Remarks as prepared for delivery
Jeff Paniati, FHWA Acting Deputy Administrator and Executive Director
Fifth Annual Public Private Partnerships USA Summit
March 12, 2009, Washington, DC
"Transportation Infrastructure Financing Opportunities and Challenges"

I have been asked to talk about future funding issues, and I'd like to do that by covering both an issue immediately before us -- implementation of the economic recovery package -- and an issue on the horizon -- reauthorization of surface transportation programs. Both are about investments that we need to make as a nation -- in the economy, in transportation infrastructure, and in the future.

ECONOMIC RECOVERY

First, economic recovery, which as you know focuses primarily on job preservation and creation, as well as infrastructure investment. The American Recovery and Reinvestment Act (ARRA) signed by President Obama last month provides $26.6 billion for highways, $8 billion for transit, and $9 billion for high-speed rail and Amtrak. All but about $1 billion of highway resources is allocated directly to states, and will not need to be matched. Many agree with Transportation Secretary LaHood's assessment that, "This is a long-overdue investment in our transportation infrastructure and in jobs for Americans."

FHWA began laying the groundwork for rapid investment in our nation's roads and bridges right after the election last November. We assisted Congress in drafting legislation, prepared guidance and tools to support implementation, supported the Department's "TIGER team" in establishing accountability and transparency, and helped states identify "ready-to-go" projects. We made the $26.6 billion available to states last week, well ahead of the 21-day legislative deadline.

State highway departments are moving forward numerous transportation projects across the country. To date, we have approved more than $1.5 billion in projects. Some have already started. Many will start soon. The first wave of projects will be resurfacing and reconstruction. Later there will be larger projects.

There are significant resources available, and there are high expectations for how quickly those resources will be put to work and how they will be accounted for. For the formula program, states will need to obligate at least half their funding within 120 days, or it will be redistributed to other states that can use it. (States want the funding and I expect very little money will be redistributed.) Remaining unobligated funds will be redistributed after one year. States will also have to certify that they will maintain the planned level of funding for transportation projects.

There are significant reporting requirements, with the first reports due in early April. Required data include project information, financial information, and information on jobs created and sustained by economic recovery funding.

I know many of you are interested in the discretionary grant program. National Surface Transportation Discretionary Grants will be administered by the Office of the Secretary with support from modal administrators. It is a $1.5 billion program for projects with a significant impact on the nation, a metropolitan area, or region. The program focuses on highway, transit, rail, port, or intermodal projects where an additional federal investment of between $20 and $300 million will allow the project to move forward to completion within three years. It also provides up to $200 million for the TIFIA credit program.

Eligible projects include capital investment in highways, bridges, public transportation, passenger and freight rail, and port infrastructure -- a multi-modal program.

• Priority given to projects expected to be completed within three years of ARRA enactment.
• Competitive criteria published within 90 days of enactment.
• Applications needed within 180 days of enactment.
• Projects selected within one year of enactment and funds obligated by end of Fiscal 2011.

FHWA is redirecting existing staff and adding part-time staff to support the increase in workload. While projects must follow all applicable federal requirements, we are committed to advancing them with the maximum flexibility allowed under the regulations. We expect increased scrutiny from both the Government Accountability Office and the Department of Transportation's Inspector General -- they make sure funds are spent properly.

The transportation community must move quickly and effectively and I'm confident that we will. The health of our country, our economy, and our transportation system is too important for us to fail.

I encourage folks interested in more information on the ARRA funding for highways to visit the White House economic recovery website: www.recovery.gov

And the Federal Highway ARRA site for our guidance to states and data on distribution of funds: www.fhwa.dot.gov/economicrecovery

REAUTHORIZATION -- CLOSING THE GAP

The resources available for economic recovery, while significant, are only a down payment on what we need to do. A bigger problem is that we are spending more money than we take into the Highway Trust Fund. Even with that spending, we are barely making a dent into solving our most serious problems -- the condition of the highway system, congestion in metropolitan areas, highway safety, air quality, and so on.

Funding, then, is the key issue for reauthorization.

We can't just extend SAFETEA-LU because the Highway Account of the Highway Trust Fund will be about out of money again by this September. (Last year the HTF needed an $8 billion infusion.) The $30 to $35 billion that flows annually into the Trust Fund won't support the $40 billion annual highway program to which we are accustomed.

So how do we close the gap between revenue and needs? There are a lot of views.

• Should we increase the gas tax, as recommended by the National Surface Transportation Infrastructure Financing Commission last month? It's what we are used to doing, but some contend that it is a largely "broken" mechanism for financing transportation investments. Just look at the last 12 months -- VMT continues to drop, fuel economy continues to rise -- this combination leads to less gas tax revenue.

• Should we narrow the focus of the federal investment to the Interstate system, leaving the remainder of the system as the responsibility of states who are facing their own funding crises and financial shortfalls?

• Should we be more aggressive in bringing a market-based approach to program delivery -- tolling and PPPs -- as a way of tapping the resources that the private sector reportedly stands ready to invest in infrastructure projects? Secretary LaHood sees these tools as a significant part of the solution.

  In an interview last month with Associated Press, he said more tolls for highways and bridges and more government partnerships with business to finance transportation projects are serious funding options.

  There is private sector money for infrastructure projects despite the credit crisis. But, there is a shortage of projects. We need projects that have a mechanism to compensate the private sector for their investment. This might be through availability payments -- the facility is "available" when required and at the agreed condition and performance level -- or through a revenue stream that comes from tolling.

  But either way, there must be revenue to compensate the private sector for their investment. Without tolling, funds are short, especially for the large-scale projects that typically come to mind in the context of P3s. Also, it is critical that the industry becomes more comfortable with a new way of procuring projects.

  For example, our TIFIA program, the Transportation Infrastructure Finance and Innovation Act Program, just closed on a $1.8 billion I-595 Express Lanes project in Miami. The I-595 transaction marks the first use of availability payments as a means of delivering transportation infrastructure. Florida DOT takes responsibility for setting and collecting the tolls, but agrees to pay the concessionaire a pre-defined payment for making the facility available. This method, widely used in countries with active P3 programs such as Canada and Great Britain, creates an incentive for the concessionaire to focus on efficient facility operations.

  P3s do not provide the silver bullet for solving the industry's revenue challenges, but I believe they are an important part of a solution. Based on proposed finance plans, P3 investors make it clear that TIFIA's low-cost, fixed-rate financing is essential to their ability to provide the best possible offer to a public sponsor seeking a private concessionaire. It's not a stretch to suggest that TIFIA participation is required in order to attract commercial banks to provide senior loans to projects in the current environment. The number of projects seeking TIFIA assistance is larger than the DOT can fund. Faced with this situation, the DOT made forward commitments of TIFIA assistance using yet-to-be appropriated FY 2010 funds. In other words, the pending applications would use most of the available funds through next fiscal year.

  FHWA has established a new office, the Innovative Program Delivery Office (IPD) to drive forward changes in the current paradigm that defines project delivery. The old way -- the way we do it now -- hasn't worked for a long time. But with revenue increasingly short, present failures are becoming increasingly apparent. We believe that we can move to a program delivery model that will mean more support for efficient system operations, more system preservation, more revenue, and more sensitivity to life-cycle cost.

• Looking beyond the current reauthorization cycle, should we start moving towards a true "pay as you go" system that charges system users for the travel they "consume" and allows congestion pricing during peak times? The Infrastructure Financing Commission I mentioned earlier, after extensive study, called for a transition from the gas tax to a roughly 2-cent fee per mile traveled as the dominant federal funding source for transportation projects by 2020. This may be a long-term solution, but it will take years of groundwork and a boost from the new Act to get there. Secretary LaHood told the Wall Street Journal, "There is not enough money in the Highway Trust Fund to do what we want to do. We need to keep an open mind. We need to think outside the box."

OTHER PRIORITIES

There are other priorities. Let me give you my personal take on a few of them.

• When resources are tight, we have to be smart about how we spend. It's not enough to do things right, we need to be doing the right things. That means more attention to safety and livability, for example.

• Accountability, transparency, and performance are key tenets of the Obama Administration. Congress expects it, the public demands it, and it is the right thing to do. This will require significant changes in the way surface transportation programs are delivered to state and local partners. Specific goals and objectives will be established for various programs, and US DOT along with state and local partners must be accountable for meeting those goals. Performance-based programs cannot be implemented overnight, but when fully in place they provide the means to improve investment decisions, improve the performance of transportation systems, and improve stewardship of taxpayer dollars.

• Innovative financing through tolling, public private partnerships, and infrastructure banks will play a larger role in financing improvements. Innovative financing doesn't fit every investment, but it's a key part of the future financing picture and is here to stay!

• Also here to stay is a national priority of reducing congestion -- particularly in our largest metropolitan areas. We need to continue to focus on managing and reducing congestion by expanding the system where necessary, removing bottlenecks, making operational improvements, and better balancing supply and demand.

• Addressing critical freight issues, such as corridor projects, intermodal connectors, and ports of entry, is now a permanent and growing part of the discussion of surface transportation investment needs.

• There will be simultaneous pushes for more Federal resources, a more focused federal role, fewer program categories, more flexibility for state and local agencies, more targeted investment in specific programs, and more accountability. Can all of these concepts peacefully co-exist?

CLOSE

Transportation is an important part of the U.S. economy. There is considerable discussion and debate ahead as we try to figure out what our surface transportation program should look like, and how to fund it.

FHWA will be part of the discussion, as will many national interest groups. But this is a discussion that cannot take place just inside the Beltway.

You need to be part of it. Stay involved and express your views when you get the opportunity! We cannot predict what will happen, but we know that it will be a very interesting ride. So hop aboard, hang on, and be part of the dialogue.

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