.), Kirsten Gillibrand (D-N.Y.), Dean Heller (R-Nev.), Chris Coons (D-Del.), Amy Klobuchar (D-Minn.), Roger Wicker (R-Miss.), Claire McCaskill (D-Mo.), and Mark Kirk (R-Ill.).

The idea is to use federal loans and loan guarantees to incentivize private investment in infrastructure.

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Wisconsin’s Misplaced Priorities on Display as Green Bay Bridge Sags

The Leo Fringo Memorial Bridge in Green Bay, Wisconsin is sagging 22 inches. Image: USA Today

In yet another reminder of what happens when states ignore their existing infrastructure while plotting massive road expansions, a section of heavily traveled bridge in Green Bay Wisconsin is “sagging” nearly two feet. Authorities have closed the bridge, which carries about 40,000 vehicles a day, after frantic calls from drivers.

USA Today carried this transcript from 9-1-1 calls reporting the problem early Wednesday:

Truck driver: I hope it’s not an emergency. I didn’t know who else to call. … It looks like there’s a part (of the I-43 bridge) that’s sagging.
Dispatcher: A part that’s sagging?
Truck driver: Yes, usually, I mean a bridge goes like it’s a hump. … There’s a section of the bridge that’s actually a dip.

Under Governor Scott Walker, Wisconsin has been on a highway-building binge. Some $6 billion in projects are planned, including the $1.7 billion Zoo Interchange outside Milwaukee. But in the race to expand, other transportation priorities have suffered, including transit and the maintenance of existing roads. All the while, Walker has resisted seeking new revenues through gas taxes or tolls to shore up the state’s transportation coffers.

Thankfully no one was injured in Green Bay. But perhaps it’s time Wisconsin rethought its grandiose plans for a double-decker highway in Milwaukee for less splashy alternatives, like making sure the state’s bridges are sound.

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“The Twilight of the Appropriations Process”: House GOP Gets Its Knives Out

Constrained by Paul Ryan’s budget and the sequester, the House Appropriations Subcommittee on Transportation and HUD passed a $44 billion spending bill for 2014 – 15 percent lower than 2013 enacted levels. The bill contains $15.3 billion in discretionary appropriations for the Department of Transportation, also 15 percent below enacted 2013 levels and amounting to about two-thirds of the president’s request. It passed the subcommitee this morning on a voice vote.

Rep. David Price (D-NC): "Are we totally helpless here?"

The budget would eliminate both TIGER and high-speed rail funding (as have all House-passed budgets in recent memory), cut Amtrak’s subsidy by a third, and bring HUD’s Community Development Block Grants back to Ford administration levels. While the cuts are steep, as in past years they are unlikely to be enacted, given Democratic control of the Senate.

At today’s markup, even subcommittee chair Tom Latham (R-IA) admitted that cutting $7.7 billion was “extremely challenging” and “not an easy task.” No other Republican spoke at all. While Latham’s official statement upon the introduction of the bill said that it was crafted “in a bipartisan fashion,” he admitted during the markup that he could thank Ranking Member Ed Pastor only for good “communication” rather than “cooperation” on the bill, since the top committee Democrat wasn’t “a huge fan of the product.”

Across the board, Democrats disavowed the bill and the process that begat it. While many acknowledged that Latham had received “an impossible allocation” from Rep. Paul Ryan’s Budget Committee, Democrats made it clear that the 15 percent cut was “unacceptable.” The appropriation is $4.4 billion lower than the amount allowed by the sequester.

Nita Lowey, ranking member of the full Appropriations Committee, said this budget “impairs the economic recovery,” and Illinois Democrat Mike Quigley said the bill “defies financial common sense,” not to mention the committee’s “moral obligations” to preserve the social safety net. David Price of North Carolina said it was “a grossly inadequate bill” that goes “way beyond the normal range of disagreements and difficulties with appropriations.” He mused that it could be “the twilight of the appropriations process.”

“I’ve never known us to be in this kind of institutional crisis,” Price said. “Are we totally helpless here? I know that’s what we hear, that we’re boxed in by sequestration, that we’re boxed in by the absence of a budget agreement.”

Price suggested the need for leadership “perhaps outside the conventional channels,” implying that they, the appropriators — who understand better than anyone the damaging cuts that are necessitated by such an austere budget — need to take the reins back from the deficit hawks in the Budget Committee.

Highway and transit programs maintain their MAP-21-authorized levels of $41 billion and $8.6 billion, respectively, in the appropriations bill. That represents a $557 million increase for highways over this year. These programs come out of the Highway Trust Fund and so aren’t included in the appropriations bill’s top-line numbers.

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Could Transportation Spending Become a Core Conservative Value?

Sen. James Inhofe has always said that, although he’s one of the most conservative members of the Senate, he’s a “big spender” on two things: national security and infrastructure. An influential conservative group appears to be humming the same tune.

The ACU's Alberto Cardenas has had a big-spender conversion, thanks, perhaps, to deep-pocketed friends in the transportation industry. Photo: Univision

The American Conservative Union is the 50-year-old organization behind the annual Conservative Political Action Conference (CPAC) and a highly influential rating system for members of Congress. The group’s new effort, the American Strength Program, is dedicated to lobbying Congress to increase spending – words they must have trouble getting their mouths around – on transportation and defense. Their interest in transportation appears to stem from their belief that transportation helps “foster personal freedom” by “facilitating a robust market economy.”

“While it is part of our heritage to question the role and size of government,” reads the group’s proposal, “defense and transportation infrastructure activities are national in scope and require federal leadership and investment.” The proposal was published last week by the New York Times, which broke the story.

The ACU plans to build conservative leadership around the issue to educate Congress and the public, and it plans to start including infrastructure votes in its legislative scorecards. That’s a huge shift – for the “gold standard” of conservative accountability for lawmakers to start rewarding votes for spending and punishing excessive attention to deficits.

This group would have come down harshly on House Republicans in 2011, for example, when they tried to cut transportation spending by a third to keep expenditures in line with revenues. Despite the fact that their actions were motivated by a desire for fiscal conservatism, those lawmakers would have gotten dinged on their conservative ratings for such a move.

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Obama’s 2014 Transpo Budget Calls for Higher Spending, HSR

The Obama Administration has put forward an opening bid in what are sure to be contentious 2014 budget negotiations, issuing a solidly progressive transportation budget that calls for increased overall spending and continued investment in passenger rail.

The 2014 transportation budget proposal put forward by the Obama Administration calls for increased infrastructure spending and continued focus on passenger rail. Image: Christian Science Monitor

The $76 billion transportation budget would represent a 5.5 percent, or $4 billion, spending increase over 2012 levels.

In addition, the president repeated his call for $50 billion in stimulus-style funding in 2014. Of this one-time funding infusion, $40 billion would be reserved for “fix-it-first” projects aimed at bringing the nation’s roads, bridges, and transit systems into a state of good repair. The other $10 billion would be offered on a competitive basis to “innovative” projects, through programs like TIGER.

The $50 billion infrastructure-spending stimulus is a proposal we’ve seen Obama float several times in the last few years. In the 2014 budget proposal it is again packaged as a jobs program.

“These investments would create hundreds of thousands of jobs in the first few years and in industries suffering from protracted unemployment,” the document says.

The administration’s budget also demonstrates that the president has not abandoned his high-speed rail ambitions. The budget proposes $40 billion for passenger rail programs over five years, aimed at making rail more widely accessible and convenient. It’s essentially his outline for a passenger rail (PRIIA) reauthorization. He even stuck to his goal of providing 80 percent of Americans with rail access, though years of funding setbacks have tempered his ambitions some — he now pledges that 80 percent of the population will have “convenient access to a passenger rail system, featuring high-speed service” — not that they’ll all have high-speed rail service.

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Is ASCE Failing to Tell America to Spend Wisely on Infrastructure?

In its infrastructure report card, the American Society of Civil Engineers emphasizes the need to spend more, but buries the message about spending wisely. Image: ASCE

The American Society of Civil Engineers released its new report card for U.S. infrastructure yesterday. The topline grades: The country’s “GPA” has gone from a D four years ago to a D+; roads have gone from a D- to a D; transit has stayed steady at a D; and rail made the biggest leap, from a C- to a C+.

ASCE’s report card is much more influential than your typical Beltway policy paper. It gets cited at every Congressional hearing, political meeting, and think-tank conference about infrastructure and transportation. It is used to make the case for billions more in investment – indeed, according to ASCE, the country needs $3.6 trillion in infrastructure spending before 2020 to improve our overall grade to a B.

If you sift through ASCE’s interactive digital report, you’ll find a more nuanced message. But it’s the D grades and the gaudy dollar figures that make headlines. Look at the section about road conditions, and you’ll see ASCE declaring that 42 percent of major urban highways are congested, costing the economy $101 billion in wasted time and fuel annually. This is the message that lawmakers trumpet when pushing for more highway money.

Just a Propaganda Document?

Chuck Marohn, a planner and engineer who runs the Strong Towns Network, is one of the most vocal critics of the ASCE methodology. “[The report card] is a propaganda document by an organization whose members directly benefit from the current approach,” Marohn said after the ASCE report was released yesterday morning. “This is not a serious look at infrastructure in this country.”

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Boehner Calls Obama’s Bluff on Infrastructure (But Who Will Call Boehner’s?)

Did you notice the big white beard and jolly red cheeks on President Obama at the State of the Union the other night? He’s the new Santa Claus, giving out gifts the government can’t afford to greedy little kids everywhere.

That’s how House Speaker John Boehner sees the president’s latest proposal for infrastructure investment — $40 billion for maintenance, under a strict “fix it first” ethic, with no revenue stream attached to it.

“Trying to find a funding source to repair the nation’s infrastructure is still a big goal of mine,” Boehner told reporters yesterday. “And the president talked about infrastructure, but he didn’t talk about how to pay for it. It’s easy to go out there and be Santa Claus and talk about all these things you want to give away, but at some point, somebody’s got to pay the bill.”

This is exactly what happened on Valentine’s Day two years ago, when President Obama rolled out his six-year transportation budget proposal. The spending side of the ledger was enthusiastically filled in — but the revenue side? Crickets.

As we said at the time, bold and innovative infrastructure proposals are great but it doesn’t really help anything, in these lean times, to promise the moon and then offer nothing in the way of realistic funding.

Now, Boehner’s not blameless in all this. He says he’s looking for a funding source, but only if it rhymes with “soil shilling.” Foil filling? Oil drilling. That’s right. Otherwise, he’s only too happy to cut transportation spending by a third — and next time around, it’ll be an even bigger cut than that. It’s certainly disappointing that Congressional Democrats and the White House have been afraid to come out in favor of a gas tax hike, but it’s not as if Boehner’s been pushing for sensible revenue measures either.

Forty billion dollars for transportation maintenance is a worthy goal. It could hold at bay the calls for highway expansion and help the country get more out of the infrastructure we have, while saving ourselves bigger expenditures on replacement when poorly maintained infrastructure finally needs to go. It could even have big benefits for bicycling.

If we can’t find the money to pay for this, what will we find the money for? U.S. DOT’s plan for 3,000 new miles of highway?