The Time is Right for Innovation in the Transportation Business
By
Shirley Ybarra

Click Here for a Printer Friendly Format of this page

Times are tough, money is tight, voters have rejected efforts to enact new taxes for transportation, and yet transportation needs continue to grow. What’s a transportation department to do?

I believe that the future depends on utilizing innovative financing methods and innovative contracting.

As Deputy Secretary (1994- 1998)and then Secretary of Transportation (1998-2002) in the Commonwealth of Virginia, I worked with Governors George Allen and Jim Gilmore, the Virginia legislature, and private entities to develop creative approaches to financing transportation projects — efforts have already delivered higher quality transportation projects faster, while saving taxpayer dollars.

The transportation bills now under consideration by Congress provide a perfect opportunity to replicate these efforts. Other states might be able to enjoy the success we had, for example, in initiating the Pocahanas Parkway on I-895. This $225 million project was kicked off with a mere 8% investment of public funds — $3 million from the federal government and $15 million from the State.

Congress might want to consider ways other states could initiate similar public-private partnerships and encourage states to use their limited funds to attract private investment.

In an effort to work with Congress toward that very end, the Coalition for Innovative Transportation Solutions (CITS) was started last year by a number of experienced people and organizations, including former top-level officials at the federal and state level, think tanks, financial services companies, and corporations with long experience in innovative public-private partnerships.

Founding members include AECOM Consulting, Ashland/ APAC, The Detroit River Tunnel Project, The Louis Berger Group, Halliburton-KBR, Koch Industries, Noassaman Infrastructure, Parsons Brinkerhoff/PBConsult, Salomon Smith Barney, and VMS, IThe group brings together the expertise of former officials — charter members include co-chars and former Governors Jim Gilmore of Virginia and Bob Miller of Nevada.

CITS has developed a number of specific proposals which we are encouraging federal and state lawmakers to consider.

Congress should remove some limitations that currently hinder development of public-private partnerships.

There are a number of restrictions that hamper state flexibility and discourage public-private partnerships — however cost effective, efficient, and attractive those partnerships otherwise might be.

Currently, TIFIA loans can not be used on projects of under $100 million. A cap was originally included of $100 million but a cap that high knocks many worthy projects out of consideration. The TIFIA cap should be lowered to $50 million (which would make smaller projects eligible for TIFIA).

Another important tool — Private Activity Bond financing — is out of reach for any transportation project. Currently, most transportation projects are financed by traditional methods. Private Activity Bonds bring tax exempt financing to privately financed projects. They are used quite effectively for infrastructure efforts such as water projects, and allow tax exempt financing without requiring government issuance of bonds.

Unfortunately, when Congress authorized these bonds, transportation advocates were not at the table. Allowing privately-financed transportation projects to utilize these bonds would eliminate the tortured machinations that many states (including Virginia, South Carolina, and California) must undertake in order to gain tax exempt financing for transportation projects.

The federal government should revitalize State Infrastructure Banks (SIB’s) for all states. SIB’s can make a loan to complete the financing for a project and be repaid out of the proceeds later. Once repaid, that money can be available for another project.

Finally, the current limitations that prevent imposition of tolls on most interstates should be reconsidered. It would provide immeasurable help if states could impose tolls in limited circumstances — for instance, only to finance new capacity, and with toll rebates to truckers if the additional capacity were truck-only lanes.

Federal laws need to reward innovative financing approaches.

Besides merely removing limitations, there are steps the federal government could take to encourage partnerships and speed the development of public-private financing efforts. Innovative financing on its own, however, only taps some of the value of public-private partnerships.

While innovative financing tools like TIFIA and SIBs can accelerate funding for projects, they do not result in net savings to the taxpayer unless they are coupled with innovative contracting methods that reduce overall project delivery costs.

A number of states have successfully experimented with innovative contracting, but the incentives for agencies to innovate in this area are few.

The federal government should follow on the work it has done with the highly-successful SEP-14 program and provide financial incentives for states willing to experiment with performance-based contracting approaches such as design-build contracting, A+B contracting, asset management, warranties, and other public/private, performance-based management models.

The federal government could encourage states to couple innovative finance options with innovative contracting options. By removing obstacles to innovative financing and creating a special discretionary incentive grant program that rewards states “coupling” innovative financing with innovative contracting, the federal government could see projects built with more private investment, more efficiency in the contracting/financing process, and an increased focus on quality of the project.

States need to enact legislation facilitating public private partnerships in transportation.

While a number of states have provided leadership in the area of innovative finance and contracting, much more needs to be done at the state level.

During my tenure as Deputy Secretary of Transportation for the Commonwealth of Virginia, I worked hard to pass Virginia’s Public Private Transportation Act (PPTA), legislation that when signed into law in 1995 made the Commonwealth one of the very first states to codify public private partnerships for transportation.

The PPTA made it easier for Virginia to solicit and accept proposals from private companies for both construction and operations and maintenance. For instance, when ISTEA authorized State Infrastructure Banks in 1991, 32 states immediately stepped up to the plate to compete for the small pool of dollars authorized.

Virginia managed to access $3 million — which may not seem like a lot, but was one of the larger grants made by the State Infrastructure Banks. I believe Virginia’s success can be replicated elsewhere and innovative financing coupled with innovative contracting can be encouraged and rewarded.

The convergence of so many transportation bills before Congress this session provides an unparalleled opportunity for comprehensive action. And action is needed. Fuel tax receipts are not keeping pace with the rate of vehicle miles traveled. We can’t rely on the gas tax to finance our needs.

States have no extra money, and voters in many states including Virginia — have soundly rejected proposals to increase taxes to pay for transportation needs. We need to look more expansively, broadly, and creatively at solutions.

Shirley Ybarra was Secretary of Transportation for the Commonwealth of Virginia from 1998 to 2002, and Deputy Secretary of Transportation for the Commonwealth from 1994-1998.

Prior to serving as Secretary, she had held several positions at the U.S. Department of Transportation, including Special Assistant for Policy to then-Secretary Elizabeth Dole.

Final Report Feb 4th 2003.pdf