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February 15, 2018

White House Releases Infrastructure Proposal and FY 2019 Budget

Feb 15, 2018

White House Releases Infrastructure Proposal and FY 2019 Budget

On February 12, 2018, the White House released both an infrastructure proposal and a budget proposal for federal Fiscal Year (FY) 2019. This policy update discusses the infrastructure proposal and the transportation aspects of the budget proposal in light of CMAP’s transportation recommendations.

The White House infrastructure proposal establishes the president’s principles for legislative action on infrastructure, and is intended to spur increased state, local, and private investment by providing $200 billion in federal funding and incentives over 10 years. The proposal encompasses a broad range of infrastructure types, including transportation, water, and power facilities. The proposal’s lack of an identified funding source, limited dollars offered, reliance on substantive local match as a criteria for funding, and failure to address the long-term solvency of the federal Highway Trust Fund (HTF) are problematic. The proposal does partially support GO TO 2040 recommendations on increased tolling of the existing highway system and use of value capture to fund transportation improvements.

The FY19 budget proposal includes spending from the HTF at levels provided for by the most recent transportation reauthorization bill, the FAST Act, but significantly cuts General Fund programs that are important to northeastern Illinois. Subsequent CMAP Policy Updates will review the environmental, economic, and housing proposals in the president’s budget.

Infrastructure proposal

The infrastructure proposal includes $200 billion in federal funds, primarily for four new programs. This spending aims to induce total new investment of $1.5 trillion over the next 10 years, when combined with state, local, and private sources. To achieve this, the proposal encourages tolling to generate more local revenues from road users, and more widespread use of value capture to generate more revenues from property owners adjacent to transportation projects. The proposal contains a number of additional provisions allowing states to collect new revenues for use of road facilities, such as commercialization of interstate rest areas.

Competitive and formula-based funding provisions

$100 billion for a new Infrastructure Incentives Program. This program is intended to encourage the creation of new, non-federal sources of revenue (such as state or local taxes, tolls, or user fees) by providing a federal match of not greater than 20 percent to state and local project sponsors. This federal match would be significantly lower than the 80 percent rate provided in most existing federal surface transportation programs and 50 to 80 percent rate for transit projects. Eligibility for the new program is broad -- including surface transportation, airports, passenger rail, ports, hydropower, and drinking and wastewater facilities -- although dollar amounts assigned to specific agencies or types of infrastructure projects are not provided. Selection criteria favor local match over project performance. The initial project selection criteria heavily favor newly created, non-federal sources of revenue. A second selection step then further rewards projects with the lowest federal share of project costs.

$20 billion for existing federal credit assistance programs and broadening the use of Private Activity Bonds. Of this amount, $14 billion is directed to credit programs with broadened eligibility, such as the Transportation Infrastructure Finance and Innovation Act program (TIFIA), which provides low-interest financing and other credit assistance to infrastructure projects. TIFIA is funded currently at just $285 million per year, down from its final MAP-21 level of $1 billion. The proposal would provide $1 billion per year for the next decade. In recent years, five infrastructure projects in the CMAP region have received $840 million in TIFIA assistance to support $2.7 billion in total project costs: the O’Hare Airport consolidated joint use facility, Chicago Transit Authority (CTA) rail fleet replacement, CTA Blue Line improvement project, Chicago Riverwalk expansion, and CTA 95th Street Terminal improvement project. In keeping with the proposal’s focus on many types of infrastructure, other credit assistance programs are included: Water Infrastructure Finance and Innovation Act, Railroad Rehabilitation and Improvement Financing, and Rural Utilities Service programs.

The remaining $6 billion would allow for expanded use of Private Activity Bonds (PABs), which allow private investors to receive tax-exempt interest if investing in transportation facilities and other projects that provide public benefit, such as affordable housing. In the CMAP region, the CenterPoint Intermodal Center in Joliet/Elwood used this financing mechanism.

$80 billion for other funding provisions. A Rural Infrastructure Program would be established with $50 billion in funding, the majority of which would be distributed to state governors via a formula based on rural lane miles and rural population. An array of infrastructure projects would be eligible, including transportation, broadband, water, and power projects. As a metropolitan area, the CMAP region would not directly benefit from this program. Another $20 billion would fund a new Transformative Projects Program administered by the Commerce Department on a competitive basis. This program would provide federal funding and technical assistance for “ambitious, exploratory, and ground-breaking project ideas that have significantly more risk than standard infrastructure projects, but offer a much larger reward profile.” The final $10 billion would establish a revolving fund to allow the federal government to more easily make large real estate purchases.

Locally derived transportation revenues

Expansion of tolling. The proposal would enable states to toll existing Interstates, if toll revenues are reinvested in infrastructure. CMAP calls for loosening restrictions on tolling the existing Interstate system to provide sufficient revenues to rebuild, operate, and maintain the system.

Value capture. “Value capture” is defined in current law as “recovering the increased property value to property located near public transportation resulting from investments in public transportation” (49 U.S.C. 5302(24)). The proposal would require recipients of certain Capital Investment Grants from the Federal Transit Administration (FTA) to use local revenues via a value capture mechanism. Value capture may also be used to meet the higher local match requirements for the new funding program overall. GO TO 2040 and subsequent CMAP work have emphasized the importance of value capture to support regional transportation projects. In 2016, the state passed legislation implementing value capture; the CTA then used value capture to fund $800 million of the Red and Purple Modernization Program.

Streamlined permitting and modified regulatory provisions
The proposal includes a number of provisions intended to speed up the environmental review and permitting process for infrastructure projects. This includes establishing a deadline of two years for completion of environmental review and permitting decisions. The proposal would remove certain federal requirements for projects that use minimal federal funds, allow utility relocation to take place on a project before the environmental review process is complete, and raise the Federal Highway Administration threshold for a “major project” -- which requires greater federal oversight -- from $500 million to $1 billion. The proposal would allow delegation of certain environmental permitting and review responsibilities to states, and would establish pilot programs to conduct environmental reviews in different ways. It also recommends clarifying that state departments of transportation and metropolitan planning organizations demonstrating conformity with Clean Air Act requirements must use only the latest National Ambient Air Quality Standards for pollutants in question.
 

Budget proposal

Within the U.S. Department of Transportation, the White House budget proposal would provide spending from the federal HTF as authorized in the FAST Act. However, it would substantially reduce or eliminate funding for several important General Fund programs, described below.

The proposal would eliminate the popular Transportation Investments Generating Economic Recovery (TIGER) program, cutting $500 million in funding. The CMAP region has secured hundreds of millions of dollars in TIGER grants over the past nine years, including: substantial funding for the CREATE program of regional rail improvements; CTA’s Blue Line, Garfield Station, and 95th Street Terminal improvements; and reconstruction of 147th Street in the south suburbs. The budget cites the Infrastructure for Rebuilding America (INFRA) program as a substitute for the TIGER program. However, INFRA is dedicated to funding freight infrastructure, while TIGER has substantially broader project eligibility.

The FTA’s Capital Investment Grants (CIG) program would be restricted to current projects with full funding grant agreements, representing a $1.4 billion cut compared to current levels. Federal support for major transit capital projects would be limited to credit support. The CMAP region has benefitted substantially from CIG, including the $1 billion full funding grant agreement awarded to the CTA for the Red and Purple Modernization Program (which is recommended to receive its promised funding in the President’s FY19 budget).

The proposal would cut funding for Amtrak’s long-distance routes by more than $600 million and require states to pay one-half the subsidy cost of these routes. Chicago Union Station is Amtrak’s busiest hub outside the Northeast Corridor and serves as the terminus for seven long-distance routes.
 

Moving forward

The infrastructure proposal envisions transferring significant responsibility for transportation funding away from the federal government via the expansion and creation of new revenue streams at the state and local level. In short, this reliance on and requirement for substantial local contributions is unlikely to provide sufficient resources to address the region’s infrastructure needs and will exclude projects that greatly improve the network but may not be suited for the listed local funding options. GO TO 2040 calls for sustainable, adequate funding of the transportation system. The current proposals make limited progress on this recommendation. Moreover, the package does not identify specific funding sources for the proposed federal expenditures, limiting its potential for implementation. Additionally, neither the infrastructure nor the budget proposal addresses the long-term solvency of the federal HTF; after expiration of the FAST Act in FY21, the HTF will not bring in enough revenue to support base levels of expenditure. Expenditures are expected to exceed revenues by $122 billion from FY22-28.

GO TO 2040 also recommends performance-based, data-driven programming of transportation funds to make the best use of limited revenues. By prioritizing projects that use new, non-federal revenue sources and that require low federal participation overall, the infrastructure proposal does little to address this goal. The proposal also offers scant support of transit, despite its vital role in the region’s and nation’s transportation networks. In particular, the region faces a $19 billion backlog of improvements to bring the transit system to a state of good repair. This infrastructure proposal provides few options to gain federal support for that initiative.

While the infrastructure proposal aligns with GO TO 2040’s recommendations to expand tolling to the existing interstate system and to pursue innovative local funding for infrastructure projects, in particular through value capture, its strong reliance on local revenues to attract federal investment is unlikely to provide sufficient revenues to meet basic needs of the transportation network. A limited number of transit projects are suited for value capture, and tolling the highway network does not address funding gaps on the remainder of the road network. The requirement to use value capture for access to some revenues is particularly troubling for the region’s lower income communities, which may be unable to implement such funding options, and therefore would be unable to apply for federal dollars.

The region remains a national nexus for automotive, rail, air, and water transportation, and this role is best supported by both federal and local revenues. The ON TO 2050 process has identified constrained state and federal resources for infrastructure and services as a central challenge, and acknowledges the importance of developing local strategies to fill the gap. ON TO 2050 transportation strategy development continues to emphasize the need for increased state and local funding to improve the condition and operation of the system today and to build a system that works in the future. In particular, the infrastructure proposal does not address challenges facing today’s infrastructure system, much of which was built decades ago, such as climate change or providing mobility for an aging population.

The infrastructure and budget proposals are the first step in a longer process. In addition to potential consideration of the infrastructure proposal over the spring and summer, Congress must finalize spending levels for the current FY18, which is under a continuing resolution through Friday, March 23, 2018. They can then turn to consideration of appropriations bills for FY19. A budget deal signed into law February 9, 2018, set increased caps in FY18-19 for domestic discretionary spending, which is the funding source for TIGER, CIG, and Amtrak programs. This may make cuts to these programs less likely. CMAP will continue to monitor this process closely and outline potential impacts on the region’s goals.

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