January 23, 2018
Secretary Cisneros identifies a major macro problem for implementing any infrastructure plan:
The problem we face is plain: According to the American Society of Civil Engineers, some 9% of the nation’s bridges — over 56,000 in total — are structurally deficient. On the most busily traveled section of passenger rail, the average age of backlogged infrastructure repair projects is 111 years old. Our drinking water systems suffer an estimated 240,000 water main breaks per year, wasting over two trillion gallons. The list goes on: The Bipartisan Policy Center estimates there is $2 trillion worth of infrastructure needs right now; from airports that need to be modernized, to shipping ports that need to be deepened to accommodate today’s larger ships, to congested roads that cost us in economic productivity to failing technology in power grids, the nature of the problem is varied and vast. But in order to build the best possible solution for these problems — which can and should be bipartisan — Congress and the Administration must solve several dilemmas.
The Secretary defines specific problems which must be addressed at the highest possible policy level and before the dollars are committed. His list is primarily generic in its terms; below are the aviation aspects of each (where applicable):
1. Deciding who will fund it — and how
The Secretary defines this problem in the following excerpted from his paper…
“…$200 billion in federal spending and $800 billion in matched state, local and private funding… This also creates inequality: it funnels investment to areas that are more well-off, thus leaving poorer communities behind. In Flint, Michigan, for example, money must be spent on a new water system, but residents are not going to be able to afford to pay high fees for use of that water. … There is a solution to this problem, though: Federal funding should be set aside for areas that have emergency needs and cannot compete by matching with state, local or private funds.”
In the aviation context, there is (i) a well-defined AIP taxing funding resource, (ii) a local option—PFCs and (iii) a flawed privatization program. None of these elements have been reauthorized. The political battle over the level of AIP taxes, an increase in PFCs and an absence of any visible proposal to revise the privatization.
2. Making private investment appealing
This dilemma is multi-modal and the need for incentives, especially tax revisions, is applicable to all. Airport privatization, under the current statute, permits the municipal owner to monetize the sale/lease proceeds. That transaction could provide a capital source for local/state needs. Perhaps Congress could amend the FAA program to require that the 1st use of the funds should be directed to emergency, hard-to-fund projects, as the Secretary has defined that term.
3. Determining why federal projects get prioritized
The concern here is that the funds, both federal and private, are most likely attracted to “more prosperous metropolitan areas or high-value industrial projects.” The FAA AIP prioritization experience may be instructive here. On an annual basis establishes point scales to make comparisons more objective; here is how the OIG explained this means of allocating based on statutory preferences:
FAA approved to determine the extent to which FAA was meeting its statutory requirements and policy goals by funding the highest priority projects that
enhance these three areas. FAA has eight categories for rating projects that are eligible for AIP funding. As shown in table 2, the highest percentage of
AIP dollars spent (85 percent) and the number of projects funded (83 percent) in FY 2006 were for projects that could improve safety, security, or capacity,
with the highest percentage of dollars spent (60 percent) and number of projects funded (72 percent) in the standards and reconstruction categories (standards
and reconstruction projects ultimately improve safety and security). Examples of standards projects include snow removal equipment, deicing equipment, and
perimeter fencing. Examples of reconstruction projects include rehabilitating and repairing runways; these in turn enhance safety and maintain airport capacity
Since the ranking is among airport grants, the criteria- safety, capacity and security- can be placed easily in order. While this micro comparison has proven to be useful, once moved to an all-infrastructure-comparison table, defining macro criteria may be difficult, if not impossible.
4. Making sure rural projects are picked, too
Here the Secretary’s observation has contrary responses in aviation. Fiscal conservatives have voiced opposition to the funding of projects far from population centers. On the other hand, particularly in the essential air service context, there has been support for maintaining transportation connectivity with these distant locations. The existing statutory and regulatory policies have resulted in balanced distribution of funds to these communities.
The infrastructure lawyers at Kaplan, Kirsch, Rockwell were able to obtain a copy of the White House’s anticipated infrastructure plan. They have analyzed the “purloined text” and provided many insights. Here are a few which seemed most interesting:
Half of the proposed appropriation would be dedicated to an Infrastructure Incentives Initiative, which would provide federal funding for up to 20 percent of the costs of projects that encourage significant non-federal investment and commitment of private revenue. The Infrastructure Incentives Initiative would promote competition for additional federal funding by encouraging project sponsors to raise new sources of revenue at the state, local or project level. … A quarter of the appropriation would be designated for a Rural Infrastructure Program, comprising both formula grants to and the states and additional performance-based grants. The remaining quarter would be split between several programs, including a Department of Commerce-run Transformative Projects Program, increased investment from various federal credit programs (including expansion of the popular U.S. DOT TIFIA and RRIF programs, WIFIA and a USDA Rural Utilities Lending Program), and a Federal Capital Financing Fund. The document also proposes several reforms to expand the use of private activity bonds (PABs) for infrastructure projects, including removing existing programmatic caps, increasing flexibility and adjusting rules that might increase PABs pricing competitiveness. The document notably concludes with a broad list of “principles for infrastructure improvements,” organized by infrastructure sector and mode, which largely focus on streamlining the federal oversight role and providing project sponsors with greater flexibility, with a clear emphasis on increasing private investment in public projects. Among the principles listed are additional authority to toll on interstate highways, higher project cost thresholds to trigger federal major project requirements, requiring value capture financing in federally funded transit projects, enabling more efficient FAA oversight of non-aviation airport activities, and revisiting many requirements of the WIFIA program to encourage lending. To the extent the document it is an accurate reflection of current White House expectations, these principles may provide a useful reference for the parameters of future legislative negotiations over the proposed programmatic elements summarized above.
The White House’s broad list of “principles for infrastructure improvements seems to set a framework for Secretary Cisneros’ Point 4—prioritization. However, the Trump policy only sets individual preferences WITHIN an infrastructure category and does not tackle of how, for example, federal dollars should prefer a needed water application versus a request for dollars to repair a bridge.
Many thanks to KKR for its intelligence.
The infrastructure within aviation may be resolved soon, due to the FAA’s extended deadline for reauthorization. Perhaps Congress will delay the resolution of these competing funds needs on a national basis. The ideas of Secretary Cisneros and the analysis of Kaplan, kirsch, Rockwell may guide this important national debate.
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