Friday, March 7, 2014

Ken Orski: A 21st Century Approach to Transportation Funding

As states acquire more familiarity with credit transactions and develop more capacity to pursue public-private partnerships, and as federal budgetary constraints continue, long term financing of new transportation facilities and of multi-year reconstruction programs could become the states’ primary method of expanding and modernizing aging infrastructure. At the same time, states' growing fiscal independence points to a new approach to funding the nation's transportation needs in the 21st century. 

In this prospective new model, routine highway maintenance and system preservation would continue to be funded on a pay-as-you-go basis with current state and local tax revenue as supplemented with federal-aid highway dollars from the Highway Trust Fund . However, capital-intensive multi-year reconstruction programs and new capacity expansion projects ---investments that are beyond the states' fiscal capacity to fund out of current revenue --- would be financed largely through public-private partnerships employing long-term credit and availability payments. 
Provision of credit would remain a shared responsibility of the public and private sectors. Private Activity Bonds, the TIFIA program and State Infrastructure Banks would continue to serve as the main public sources of credit assistance while additional public credit facilities could be created, if need be, to handle a growing backlog of reconstruction needs. Potential candidates include Sen. Mark Warner's National Infrastructure Financing Authority (IFA) and Rep.John Delaney's $50 billion American Infrastructure Fund (AIF). The latter proposal would capitalize the AIF by selling bonds to U.S. companies. In exchange for purchasing the bonds, companies would be able to repatriate a portion of their overseas earnings tax-free. (A somewhat similar approach forms part of Rep.Camp's tax reform proposal).

The Highway Trust Fund--- freed from the obligation to fund new infrastructure and large  reconstruction programs on a cash basis---would be placed on a more stable financial footing, while an ample supply of long-term credit ---both public and private---would reduce the need for contract authority and multi-year transportation authorizations. Meanwhile, states and localities would gain more independence to plan and fund infrastructure improvements on their own terms, free of excessive federal regulatory oversight.
It's a highly plausible answer in our judgment to the nation's search for a long-term solution to the infrastructure funding problem.  

Earlier versions of this commentary were presented at the Transportation Research Board workshop,  "States are leading the charge on transportation revenue initiatives," January 12 2014; at the Conservative Policy Summit of the Heritage Foundation on February 10, 2014; and in a Governing magazine interview dated February 27, 2014.

Kenneth Orski
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