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