Federal Highway Acting Administrator Rick Capka
Remarks as prepared for delivery
"The Future of Highway and Public Transportation Financing"
November 3, 2005, U.S. Chamber of Commerce, Washington DC.

INTO THE MAINSTREAM

Thank you for the thorough and insightful study. I appreciate that more and more of the business community understands how much your involvement is needed in transportation policy and finance -- now and in the future.

I want to lay out DOT's ideas on how to build on the progress we've made in recent years and what we need to be thinking about as we prepare for the next reauthorization. The Bush Administration is working to evolve and improve the traditional approach to paying for our nation's highways. And a big part of that is increasing private sector investment.

Through innovative programs such as SEP-15, and now with SAFETEA-LU, states have more flexibility to use congestion pricing, tolling and other innovative forms of financing that have the potential to give us a better return on our transportation investments.

We recognize along with you that there are growing strains on traditional highway finance mechanisms. Relying primarily on the gas tax is not the best long-term approach. And, leveraging infrastructure investment through innovative financing will help us tackle the biggest problem in surface transportation -- congestion.

As we all know, transportation moves America and congestion can put our economy in the slow lane. Your report on "Future Financing" shows that the traditional model alone isn't going to cut it in the years ahead.

We need a new approach to keep goods and products on the move -- new approaches to facilitate trade with our North American and worldwide partners.

We need to broaden our thinking... change our mindset.

We need innovative financing to give a boost to our highway system. The private sector brings a lot to the table that complements the public sector:

Cost and management efficiencies,
The ability to complete projects faster and at less cost,
And a growing group of willing investors ready to share the risk in advancing large, crucial projects.

Over the past two years or so, Secretary Mineta and his team at the Department of Transportation have spoken often about Public Private Partnerships. For many people, the subject was a new one. We explained what it is, why innovative financing has so much potential, and emphasized that a few states are already trying it out.

Well, times have definitely changed. PPP is now part of the mainstream.

We're past the "What is it?" stage... past the stage when we tout just a few success stories. Reaching the mainstream means public-private ventures are routinely considered and frequently the winning choice for a city, a state, or a region. I see PPP as the tool in our toolbox that is grabbed more confidently to meet a requirement.

SUPPORTING INNOVATIVE FINANCE

Before I jump into SAFETEA-LU and innovative finance, I want to talk briefly about the hurricane relief and recovery effort.

The Bush Administration, U.S. DOT, and FHWA are firmly committed to helping ravaged areas recover as quickly as possible. Opening the I-10 Twin Spans and Pascagoula Bridges ahead of schedule are good examples of progress in repairing Gulf Coast infrastructure and getting the regional economy back up and running.

Federal Highways is working closely with our state and federal partners to help the people and economy along the Gulf and Atlantic Coasts recover and rebuild from the devastation of Katrina, Rita and Wilma. We are keeping Secretary Mineta's commitment that transportation will not be a bottleneck on the road to full recovery!

SAFETEA-LU is the largest investment our country has ever made in highway, transit and safety programs. It broadens the availability of federal financing initiatives such as TIFIA, a credit assistance program for large transportation projects.

Another provision -- what I consider a major policy change -- gives states more flexibility to use tolling to finance infrastructure improvements. States can choose what's best for them.

Another policy change: Highway and surface freight transfer facilities are now eligible for up to $15 billion in tax-exempt Private Activity Bonds, and this will prove to be an extremely important financing tool.By leveling the playing field between public and private sector borrowers, we expect new kinds of transactions to emerge in highway construction and finance.

Until SAFETEA-LU, the U.S. tax code did not recognize the global trend toward private sector participation in highway infrastructure. This change will provide an opportunity to combine private equity and debt in totally new ways and allow public agencies to lower the cost of delivering new highways in the U.S.

At the end of the day, that means more transportation capacity, something I know we all support.

Some of the changes in environmental provisions will improve cooperation between state and federal agencies that participate in the environmental review process. The 180-day statute of limitations on bringing legal action after federal agency approvals are published in the Federal Register will provide a level of comfort to private sector partners.

We have the SEP-15 program that encourages innovation in project development and delivery.

SAFETEA-LU changes in the area of design-build will make innovative contracting procedures much more commonplace. The private sector can get involved earlier in the process.

There's much more detail on the Act's innovative provisions, public-private partnership case studies, and other information on the FHWA website.

To spread the message, we have sponsored conferences and workshops around the country with the National Council on Public-Private Partnerships and ARTBA. We are working to define what the training needs are for PPPs and how best to address those needs.

PPPs have become an integral part of the way we do business, and they will be even more crucial in the future. Right now, the Trans Texas Corridor is probably the best known. In March 2005, TxDOT and Cintra-Zachry signed an agreement to develop TTC-35. They are currently working on a master development and financial plan, and environmental studies.

Some others, in brief:

SR-91 High Occupancy toll lanes in southern California are built in the median. Capital and maintenance costs are fully supported by tolls, which vary by time of day and are adjusted every three months to ensure that traffic flows freely.

Indiana Toll Road. Similar to the Chicago Skyway, the state is pursuing the option of leasing rights to the toll road to the private sector. Other states, such as Delaware and New Jersey, are considering the same thing.

One more thing that's happening at Federal Highways that I want to mention. We have created a PPP office. The new office is a central point of contact for state and local transportation officials who want to explore new and creative ways to design, develop and deliver highways and bridges.

LOOKING TOWARD THE NEXT ACT

As you've heard this afternoon, SAFETEA-LU has new and improved tools to support innovative financing. Now is the time to start using the tools that many in this room have clamored for.

At the federal level, there are fewer hurdles to private sector investment and innovative financing. We're not completely where we need to go, but almost. But it's a different story at the state level and with the private sector.

The private sector has to be more involved in financing transportation infrastructure.

And at the state level, many restrictions are still in place. Only 19 states have public-private partnership laws. Virginia has had one on the books for several years, and the Commonwealth is reaping the benefits. But many states have not even contemplated the idea that the private sector could be a highway service provider or investor.

For the most part, we've financed transportation the same way for 50 years. As always, institutional inertia is a challenge for the states who traditionally build the roads and the private sector that can -- potentially -- invest in, construct and operate a vital roadway.

Here's what I'd like to see: We need to broaden our thinking and move forward.

Instead of thinking of roads and bridges as a liability, a drain on a tight budget -- state and local governments (who own all those roads and bridges) need to think of infrastructure as an asset.

The U.S. is behind some other parts of the world in innovative financing.

In fact, an international consortium of two firms with extensive experience in the toll road business was awarded a 99-year concession and lease agreement from the City of Chicago for the Chicago Skyway. Under this agreement, the consortium paid $1.8 billion for the right to toll, operate, and maintain the Skyway.

These international firms have the experience and they are comfortable taking on the risk. Innovative financing works because the public and private sectors share the risks and the benefits. So there's a need for the private sector in this country to "get in the game."

There is a need for the public and private sectors to come together in a win-win relationship. It does no one any good for there to be a loser in the deal. If that happens, it will take the partnership out of PPP and the tool won't get used.

We can never forget . . . we must always emphasize as the debate revs up . . . that the US highway system has enormous economic importance. It is the backbone of the economy.

We must have a vigorous debate about its future, and that debate must begin now. We cannot sit by and the let one of the greatest investments in the history of the world -- the interstate highway system -- fall into disrepair. We cannot allow it to become a drag on the economy through ineffective policy or through excessive, years-consuming politicking.

Now, let me get totally practical and use the calendar to prioritize our next steps. I think we all realize... at least subconsciously with all of the focus on the new Act... that the next bill is only four years away!

SAFETEA-LU expires September 30, 2009.

Think of it... less than four years to implement the requirements of SAFETEA-LU... AND prepare and enact the next legislation.

We must use the time wisely. We can't wait.

The time is now to start working on a revolutionary "Next Act."

As Secretary Mineta has pointed out, SAFETEA-LU is evolutionary. It builds on the ideas of TEA-21 and ISTEA before it. Don't get me wrong. We will continue to push the envelope to be as creative and open to new ideas as possible.

The two commissions authorized by SAFETEA-LU will provide much-needed food for thought on financing alternatives and on future needs of the entire surface transportation system. We hope and expect that they will consider the Chamber Foundation studies and make recommendations that will move us forward.

THINGS WE CAN COUNT ON

The shape of the "Next Act" must be vastly different from SAFETEA-LU because we will face new and different transportation challenges.

We'll have to be flexible and prepared for surprises such as devastation on the Gulf and Atlantic Coasts from three enormous hurricanes.

Of course, many trends can be reasonably extrapolated. Safety and congestion concerns aren't going away.

We can be confident that -- --

Increasing pressure on traditional sources of revenue will change the way user fees and taxes are collected.
Technology will make fee collection ever easier, increasing opportunities for PPP projects.
State and local transportation planners are only beginning to accommodate PPPs in a rigorous way when considering transportation improvements. This may change as public revenue sources become scarcer.
Federal law still contains a bias against tolling for many roads. This may disappear, particularly if net revenue is dedicated to transportation.

The list of trends and variables is almost endless.

The point is that we transportation builders, providers and supporters, whether public or private, will have to stay nimble so that we can respond to changes as they occur.

A CRITICAL TIME

The Executive Summary of the new Chamber Foundation report ends with this thought: "There are no easy solutions to the nation's transportation challenges."

I agree. Congestion is not going away. Tight budgets are not going away.

Increased private sector investment and innovative financing is a must to give options to drivers, keep our economy on the move, and get the most bang for our transportation investment.

In coming months and years, mobility professionals and those who need mobility have an opportunity to help shape our nation's future and move America toward a more prosperous future. We're going to take some forward-looking steps along the way.

I know that we'll continue on our transportation journey together.