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Public-Private Partnerships, Part 2: Federal Transportation Reauthorization
This is the second in a series of four posts on the topic of public-private partnerships (PPPs) and transportation. The first post introduced the concept of PPPs, stated CMAP's position, and surveyed the strengths and weaknesses of the policy. This post focuses on the role of PPPs in the ongoing federal transportation reauthorization process.
The U.S. Senate Environment and Public Works Committee unanimously reported out its reauthorization bill, Moving Ahead for Progress in the 21st Century (MAP-21), in November 2011. MAP-21 focuses on the highway components of reauthorization. In December, the Senate Commerce, Science, and Transportation Committee reported out several bills focused on freight, safety, and research. The Senate Banking and Finance Committees have jurisdiction over the transit and finance components of transportation reauthorization, respectively, but have not yet marked up bills.
The U.S. House of Representatives Transportation and Infrastructure Committee released an outline for its reauthorization bill, A New Direction, in July 2011. On November 30, the House announced that it would not consider a reauthorization bill until early 2012.
The remainder of the blog post discusses the role of PPPs in each of the reauthorization bills, as well as a relevant third bill introduced in the Senate last summer.
As described in a previous Policy Update, both the U.S. House of Representatives and Senate have included language to support innovative finance, chiefly by increasing the Transportation Infrastructure Finance Innovation Act (TIFIA) program to $1 billion annually. The expansion in TIFIA is currently the main vehicle by which MAP-21 supports PPPs.
Established in 1998, TIFIA provides a variety of federal credit assistance -- including direct loans, loan guarantees, and standby lines of credit -- to transportation projects of national or regional significance. Credit assistance is currently limited to one-third of total project costs (amended to 49 percent in the Senate proposal), so that $100 in TIFIA support can leverage up to $300 in transportation spending from traditional sources and/or private equity. Eligible projects must have an investment grade rating on their debt, must use TIFIA assistance for subordinated debt, must be included in their state's Transportation Improvement Program (TIP) and long-term transportation plans, and must begin to repay loans within five years using dedicated revenue sources.
TIFIA can be an important PPP tool for two reasons. First, private firms lack access to interest-free debt, and TIFIA can provide low-cost financing to firms involved in transportation projects. Second, TIFIA requires that federal assistance be repaid through dedicated revenue sources such as tolls; many PPPs involve tolling to generate revenue for the private sector.
A New Direction
The House proposal explicitly seeks to attract private sector investment in transportation and implements this primarily through an expansion of the TIFIA program to $1 billion. Considering that the House proposal would contain a smaller authorization than MAP-21, its $1 billion commitment to TIFIA is a proportionally larger share of the overall federal program.
The House proposal would increase the private role in transit, intercity travel, and freight. The outline does not provide much detail, but it notes that the House proposal would remove barriers to the private provision of transit, leverage private financing for high-speed rail, encourage PPPs for new rail starts, provide incentives for vanpools and intercity buses to participate in public transportation, and reform the Railroad Rehabilitation and Improvement Financing (RRIF) program. RRIF is a revolving loan program similar to TIFIA, although limited to railroad projects.
Lincoln Legacy Infrastructure Development Act
The Lincoln Legacy Infrastructure Development Act is a Senate bill -- not included in MAP-21 -- that would substantially increase private investment in the highway, transit, rail, and airport systems. It would remove various federal restrictions and caps, as well as allow for the tolling of existing Interstate highways, the commercialization of highway rest areas, and the privatization of airports. The bill would provide new resources for PPPs by expanding the TIFIA program to $750 million annually, establishing a challenge grant program to encourage states to pass PPP enabling legislation, lifting caps on private activity bonds, and expanding eligibility for RRIF loans to high-speed rail projects. It would establish an experimental program to identify and overcome barriers to private participation in transit, and it would also support bus rapid transit on high-occupancy vehicle or high-occupancy toll lanes. All told, these reforms could leverage $100 billion in private investment for transportation.
PPPs are likely to be a centerpiece of a final federal reauthorization bill. The three bills profiled here each encourage greater private participation, although to different extents, and use the TIFIA program as a key vehicle to do so. MAP-21 provides relatively limited discussion of PPPs for transportation, while the other two bills provide substantially more. Of those two bills, the House proposal is relatively short on details, while the Lincoln Legacy Infrastructure Development Act is specific in its recommendations.