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Statement of the

AMERICAN SOCIETY OF CIVIL ENGINEERS

on

Surface Transportation Financing Alternatives

Joint Hearing before the

Environment and Public Works Committee

And the Finance Committee

United States Senate

The American Society of Civil Engineers (ASCE) is pleased to provide this statement for the record on financing alternatives for the nation’s surface transportation programs.

ASCE, founded in 1852, is the country's oldest national civil engineering organization representing more than 125,000 civil engineers in private practice, government, industry and academia who are dedicated to the advancement of the science and profession of civil engineering. ASCE is a 501(c)(3) non-profit educational and professional society.

ASCE believes the reauthorization of the nation’s surface transportation programs should focus on three goals:

· Expanding infrastructure investment

· Enhancing infrastructure delivery

· Maximizing infrastructure effectiveness

ASCE’s 2001 Report Card for America’s Infrastructure graded the nation’s infrastructure a "D+" based on twelve categories, including roads with a grade of “D,” bridges with a grade of “C,” and transit with a grade of “C-.” Roads, bridges and transit have benefited from an increase in federal and local funding currently allocated to ease road congestion, to repair decaying bridges, and to add transit miles. However, with 29 percent of bridges still ranked as structurally deficient or obsolete and nearly a third of major roads considered to be in poor or mediocre condition, engineers warn that Congress cannot afford to allow promised funding for transportation to lapse. Transit ridership has increased 15 percent since 1995, adding a strain despite unprecedented growth in transit systems and increased funding.

Establishing a sound financial foundation for future surface transportation improvements is an essential part of reauthorization. TEA-21 provided record funding levels to the states and significant improvements have been made to our nation’s infrastructure. In spite of these notable efforts, the nation’s surface transportation system will require an even more substantial investment. United States Department of Transportation (DOT) data reflect the fact that an investment of $50 billion per year would be needed just to preserve the system in its current condition. With funding as the cornerstone of any attempt to reauthorize TEA-21 it is imperative that a variety of funding issues be advanced as part of ASCE’s overall strategy.

Sustaining Infrastructure Investment

ASCE supports the following goals for infrastructure investment.

· A 6 cent increase in the user fee with one cent dedicated to infrastructure safety and security. These new funds should be distributed between highways and transit using the formula approved in TEA-21.

· The user fee on gasoline should be indexed to the Consumer Price Index (CPI) to preserve the purchasing power of the fee.

· The Transportation Trust Fund balances should be managed to maximize investment in the nation’s infrastructure.

· Congress should preserve the current firewalls to allow for full use of trust fund revenues for investment in the nation’s surface transportation system.

· The reauthorization should maintain the current funding guarantees.

· Congress should stop diverting 2.5 cents of the user fee on ethanol to the General Fund, and put it back into the Highway Trust Fund.

· Make the necessary changes to alter the Revenue Aligned Budget Authority (RABA) to decrease the volatility in the estimates from year to year and ensure a stable user fee based source of funding.

· The current flexibility provisions found in TEA-21 should be maintained. The goal of the flexibility should be to establish a truly multi-modal transportation system for the nation.

ASCE supports a reliable sustained user fee approach to building and maintaining the nation’s highways and transit systems. While ASCE supports a wide variety of innovative approaches to finance surface transportation projects, ASCE feels strongly that the current user fee arrangement is the most equitable and efficient means of ensuring stable transportation funding.

First to be addressed is the issue of raising the user fee on motor fuels. While the gas tax is an important element of the current revenue stream feeding the Federal Highway Trust Fund, it continues to erode in value due to its inherent inelastic nature. Two strategies must be advanced to remedy this condition. First, raise the gasoline user fee by six cents. This would provide a much needed infusion of funding towards the $50 billion per year need. In tandem with raising the motor fuel tax, ASCE believes that it is important to shore up the weakness of the motor fuel tax and its inability to retain value over the long term by adding a provision to the law that would index it based on the Consumer Price Index (CPI). This would allow the rate to adjust and reflect the current economic conditions of the nation.

Innovative Financing

ASCE supports the innovative financing programs and advocates making programs available to all states where appropriate. Additionally, the federal government should make every effort to develop new programs.

ASCE supports the following changes to enhance the existing programs:

Transportation Infrastructure Finance and Innovation Act (TIFIA)

• The TIFIA process for review, approval and negotiation is regarded as burdensome, and could be streamlined.
• TIFIA projects have a minimum eligibility threshold of $100 million and consideration could be given to lowering this to $50 million to expand the pool of projects.
• TIFIA loans could be "fully subordinated". Current TIFIA legislation is written to subordinate TIFIA loans to other creditors. However, in the event of liquidation/default, the TIFIA loan advances to parity status with other creditors. This is known as the "springing lien" provision. It is thought by some that this has limited the availability of other credit. The issue is controversial, with pros and cons on both sides, but reform should be seriously considered.

State Infrastructure Banks (SIBs)

• With the exception of five states (Texas, Rhode Island, Florida, Missouri, and California), TEA-21 did not permit further capitalization of SIBs with federal funds. It is felt that this has suppressed SIB activity.
• Federal regulations still apply to loan funds that are repaid to the bank, encumbering SIB funded projects with federal regulatory requirements.

Grant Anticipation Revenue Vehicles (GARVEEs)

• Increase the flexibility of GARVEE bond repayment methods. For example, utilize the total apportionment amount as a source of repayment (i.e., all funding categories), so that no particular funding category is overburdened.

New programs for consideration as part of the next reauthorization are:

• Increased use of user fees, tolls, value pricing, and HOT lanes.
• Possible indexing of highway trust fund motor fuels tax to inflation.

· Establishing a true multimodal funding program (i.e., funds can be used interchangeably for rail, highway, freight, intermodal facilities, etc.).

· Tax credit bonds, private activity bonds, and tax-exempt bonds for privately developed projects.

Tax-based revenues are not sufficient to keep pace with the nation's transportation needs.

There is a compelling need for enhanced funding, to a large extent through user-oriented fees that have been demonstrated to be a well-accepted and equitable source of infrastructure financing. In the case of surface transportation, federally sponsored studies demonstrate the need for higher levels of investment. An additional challenge is to convince our citizens and our elected leaders that we must either "pay now” or "pay later", and that paying now is much more cost-effective and prudent in the long run.

Innovative financing techniques can greatly accelerate infrastructure development and can have a powerful economic stimulus effect compared to conventional methods. This is the current approach in South Carolina, Georgia, Louisiana, Florida, and Texas, where expanded and accelerated transportation investment programs have been announced. Innovative financing techniques, including toll road-based funding, figure heavily in several of these state programs.

The innovative programs in TEA-21 have been a good start, but more needs to be done to expand their scope, and new programs or approaches must be introduced. We must find new and innovative ways to finance the critical transportation infrastructure needs of the nation.

Life Cycle Cost & Surface Transportation Design

The use of Life-Cycle Cost Analysis (LCCA) principles will raise the awareness of clients of the total cost of projects and promote quality engineering. Short-term design cost savings which lead to high future costs will be exposed as a result of the analysis. In the short-term the cost of projects will increase; however, the useful life of a project will increase, and there may be cost savings in operations and maintenance over the long term.

When the cost of a project is estimated only for design and construction, the long-term costs associated with maintenance, operation, and retiring a project, as well as the cost to the public due to delays, inconvenience and lost commerce are overlooked. The increasing use of bidding to select the design team has resulted in a pattern of reducing engineering effort to remain competitive, with the result of higher construction and life cycle costs.

ASCE encourages the use of Life-Cycle Cost Analysis (LCCA) principles in the design process to evaluate the total cost of projects. The analysis should include initial construction, operation, maintenance, environmental, safety and all other costs reasonably anticipated during the life of the project, whether borne by the project owner or those otherwise affected

Long-term Viability of Fuel Taxes for Transportation Finance

ASCE supports the need to address impacts on future surface transportation funding and believes that provision should be made in the next surface transportation authorizing legislation to explore the viability of the most promising options to strengthen this funding. In particular, the impacts of fuel cell technology should be studied as well as how to create a mileage based system for funding our nation’s surface transportation system as this technology comes to market and lessens the nation’s dependence on gasoline as a fuel source for automobiles.

Fuel taxes have long been the mainstay for transportation infrastructure finance, but their future is now uncertain. In many states, there is a strong reluctance to raise fuel taxes, and some state legislatures have even reduced taxes to compensate for the sharp increase in average gasoline prices over the last two years. Many localities and states are supplementing or replacing fuel taxes with other sources, such as sales taxes and other general revenue sources. There is also a growing trend to use additives to gasoline for environmental reasons, and the most prominent additive, ethanol, enjoys a federal exemption from fuel taxes that reduces federal and state trust fund revenues by some several billion dollars annually. Looking ahead, a slow but steady increase in fleet efficiency--perhaps due to increased market penetration by electric, fuel cell, or hybrid technologies--would reduce the revenue per mile of use generated by users. Whereas cleaner-burning fuels and increased fuel efficiency are desirable policy goals in their own right, particularly in regard to global warming, they may reduce the ability to rely on fuel taxes in the future.

A helpful first step in this process will be the Transportation Research Board’s recently initiated Study on Future Funding of the National Highway System, which will describe the current policy framework of transportation finance and evaluate options for a long-term transition to sources other than fuel taxes. The goals of the study are to: (1) determine the extent to which alternatives to fuel taxes will be needed in the next two decades or so; (2) analyze the pros and cons of different alternatives in terms of political feasibility, fairness, and cost; (3) suggest ways in which barriers to these alternatives might be overcome; (4) recommend ways in which the efficiency and fairness of the fuel tax could be enhanced, and (5) recommend, as necessary, a transition strategy to other revenue sources. The study's first task, to be summarized in an interim report, will provide one or more scenarios to illustrate the time span during which petroleum-based gasoline availability and cost might reduce fuel tax revenues. The interim report has been requested to provide insight to those parties involved in the development of the surface transportation reauthorization legislation, particularly with regard to projections of fuel tax revenues during the next reauthorization cycle. The study will also provide estimates of trends in expenditures for transportation infrastructure from sources other than the fuel tax.

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