Professional Documents
Culture Documents
May 8, 2013
Other Revenue Sources and Considerations ....................................................................... 25 Challenges and Opportunities for Other Infrastructure Systems .......................................... 25 Water and Wastewater ................................................................................................................ 26 Electricity........................................................................................................................................... 26 Maritime............................................................................................................................................ 27 Aviation ............................................................................................................................................. 28 Public Schools ................................................................................................................................. 28 Safety Net Hospitals ..................................................................................................................... 30 Financing Strategies to Increase and Supplement Investment and Create Jobs ................. 32 Traditional Debt Financing and Assistance ................................................................................... 32 Tax-Exempt Municipal Bonds.................................................................................................... 33 Chart 3: Top Six State and Local Infrastructure Categories Using ............................... 33 Tax Exempt Financing, 2003-2012........................................................................................... 33 Private Activity Bonds .................................................................................................................. 34 Transportation Infrastructure Finance and Innovation Act ............................................ 35 Grant Anticipation Revenue Vehicles ..................................................................................... 35 Transportation Investment Generating Economic Recovery ......................................... 35 Build America Bonds .................................................................................................................... 36 Innovative Debt Financing and Assistance .................................................................................... 36 National Infrastructure Bank ..................................................................................................... 37 State Infrastructure Banks .......................................................................................................... 38 Partnerships ..................................................................................................................................... 38 Chart 4: Infrastructure Acceleration Layer Cake ................................................................. 39 Performance-Based Infrastructure....................................................................................... 40 Public Pension Funds, Fixed Income Financing Instruments ..................................... 41 Energy Efficiency Retrofits Program Models.................................................................... 42 Clinton Global Initiative: Financing Energy Efficient Retrofits ................................. 43 Clinton Global Initiative: Investing in Post-Sandy Reconstruction and
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Other Critical Infrastructure ................................................................................................. 44 Private Equity and Other Partnerships with Private Investors ................................... 44 Lessons Learned....................................................................................................................... 46 Project Management and Efficiency ................................................................................... 47 Looking Forward.......................................................................................................................................... 48 Surface Transportation Reauthorization, MAP-21 ...................................................................... 48 Passenger Rail Investment and Improvement Act ...................................................................... 49 Water Resources Development Act.................................................................................................. 49 Water Quality Protection and Job Creation Act........................................................................... 50 Building Infrastructure Finance and Innovation Act ................................................................... 50 Marketplace Fairness Act ..................................................................................................................... 51 Supporting Actions to Protect First Responders ......................................................................... 51 Assistance to Firefighters Grant ............................................................................................... 51 Staffing for Adequate Fire and Emergency Response ..................................................... 51 Urban Area Security Initiative and the State Homeland Security Grant Program . 52 Promoting Fair Wages and Benefits for First Responders .............................................. 52 Conclusion ..................................................................................................................................................... 53
Preface
The Democratic Governors Association, Center for Innovative Policy presents, Investing in Our Public Infrastructure to Create Jobs a Policy Series white paper developed with guidance from Labor Union Partners representing multiple trades and workers and prepared by My Campaign Group. Various infrastructure assets roads, bridges, dams, sewer systems, water pipelines and public schools throughout the U.S. are either at the end of their lifecycle or nearing it and require maintenance and repair. An increasing population has placed added strain on our infrastructure over time to the extent that the functionality of certain elements has been compromised. Democratic governors recognize the economic benefits associated with having a welldesigned, efficient infrastructure. Yet lack of available funding has impacted governors abilities to comprehensively address their states infrastructure needs. Faced with these challenges, Democratic governors have sought to make infrastructure investment a priority, putting people back to work repairing and improving our critical infrastructure. Vermont Governor Shumlin has embarked on a multi-million dollar technology access project that's expanding broadband, cellular phone service and smart grid telecommunications capacity to underserved areas of the state, bringing high5
speed connectivity to businesses, schools, health care providers and first responders as part of the state's commitment to providing universal broadband access by the end of 2013. A mix of federal, state and private funding has helped to make this project possible. (2013) Maryland Governor OMalley together with Senate President Miller and House Speaker Busch have succeeded in passing a $4.4 billion transportation investment plan that will support more than 57,000 jobs over the next six years, ease traffic congestion and build a 21st century transportation network. The governor also signed the Maryland Offshore Wind Energy Act of 2013 that creates a mechanism to incentivize the development of a 200 MW offshore wind facility, which will support almost 850 manufacturing and construction jobs for five years and an additional 160 ongoing supply and Operations & Maintenance (O&M) jobs thereafter. (2013) Massachusetts Governor Patrick proposed to increase the level of transportation capital investment by $13 billion over the next 10 years to create a state-of-the-art transportation network thats able to provide fast and reliable service, while attracting and supporting sustainable economic growth in the future. Governor Patrick would raise revenue for these critical investments by cutting the sales tax from 6.25 percent to 4.5 percent and dedicating all proceeds to a fund for public works to support transportation, the school building fund and other infrastructure. In addition, the governors proposal would increase the income tax rate by 1 percentage point to 6.25 percent in order to raise sufficient revenue to support education initiatives, double the personal exemptions so that the increase is fair to all taxpayers and eliminate outdated, complicated special favors in the tax code. (2013) Oregon Governor Kitzhaber committed to funding the I-5 Bridge Replacement by signing legislation authorizing the state to borrow $450 million to pay for its share of the $3.4 billion bridge and transit project that will connect Oregon and Washington. The construction-ready project increases safety, reduces congestion and improves the transport of goods to markets across the country and around the world. (2013) California Governor Brown advanced his $23 billion proposed Bay Delta Conservation Plan, one of the largest Habitat Conservation Plans ever carried out
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in the U.S. This massive undertaking will secure the water supply for 25 million people from earthquakes and other potential calamities, and will restore tens of thousands of acres of natural habitat needed for threatened and endangered species. (2013)
Delaware Governor Markell created The Delaware New Jobs Infrastructure Fund to allow the state to quickly make significant investments in public infrastructure to accommodate the relocation or expansion of large scale employers. Revenue allocated to this fund must be spent for infrastructure improvements, including roads and utilities, intended to attract new businesses to Delaware or assist those looking to expand in the state. (2012) Hawaii Governor Abercrombie released more than $1.14 billion over the last year for various capital improvement projects selected for their potential to immediately address priority maintenance and improvement work on state infrastructure and facilities, while stimulating the local economy and generating job opportunities. (2013) Minnesota Governor Dayton proposed a $750 million bonding bill for shovelready construction projects, including a major State Capitol building renovation, facility upgrades and repairs at public colleges and universities, modernizing state-run veterans homes and funding for flood preservation efforts that would create an estimated 21,000 jobs. (2013) Illinois Governor Quinn launched a $1 billion Illinois Clean Water Initiative through an expansion of the state revolving fund (SRF) program that will provide long-term, low-interest loans to help local governments overhaul their water and wastewater infrastructure, including pipelines and treatment plants that would create or support 28,500 jobs across Illinois. (2012) Connecticut Governor Malloy unveiled the Next Generation Connecticut initiative proposing to invest nearly $2 billion in the University of Connecticut that would significantly increase the number of students and faculty in Science, Technology, Engineering and Math (STEM) related fields. The proposal calls for $1.54 billion in bonding to build new STEM facilities, expand teaching and research labs, upgrade information technology and renovate and build additional housing and parking. (2013) New York Governor Cuomo has used innovative approaches to boost infrastructure investment since 2011. The cadre of initiatives in New York is
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geared toward stretching infrastructure dollars with smart investments. These initiatives include passage of design-build legislation, which shifts the risk of large projects from taxpayers to construction firms, and the NY Works Task Force, which works to align the $16 billion capital projects among the states 45 agencies. Adding to these proven successes, the governor has now proposed a $1 billion Green Bank that would combine public and private capital in order to create a funding mechanism to finance renewable energy technologies and clean energy projects that hold potential to create jobs and further diversify the states energy portfolio. (2013)
Introduction
Our nations infrastructure includes a variety of assets all with strategic importance to our economy. It connects people, places and ideas; allows for the exchange of goods and services; and promotes productivity and efficiency. Investing in infrastructure should be a priority an opportunity to put people back to work in good-paying jobs with benefits building and renovating America. Yet infrastructure spending has not kept pace with needs over the years, and as a consequence our infrastructure has deteriorated and its financial burden has grown. Its estimated that the U.S. needs to spend $2.2 trillion over the next decade just to keep infrastructure in fair condition and safe for public use.1 Besides maintenance needs, much of our infrastructure isnt able to effectively support population growth, causing traffic congestion on our roads, electricity to be lost from our antiquated power grid, and water to be wasted in our pipes, None of this is good for our environment, and all of it infringes on productivity. Unwillingness to increase infrastructure spending by elected officials in Washington and, at times, those in state government has made it increasingly challenging for Democratic governors to responsibly fund infrastructure projects. Without adequate investment, our economy will not grow to its potential, with the direct effect of fewer jobs and lower wages. Critics contend that among the reasons they dont support increasing infrastructure spending is because of diminishing revenues, budget shortfalls and aversion to debt,
1
Peter Bacque, Rendell: Infrastructure will crumble without investment, Richmond-Times Dispatch, Sept. 21, 2012, http://www.timesdispatch.com/business/rendell-infrastructure-will-crumble-withoutinvestment/article_f1a2b490-50e8-5d46-aae9-4cb8bf3992aa.html
but chronic underfunding is really a matter of choice. For example, the federal excise tax the financing mechanism used to fund the Highway Trust Fund (HTF) isnt generating enough revenue to cover highway construction and maintenance needs, because for the last 20 years it hasnt been adjusted to take inflation into account. Seventy-two percent of Americans would support a program that spends government money to put Not surprisingly, shutting down investment in infrastructure doesnt reflect the views of a majority of Americans. According to a recent Gallup poll from March 2013, 72 percent of Americans would support a program that spends government money to put people back to work on urgent infrastructure repair projects.2 In fact, the poll found that this type of jobcreating proposal is backed by all party groups Democrats, Independents and Republicans even at a time when deficit reduction is a high priority.3 This white paper discusses why infrastructure investment is so critical to our economy, and the potential it holds to create jobs in industries, like construction, where people still struggle to find work. It takes a closer look at the financing and funding challenges that Democratic governors face, and offers potential solutions based on best practices that could help stretch public financing and possibly close the funding gap that has developed. Its purpose; however, isnt meant to advocate one solution over another, but rather to acknowledge the range of ideas that exist. Information covered in this paper came from various labor unions collaborating with the Democratic Governors Association for the benefit of Democratic governors wanting to strengthen their commitment to protect the interests of workers and the unions that represent them. Working with labor to grow the economy is a great opportunity for states to partner.
Americans Widely Back Government Job Creation Proposals, Gallup Politics, Mar. 20, 2013, http://www.gallup.com/poll/161438/americans-widely-back-government-job-creationproposals.aspx?utm_source=add_this&utm_medium=addthis.com&utm_campaign=sharing#.UUmZWUT WEi0.twitter 3 Ibid.
American Society of Civil Engineers, 2009 Report Card for Americas Infrastructure, http://www.asce.org/Infrastructure/Report-Card/2009-Report-Card-for-America-s-Infrastructure/ 5 Ibid. 6 Ibid. 7 2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/ 8 Small Infrastructure Gains Are Observed in Engineering Report, John Schwartz, New York Times, Mar. 19, 2013, http://www.nytimes.com/2013/03/19/us/engineers-report-small-gains-in-nationsinfrastructure.html?_r=0 9 2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/
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Continued underinvestment in infrastructure is projected to cost each U.S. family about $10,600 from 2010 to 2020.
The worsening condition of our infrastructure today threatens economic growth and job creation in the future. We stand to lose one million jobs each year by 2020 from a projected $1 trillion loss in sales, $324 billion in exports and $1.2 trillion in disposable income that could occur without adequate investment.10 And delaying investment costs businesses and households, too. Higher running costs and travel delays from road, bridge and transport deficiencies alone cost taxpayers approximately $130 billion in 2010.11 Continued underinvestment in
infrastructure is projected to cost each U.S. family about $10,600 from 2010 to 2020.12 Additionally, the price tag to modernize and maintain our infrastructure increases by $150 billion for every year its postponed.13 To make matters worse, much of our infrastructure is crumbling at a time when so many men and women are out of work. As depicted in Chart 1, construction has experienced a significant drop in employment since December 2007 about the start of the recession, with only modest job gains reported in recent months. Although our nations unemployment rate is decreasing overall, 15.7 percent of construction workers currently lack jobs.14 Depressed demand for construction materials also means that supply costs are relatively cheap. Now is the time we should be investing in America, both to maintain our current infrastructure and build for our 21st century economic needs. Chart 1: Construction Employment
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LiUNA! Testimony of Terence M. OSullivan General President Laborers International Union of North America Transportation and Infrastructure Committee, U.S. House of Representatives, February 13, 2013 (figures attributed to the American Society of Civil Engineers). 11 Investing in Infrastructure: A question of trust, The Economist, May 12, 2012, http://www.economist.com/node/21554579 12 Failure to Act: The Economic Impact of Current Investment Trends In Surface Transportation, American Society of Civil Engineers, Jul. 2011, http://www.asce.org/infrastructure/report-card/economic-study/ 13 Ibid. 14 U.S. Department of Labor, Bureau of Labor Statistics, Economic News Release, Mar. 8, 2013, http://www.bls.gov/news.release/empsit.nr0.htm
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(Employment in Thousands)
7,750 7,500 7,250 7,000 6,750 6,500 6,250 6,000 5,750 5,500 5,250
-1,688
5,802 March 2013
Its time to sound the alarm about our nations chronic underfunding problem, with hope that greater awareness will lead to action.
Infrastructure Systems
Infrastructure is a broad term that describes multiple organizational structures (or systems), including but not limited to highways, bridges and tunnels, transit and rail, water treatment facilities and sewers, maritime ports and airport runways, public buildings that serve to educate and deliver health care as well as recreational parks, in addition to our electrical grid and telecommunications network. Each system plays a critical role in facilitating economic growth and job creation. This paper focuses on the following systems of infrastructure in order to closely examine the individual needs of certain ones in greater detail.
Surface Transportation
Surface transportation infrastructure consists of highways, railroads, bridges and transit systems that connect people and places. A growing population and an increase in
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economic growth from global trade has put strain on an aging network, with many highways and rail systems built over 50 years ago.15 The 2013 Report Card for Americas Infrastructure graded our bridges and rails a C+ and roads and transit a D based on capacity, conditioning, funding, future need, operation and maintenance, public safety and resilience.16 A separate ASCE report on surface transportation published in 2011 predicts that the poor condition of our infrastructure could cost the U.S. economy about 876,000 jobs and constrain GDP growth by almost $900 billion by 2020.17 Because surface transportation is so vast and encompasses so many different modes of transportation, its condition can vary significantly depending upon location and number of users. For example, infrastructure is generally poorer in urban areas compared to rural areas. Its sometimes this difference in perception that can mask infrastructures economic impact and societal urgency relative to other public services. Additionally, the overall condition of state-controlled roads has actually improved over time, according to a recent study.18 Yet many problems remain to address, and rather than throw money at the problem; targeted spending is likely the answer.
15
National Surface Transportation Policy and Revenue Study Commission, http://transportationfortomorrow.com/global/did_you_know.htm 16 2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/ 17 Failure to Act: The Economic Impact of Current Investment Trends In Surface Transportation, American Society of Civil Engineers, Jul. 2011, http://www.asce.org/infrastructure/report-card/economic-study/ 18 Examining 20 Years of U.S. Highway and Bridge Performance Trends, Reason Foundation, Feb. 21, 2013, http://reason.org/news/show/20-years-of-highway-bridge-performa 19 2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/ 20 The United Association supports water infrastructure: http://www.uagetinvolved.org/updates/WaterInfrastructure_IssuePaper.pdf
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population of more than 100,000.21 Older pipes compromise public safety and cost money in inefficiencies and emergency repairs. More than 240,000 water main breaks were reported in the U.S. in 2008 alone.22 The risk of pipeline leakage should be addressed with a comprehensive approach so that our pipeline infrastructure is resilient, efficient and secure. Although pipes are our greatest capital need, expanding and improving wastewater treatment plants as well as providing equipment to prevent sewer overflows are also needed. A 2009 report by the General Accounting Office (GAO) found that the EPA estimates that 850 billion gallons of untreated sewage is discharged from wastewater systems into surface waters each year, which can contaminate the drinking water supply.23 And theres good reason to fund water infrastructure from an economic perspective. Water infrastructure is an effective and underused job creation opportunity. Needed investment in this area could create millions of jobs across various sectors, not just construction.24 The Alliance for American Manufacturing (AAM) commissioned a study, published in 2009, that found water infrastructure projects to be leaders in job creation, with nearly 20,000 total jobs (i.e., direct, indirect and induced) for every $1 billion spent.25 The Clean Water Council also released a study that same year that found investing $1 billion in water infrastructure could produce even higher job benefits generating between 20,000 and 26,000 full-time jobs.26 Additionally, the U.S. Conference of Mayors (USCM) estimates that every job created in water infrastructure adds 3.7 jobs elsewhere, and for each dollar invested in water infrastructure $6.35 is added to the national economy.27 Theres a significant need for skilled labor to perform
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Ibid. Ibid. 23 Ibid and GAO report number GAO-09-657, Jun. 2009, http://www.gao.gov/assets/300/291776.html 24 LiUNA! Testimony of Terence M. OSullivan General President Laborers International Union of North America Transportation and Infrastructure Committee, U.S. House of Representatives, Feb. 13, 2013 (figures attributed to the American Association of State Highway and Transportation). 25 How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth, Commissioned by the Alliance for American Manufacturing, Jan. 2009 http://americanmanufacturing.org/files/peri_aam_finaljan16_new.pdf 26 Sudden Impact, Clean Water Council, Feb. 2, 2009 draft, http://www.acec.org/advocacy/committees/pdf/water_projects_020209_draft.pdf 27 Mayors Water Infrastructure Report Shows Investment Yields High Returns ,The United States Conference of Mayors, , Aug. 14, 2008 (press release), http://usmayors.org/urbanwater/documents/NYWATERREPORTRELEASE_081408.pdf
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this work in order to ensure proper repairs and modernizations are effective in protecting public and environmental health; union investment in worker training could be leveraged.
Electricity
Our energy infrastructure earned a D+ on the 2013 Report Card for Americas Infrastructure due to its poor condition.28 Despite greater investment in power transmissions, limited maintenance, permitting issues and weather events have led to more power interruptions and failures.29 Much of our energy infrastructure was built a half century ago well before the digital age and innovations in clean energy technologies occurred. Growing demand for electricity coupled with the desire to integrate new energy sources into our existing grid has put pressure on our energy infrastructure, stretching its limits to accommodate more than it was planned to do. Aside from needing to make critical improvements to an aging and outdated electrical grid, its also necessary that we invest in its supporting infrastructure, like electric distribution centers, new transformers and technology. This will ensure we have an advanced energy infrastructure that can continue to effectively deliver power to users.
Maritime
Maritime transportation is an important economic driver and a critical element of our nations transportation and security systems. Our waterways infrastructure spans more than 12,000 miles of commercial inland and intra-coastal waterways and includes more than 240 lock chambers together with 300 commercial harbors.30 Our maritime industry is responsible for transporting 10 percent of all tonnage throughout the U.S. and nearly 20 percent of the entire value of all freight moved across our whole domestic transportation system.31 The Corps oversees all of our commercial waterways, including the 11,000 mile-stretch that comprises the Inland Waterway System (IWS), which levies a federal fuel tax to navigate. The Corps are primarily responsible for developing, operating and
28
2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/a/#p/grade-sheet/gpa 29 Ibid. 30 American Society of Civil Engineers, Failure to Act: The Impact of Current Infrastructure Investment o n Americas Economic Future, Jan. 15, 2003, http://www.asce.org/failuretoact/ 31 Ibid.
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maintaining our commercial waterways infrastructure as well as maintaining and regulating channel depths through dredging and water management. Infrastructure projects for commercial waterways developed by the IWS dont have a local cost-sharing partner, and instead are funded partly by general revenues from the U.S. Treasury and partly from the Inland Waterways Trust Fund (IWTF). The IWTF is financed by a $0.20 per gallon diesel fuel assessment thats collected for river-miles traveled across the IWS. Operation and maintenance for the IWS is funded from general revenues. Maritime policy isnt currently included in the surface transportation reauthorization bill.32 The failure of Congress to overlook this systems importance could cause the U.S. to lose its position in the global economy to countries, like China, that continue to make critical investments. By not adequately investing in ports and harbors, the jobs of more than 500,000 workers employed in this industry are put at risk. Additionally, many of our levees were built over 50 years ago. The ASCE found that repairing and restoring our national levees could cost more than $100 billion spending thats critical to protect homes, businesses and farmland from flooding.33
Aviation
Eighty percent of U.S. passenger origin and destination movements that account for 343 million trips each year occur at 35 airports within the nations top 15 markets.34 The Federal Aviation Administration (FAA) predicts that enplanements in these 15 markets will grow by 30 percent by 2020 and 121 percent by 2040.35 Consequently, air and ground congestion related to aviation at major airports and surrounding regions is an increasing threat to economic productivity. Its largely because weve fallen short on
32
The Vital Role of Maritime Transportation In Our Economy, Transportation Trades Department, AFL-CIO, Mar. 2012, http://www.ttd.org/policy-statements/statements-archives/2012-statements/the-vital-role-ofmaritime-transportation-in-our-economy/ 33 U.S. Gets Low Marks On Infrastructure From Engineers Group, NPR, Mar. 19, 2013, http://www.npr.org/2013/03/19/174767342/upgrading-americas-failing-infrastructure-could-cost-1-6trillion 34 American Society of Civil Engineers, Failure to Act: The Impact of Current Infrastructure Investment on Americas Economic Future, Jan. 15, 2003, http://www.asce.org/failuretoact/ 35 Ibid.
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aviation, which has not kept pace with the needs of our national economy that the 2013 Report Card for Americas Infrastructure gave the system a D.36
Federal
Infrastructure is the foundation of our nation. It was built with a strong federal role and should be expanded and maintained with a strong federal role. There isnt a single American who doesnt benefit from and doesnt want good roads and safe bridges,
36
2013 Report Card for Americas Infrastructure, The American Society of Civil Engineers, http://www.infrastructurereportcard.org/a/#p/grade-sheet/gpa 37 Building Minds, Minding Buildings, http://www.aft.org/pdfs/psrp/bmmbcrumbling1106.pdf 38 Effects on Healthcare Environmental Design and Medical Outcomes, Roger S. Ulrich, Ph.D., International Academy for Design and Health, http://treebenefits.terrasummit.com/Documents/Health/Effects%20of%20Healthcare%20environments.pdf
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clean drinking water and efficient airports, waterways, abundant energy and good jobs.39 Federal governments fundamental authority is to ensure that our infrastructure systems are safe, efficient and reliable. It sets the vision for how our network of infrastructure systems should look and function. Any effort to eliminate the federal governments role and shift responsibility to the states ignores our nations history and the achievements made by Presidents Hamilton, Jefferson, Lincoln, Eisenhower and Reagan who understood that a basic transportation infrastructure allows for economic development and promotes expansion. Furthermore, infrastructures needs are simply beyond the capacity of state and local governments to address. If the federal government were to shift a greater share of responsibility to states and municipalities, in all likelihood, our infrastructure would become fragmented and inefficient; productivity would decrease; and economic activity would slow. Although private investment may provide a supplemental resource, theres not enough private capital available to replace federal investment. Compounding the funding problem in the immediate future is the federal budget sequester, which affects are still largely unknown. The sequestration imposes damaging cuts to transportation that will reduce federal spending at a time when our economy is fragile and many workers are unemployed. While the full impact of these cuts wont become apparent for several months, spending reductions cut across all modes of transportation and federal agencies. Although the Highway Trust Fund (HTF) that funds the majority of highway and transit programs is protected, discretionary funding that provides grants for new or expanding transit systems will be impacted, which could halt projects and result in job loss in multiple states. The Maritime Security Program that provides naval support also stands to lose funding. It faces cuts higher than those imposed on non-defense discretionary programs, and federal maritime workers serving defense functions most likely will be affected. Since taking office four years ago, President Obama has made infrastructure investment a priority. Throughout his time in the White House, he has vocalized his strong commitment to rebuilding Americas infrastructure, and repeatedly says that making our infrastructure safer, makes businesses and workers more competitive in a global
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economy. Above all, the President understands the potential that greater infrastructure investment provides to unleashing thousands of good-paying jobs for projects that cant be outsourced. In his recent State of the Union40 address and subsequent Fiscal Year 2014 budget41, the President proposed creating a fix-it-first program that would put unemployed workers back to work as quickly as possible on our nations most urgent infrastructure repairs. His budget specifically calls for an initial, upfront investment of $50 billion for infrastructure, $40 billion of which would be spent on maintenance and updates for existing infrastructure as part of the fix-it-first program. The remaining $10 billion would be used to attract private capital for high-value projects through the Rebuild America Partnership that includes creating a National Infrastructure Bank (NIB) in order to upgrade and modernize maritime ports, pipelines, schools and other systems businesses rely on to remain competitive. His proposed Rebuild America Partnership would get $4 billion to implement expansions of the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Transportation Investment Generating Economic Recovery (TIGER) Discretionary Grant programs that provide debt financing for infrastructure projects, and his budget calls for $7 billion for the American Fast Forward (AFF) bond program that would be used to attract new sources of capital. The Presidents budget also includes funding for NextGen and high-speed rail, in addition to an increase in federal transportation spending that would cut red tape associated with permitting, regulatory review, procedures and policies to cut delivery times in half for infrastructure projects. The programs and policies expressed in the State of the Union and included in the Presidents budget expand on 2009 Recovery Act financing, which put American workers to work improving more than 350,000 miles of U.S. roads and repairing or replacing over 20,000 bridges, since the President took office. Additionally, the U.S. Department of Transportation (DOT) has built or improved more than 6,000 miles of rail, 40 rail stations and purchased 260 passenger rail cars and 105 locomotives. The Presidents
40
Note: Information for this paragraph and the following paragraph came from the text of President Obamas 2013 State of the Union address, available here: http://www.nytimes.com/2013/02/13/us/politics/obamas-2013-state-of-the-unionaddress.html?pagewanted=all&_r=0 as well as the White House Fact Sheet: The Presidents Plan to Make America a Magnet for Jobs by Investing in Infrastructure, available here: http://www.whitehouse.gov/thepress-office/2013/02/20/fact-sheet-president-s-plan-make-america-magnet-jobs-investing-infrastru 41 The Presidents Budget for Fiscal Year 2014: http://www.whitehouse.gov/omb/budget
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motivation to address the nations infrastructure needs has resulted in the investment of more than 350 miles of new rail and bus rapid transit, in addition to supporting Americas manufacturing industry by investing in 45,621 buses and 5,454 rail cars. It will be up to Congress as to whether the Presidents proposals and budget gain support. Also, on the table are proposals to cap or eliminate tax-exempt municipal bonds conceivably the single most important financing tool used by state and local governments to support essential infrastructure investments. These bonds represent a partnership between the federal government and state and local governments and private investors in contributing to public infrastructure projects. Limiting or taking away that benefit would jeopardize financing for future projects and therefore should be opposed. Additionally, a number of important pieces of legislation that directly impact federal infrastructure spending are either up for reauthorization this year or will be in the years that immediately follow. If any of these bills should fail to pass, it could limit states abilities to leverage public and private financing and undoubtedly would reduce essential funding to states for infrastructure projects, potentially forcing governors to seek new funding alternatives to make up the loss. The Looking Forward section of the paper discusses various bills in more detail and makes the case for why its important that Congress pass critical infrastructure legislation.
State
A states role can widely vary by infrastructure system, with lines of distinction sometimes blurred. For example, the federal government provides only minimal funding for school facilities through a few programs. School facility maintenance and modernization is traditionally viewed as a local issue, yet its relatively easy to make the case that these facilities are economic assets that are of national interest, in addition to health and safety concerns. Furthermore, infrastructure maintenance and operation sometimes involves various owners and operators public and private; such is the case with water, electricity, maritime and aviation systems, among others, with the state playing only a limited role.
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* Airport needs and gaps include anticipated cost of NextGen $20 billion by 2020 and $40 billion by 2040.
Surface Transportation
Americas system for financing surface transportation infrastructure is obsolete. Although the statement can be applied across most infrastructure systems, its especially true for surface transportation, which represents the biggest funding gap of all systems, illustrated in Chart 2. How surface transportation is financed sheds light on our growing spending problem, and overshadows its devastating effects on our transportation system and overall economic competitiveness. If nothing is done to fix surface transportations funding mechanisms, millions of jobs will be in danger and our freight and passenger rail transportation systems could further decline. With 1.3 million construction workers out of work and the construction industrys unemployment rate at 15.7 percent the highest rate of any sector its extremely important that Congress address this problem.42 Adequate investment in surface
42
U.S. Department of Labor, Bureau of Labor Statistics, Economic News Release, Mar. 8, 2013, http://www.bls.gov/news.release/empsit.nr0.htm
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transportation could create eight million jobs over four years and drastically reduce the number of unemployed construction workers nationwide.43 Chart 2 figures show that if nothing is done to increase spending; the U.S. will be short $846 billion for critical surface transportation projects by 2020 and more than $3 trillion by 2040. With the insolvency of the HTF surface transportations prime financing mechanism for roads and bridges forecasted in 2015, politicians shouldnt prolong reform any longer, as inaction will only worsen the problem. The federal government currently imposes an excise tax of 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel whose proceeds are used to fund the HTF. Because its levied as a flat tax, its not indexed for inflation, and consequently its value has fallen by about 33 percent since 1993 the last time the tax was raised.44 For comparison, the 20-year difference between the rate charged today and the rate charged in 1993 is about 12 percent of the cost of gasoline.45 As a result, the HTF now collects significantly less revenue than what it pays out. Additionally, outlays to states havent reflected the decline in collections. Between 2005 and 2009, each state actually got a higher allocation than it contributed, with monies from the General Fund used to cover the deficit.46 Absent any changes, the HTF can expect to have a $365.50 billion shortfall over the next 23 years.47 Intensifying calls for reform is that the trust funds insolvency is projected to coincide with the expiration of the surface transportation reauthorization legislation, known as MAP-21. MAP-21 stabilized the trust expenditures in order to provide Congress more time to reform the HTFs financing mechanism. However, if MAP-21 expires, yearly investments in transit would decline from $11 billion to $3.5 billion and highways could lose a staggering $35.5 billion.48 A scenario like this one would almost certainly halt planned projects and put millions of jobs at risk.
43
LiUNA! Testimony of Terence M. OSullivan General President Laborers International Union of North America Transportation and Infrastructure Committee, U.S. House of Representatives, Feb.13, 2013 (figures attributed to the American Association of State Highway and Transportation). 44 Transportation Trades Department, AFL-CIO, Policy Brief, Options for Avoiding the Highway Trust Fund Cliff, Adopted. Feb. 24, 2013 45 Ibid. 46 Ibid. 47 Ibid. 48 Ibid.
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Gas Tax
One approach to address the HTF insolvency problem and increase collections would be to simply increase the gas tax assessment and index it for inflation. A proposed rate increase has been a part of various debt relief packages in the past.49 For example, in late 2010, through contemporary discussion, the Simpson-Bowles Commission recommended increasing the gas tax by 15 cents per gallon over three years, with revenues committed to fund transportation.50 Although the recommendation hasnt been implemented, discussion of this nature should continue to be a part of budget negotiations and ultimately included in a deficit agreement. The National Conference of State Legislatures (NCSL) reports that at least 17 states have taken a leadership role on the gas tax proposing to reform or supplement it with fee increases in order to fund repairs for roads and bridges.51 The majority of states dont index their gas tax for inflation, and consequently revenue generated continues to fall short for whats needed.
49 50
Ibid. Ibid. 51 State Gas Taxes Head Higher, The Wall Street Journal, Apr. 3, 2013, http://online.wsj.com/article/SB10001424127887323916304578401022066112256.html 52 Ibid.
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Oregons Mileage Fee Concept and Road User Fee Pilot Program, Oregon Department of Transportation, 2007 http://www.oregon.gov/ODOT/HWY/RUFPP/docs/RUFPP_finalreport.pdf 54 Oregon, Road Usage Charge Pilot Program, http://www.oregon.gov/ODOT/HWY/RUFPP/Pages/rucpp.aspx 55 National Evaluation of the Mileage-Based Road User Charges, University of Iowa, Public Policy Center, Transportation Policy, http://ppc.uiowa.edu/transportation/study/national-evaluation-mileage-basedroad-user-charge
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With rapidly falling fuel consumption per mile driven, and thus lower fuel taxes to maintain the highway system, something other than the traditional motor vehicle centsper-gallon tax is inevitable but politically challenging.
56
Transit Farebox Recovery and US and International Transit Subsidization: Synthesis, Washington State Department of Transportation, Oct. 8, 2009, http://www.wsdot.wa.gov/NR/rdonlyres/55CF12C9-9D4E4762-A27A-407A44546BE2/0/TrasitFareboxRecoveryandSubsidiesSynthesisKTaylorFINAL2.pdf 57 Transportation Trades Department, AFL-CIO, Policy Brief, Options for Avoiding the Highway Trust Fund Cliff, Adopted. Feb. 24, 2013
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Electricity
As the data in Chart 2 shows, we should be spending about $15 billion more each year from now until 2020 to prevent the projected $107 billion funding gap in our electricity infrastructure from happening. According to the ASCE, most of the shortfall will affect grid investments. They project that the U.S. needs to spend $95 billion more just to
58
Financing Solutions for Water Infrastructure Investment, American Water, http://files.shareholder.com/downloads/AMERPR/1789227155x0x590366/A40AD811-D0CF-4463-AF11103BB583E32C/Financing_Solutions_White_Paper_Combined-FINAL-8.8.12.pdf 59 Clean Water Act summary: http://www.epa.gov/lawsregs/laws/cwa.html 60 Safe Water Drinking Act summary: http://water.epa.gov/lawsregs/guidance/sdwa/upload/2009_08_28_sdwa_fs_30ann_sdwa_web.pdf 61 Drinking Water Conclusion, 2013 Report Card for Americas Infrastructure, http://www.infrastructurereportcard.org/a/#p/drinking-water/conclusion 62 Ibid.
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modernize the grid, which could limit the occurrence of brownouts and blackouts, saving businesses approximately $126 billion, and thereby protect against the loss of 529,000 jobs and $656 billion in personal income losses for American families. 63 Upgrading our entire energy infrastructure would likely require as much as $2 trillion over the next two decades, but holds the potential to create as many as 200,000 jobs every year for the next 20 years for workers ready to put their skills to task.64
Maritime
Chart 2 illustrates the funding gap forecasted for our inland waterways and maritime ports. If these predictions hold true, import and export costs would likely increase, which could slow business activity and result in job loss. Since nearly 30 percent of vessels traveling through domestic ports are already inhibited because of deficiencies with our navigation channels, the economic and job loss that could occur if we continue to ignore maintenance problems would be devastating.65 Part of the reason the funding gap came to bear is that Congress has diverted funding from the Harbor Maintenance Trust Fund (HMTF) to other needs when the user fees assessed on cargo arriving in U.S. ports were meant to fund operation and maintenance of navigation channels.66 Consequently, theres now an excess of critical maintenance projects. Additionally, the trust fund (IWTF) that pays for half of the maintenance and development costs of our commercial waterways infrastructure doesnt generate enough revenue to support its needs. Consequently, its funding shortfall has reduced the overall amount that can be invested in construction projects, which has resulted in project delivery delays and increased total construction costs. Although proposals have been made to increase and supplement the trust funds revenues, no proposal has yet to advance through the House or Senate. Instead, earlier water resources development acts have been used to reform the fund.
63
American Society of Civil Engineers, Failure to Act: The Impact of Current Infrastructure Investment on Americas Economic Future, Jan. 15, 2003, http://www.asce.org/failuretoact/ 64 Modernize Our Outdated Energy Infrastructure, Politico, Mar. 18, 2013, http://www.politico.com/story/2013/03/modernize-our-outdated-energy-infrastructure-89026.html 65 The Vital Role of Maritime Transportation In Our Economy, Transportation Trades Department, AFL-CIO, Mar. 2012, http://www.ttd.org/policy-statements/statements-archives/2012-statements/the-vital-role-ofmaritime-transportation-in-our-economy/ 66 Ibid.
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Aviation
Its not that we just need to expand and build more airports to address our aviation infrastructure needs; the key to having less congested airspace is an Air Traffic Control (ATC) system that can handle the volume of air traffic in our skies. NextGen67 is the broad name used to describe the transformation of our National Airspace System (NAS) from a ground-based system to a satellite-based system. It has the capacity to relieve airspace congestion, improve air safety and decrease aviations impact on the environment. These combined benefits will enable aircraft to fly more direct routes and minimize delays. NextGen is costly, but necessary, representing our aviation infrastructures most pressing need. Figures in Chart 2 show that the majority of the funding gap in aviation, at least for 2020, is due to NextGen.
Public Schools
A 2013 State of Our Schools report finds that schools are currently facing a $271 billion deferred maintenance bill just to bring buildings up to working order. 68 This equates to a cost of approximately $5,450 per student.69 The report also estimates that it would cost $542 billion to bring primary and secondary schools both into good repair and address modernization needs over the next 10 years.70 Yet this data may not fully capture the true size and scope of the problem because little data is available. It has been nearly 20 years since the federal government has conducted a comprehensive assessment of the condition of its public schools.71 The last comprehensive report on Americas school facilities was conducted by the GAO in 1995 and indicated that 15,000 U.S. schools were circulating air that, at the time, was deemed unfit to breathe.72 Another challenge is that school districts with a higher proportion of low-income children generally have less funding for new construction, renovations and maintenance and repair than districts with wealthier student populations.73 It would cost at least $50 billion to bring schools in lower income districts up to parity.74
67 68
NextGen, Federal Aviation Administration, http://www.faa.gov/nextgen/why_nextgen_matters/what/ 2013 State of Our Schools Report, The Center for Green Schools, http://centerforgreenschools.org/Libraries/State_of_our_Schools/2013_State_of_Our_Schools_Report_FINA L.sflb.ashx 69 Ibid. 70 Ibid. 71 Ibid. 72 Ibid. 73 Modernizing Schools: Making the Case for Federal Investment, National Education Association, 2008 74 Ibid.
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Although increased education infrastructure spending for capital construction is needed, states should carefully consider whether its advantageous to divert funding from the education general fund to fill this gap, as a reduction in funding levels could jeopardize maintenance of effort funding requirements and impact federal funding. Additionally, states might want to avoid cutting tax rates in exchange for closing corporate tax loopholes, as doing so, doesnt necessarily compensate for short-term revenue gains. The federal government, with state and local support, could conduct regular surveys on the condition of its public schools, so policymakers have a better understanding of what needs to be done and how to best allocate resources. Among the recommendations in the State of Our Schools Report are calls for75: Better data collection and issues, including building age and site size as well as separate accounting for utility and maintenance expenditures; and allowing for differentiation in capital accounting for new construction and renovation. These changes would allow the condition and upkeep of our public schools to be better monitored and allow for improved prioritization of investment. Providing more financial and technical assistance to states that could enable them to more easily include facility data in their longitudinal education data systems. Designating a federal agency to perform a facility condition survey every 10 years, with the first one scheduled immediately to assess the conditions of our public school infrastructure. Funneling more federal dollars to school districts with the greatest maintenance and repair needs either through direct investment or alternative financing mechanisms. If the federal government made a one-time contribution of $20 billion to school districts to eliminate a portion of their deferred
75
Center for Green Schools, 2013 State of Our Schools Report: Recommendations, http://centerforgreenschools.org/Libraries/State_of_our_Schools/2013_State_of_Our_Schools_Report_Reco mmendations.sflb.ashx
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maintenance, its estimated that it could create nearly 250,000 skilled maintenance jobs with $6 billion for materials and supplies.76
Modernizing Schools: Making the Case for Federal Investment, National Education Association, 2008 How Five Leading Safety-Net Hospitals Are Preparing For The Challenges And Opportunities Of Health Care Reform, Health Affairs, Aug. 2012 http://content.healthaffairs.org/content/31/8/1690.full?sid=98344466-2e40-4f3d-b62c-67b188af6200
78 79
Ibid.
The Potential Impact of the Affordable Care Act on Urban Safety-Net Hospitals, National Association of Urban Hospitals, Sept. 2012, http://www.nauh.org/component/option,com_rubberdoc/format,raw/id,115/view,doc/ 80 Local Public Hospitals: Changing with the Times, Center for Studying Health System Change, Research Brief, no. 25, Nov. 2012, http://www.hschange.com/CONTENT/1326/1326.pdf and How Five Leading Safety-Net Hospitals Are Preparing For The Challenges And Opportunities Of Health Care Reform, Health Affairs, Aug. 2012, http://content.healthaffairs.org/content/31/8/1690.full?sid=98344466-2e40-4f3d-b62c67b188af6200 81 The Promise And Peril Of Accountable Care For Vulnerable Populations: A Framework For Overcoming Obstacles, Health Affairs, Aug. 2012, http://content.healthaffairs.org/content/31/8/1777.full?sid=229d9a80-3a0f-4584-aa6a-6661d3afc1f2
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However, access to capital is a critical issue for safety net hospitals, including public hospitals. While ACA provides funding for the capital needs of community health centers, it doesnt provide comparable amounts for safety-net hospitals. 82 Dislocations in the credit enhancement market83 as well as a negative outlook for state and local governments finances84 have also made it more challenging to raise capital through tax-exempt bonds. New investment targeted to safety-net hospitals could have a tremendous impact on the implementation of health care reform. States could: Consider using Medicaid waivers under Section 1115 of the Social Security Act (SSA) to provide capital to reposition safety-net hospitals to serve vulnerable patient populations. Section 1115 provides the Health and Human Services (HHS) Secretary freedom to authorize experimental projects that promote the goals of the Medicaid statute and demonstrate a new innovative strategy.85 The Secretary may either waive a required element of a Medicaid state plan or may authorize matching funds for costs that couldnt otherwise be matched under the Medicaid program. This last point would give states access to capital that could be distributed to safety-net hospitals for facility upgrades. However, states should attempt to avoid using Section 1115 waivers to restrict Medicaid eligibility or enrollment, or to transfer state decision-making authority to private insurers.
82
Toward a High Performance Health Care System for Vulnerable Populations: Funding for Safety -Net Hospitals, The Commonwealth Fund, Mar., 2012, http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2012/Mar/1584_Bachrac h_funding_safety_net_hosps_final.pdf 83 Bond Insurers Continue to Struggle Through 2012, The Bond Buyer, Feb. 9, 2013, http://www.bondbuyer.com/issues/122_28/municipal-bond-insurance-industry-continued-decline-20121048543-1.html 84 Moody's: Outlook for US local governments remains negative in 2013, Moodys Investor Service, Feb. 21, 2013, http://www.moodys.com/research/Moodys-Outlook-for-US-local-governments-remainsnegative-in-2013--PR_266803
85
Toward a High Performance Health Care System for Vulnerable Populations: Funding for Safety -Net Hospitals, The Commonwealth Fund, Mar., 2012, http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2012/Mar/1584_Bachrac h_funding_safety_net_hosps_final.pdf See also: Social Security Act 1115.42 U.S.C. 1315.
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Provide a state credit enhancement of hospital bonds for local issuers. A number of states already have some type of credit enhancement program for public schools, which allow districts to incur lower interest costs when accessing capital markets, and thus reduce project costs. A program like this one could provide bondholders an added layer of security that would potentially unleash more capital for hospital construction projects.
Offer funding for intermediaries, such as community development financial institutions, so they can expand their lending capabilities to more credit worthy borrowers.
Establish a state capital grant program with requirements for matching financing to maintain and improve safety-net hospitals.
Allow participants in demonstration programs to receive an advanced Medicaid payment based on a portion of future reimbursement that could be used to cover project start-up costs.
Create a state New Markets Tax Credit (NMTC) program that would provide tax credits to investors for equity investments in safety-net hospital capital improvement projects in low-income areas that serve disadvantaged populations. Such a program could be modeled after a similar one that the federal government offers.
Financing Strategies to Increase and Supplement Investment and Create Jobs Traditional Debt Financing and Assistance
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Traditional debt financing instruments and assistance provided by the federal government to states will continue to be important, as states attempt to address their infrastructure needs and close the funding gap.
Tax-exempt municipal bonds allow states to attract investors, since investors arent obligated to pay federal income tax on the interest earned on the bond. In turn, states can borrow money at lower interest rates to fund infrastructure projects.
86
Protecting Bonds to Save Infrastructure and Jobs 2013, National Association of Counties (NACO), Feb. 2013
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Although the tax exemption has been in place for over a century, certain federal proposals are calling for either capping or ending it entirely. Both options could threaten the future of municipal bonds. Capping the exemption so that only a certain amount of interest below the cap is tax-free would mean that investors would pay more in federal taxes, but it would also increase bond interest rates, so states would pay more, too. If municipal bonds completely lost their tax-exempt status, interest rates for states would almost certainly rise and it would likely be much harder for them to find investors for future projects. Its projected that taxing municipal bonds could increase borrowing costs by as much as 2 percent, which would cause infrastructure costs to jump by as much as 25 percent.87 The National Association of Counties (NACo) estimates that applying the federal income tax to municipal bond interest would have cost state and local governments nearly $500 billion more in interest expense for tax-exempt municipal bonds issued between the years 2003 and 2012.88 Congress should protect this important tax exemption to ensure states have tools to finance infrastructure investment, especially at a time when infrastructure needs exceed available funds and workers are desperate for jobs.
Governors Fear Loss of Bond Tax Exemption, Stateline, Feb. 26, 2013, http://www.pewstates.org/projects/stateline/headlines/governors-fear-loss-of-bond-tax-exemption85899454447 88 Ibid. 89 A Stealth Tax Subsidy for Business Faces New Scrutiny, New York Times, Mar. 4, 2013, http://www.nytimes.com/2013/03/05/business/qualified-private-activity-bonds-come-under-newscrutiny.html?pagewanted=all&_r=0
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PABs provide an important tax-exempt financing option for state and local governments. Any changes to this tax benefit could impact state governments ability to finance projects, which could be especially harmful to states if federal funding is also cut for infrastructure projects.
and port initiatives in states throughout the U.S., which address national needs. The discretionary grant program provides the federal government the direct authority to scrutinize projects for selection, and to review options for delivering projects more efficiently, while also reducing construction costs. Four separate rounds of funding were awarded from 2009 through 2012, with a total of $3.1 billion in grants issued.90 Although program demand exceeds the supply of funding based on the number of applications DOT has received, opponents have criticized the program for political reasons claiming it lacks transparency, and vow to scrap the program for good. TIGER grants help fund critical infrastructure projects and put people back to work with public financing. Every effort should be made to ensure that the DOT continues to receive annual appropriations for this program.
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action to address infrastructures chronic underfunding problem. Of course, how these initiatives are implemented is extremely important given the public and employee interest issues that have surfaced over the years. At a minimum, any innovative financing proposal, including a national infrastructure bank (NIB) or separate public private partnership (PPP or P3) should apply all relevant labor protections, such as: Davis-Bacon prevailing wage rules91; public employee protections; Section 13(c) transit labor protections; Railway Labor Act; the Railroad Retirement Act; the Railway Unemployment Insurance Act; the Federal Employers Liability Act and other related statutes as well as Buy America92 provisions. Project Labor Agreements93 (PLAs) should also be used as an option when a projects size and complexity warrants.
Primer on the Davis-Bacon Prevailing Wage Act, http://www.uagetinvolved.org/updates/DavisBacon_IssuePaper.pdf 92 Primer on Buy America provisions: http://www.dot.gov/highlights/buyamerica 93 Primer on Project Labor Agreements: http://www.uagetinvolved.org/updates/PLA_IssuePaper.pdf
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When public funds are involved, its inappropriate for private contractors to oversee the work of other private contractors. Thus, the legislation should provide for project oversight and inspection to be undertaken by public agency staff whose sole allegiance is to the public interest. The selection of projects by the banks should be an open, transparent process that provides the public with adequate time and sufficient information to carefully review the proposed financing and to comment on the merits of the project prior to any commitment of funding.
Partnerships
Paramount to attracting private capital, whether through an infrastructure bank or type of public-private partnership, is recognizing how investors value money. Applying the conventional infrastructure delivery model used for public financing to private financing may not be feasible. While its key that the private sector demonstrate theyre a dependable partner, so must state government to ensure that both risk and return are shared. For state government, this means that projects should be well-defined, deemed construction worthy and have passed all or most regulatory hurdles. A component often missing from the conventional model is a formula that estimates return on
94
Robert Puentes and Jennifer Thomas, Banking on Infrastructure: Enhancing State Revolving Loan
Funds for Transportation, The Brookings Institution, Sept. 12, 2012, http://www.brookings.edu/research/papers/2012/09/12-state-infrastructure-investment-puentes
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investment, weighing all financial costs and benefits without adjusting for the transfer of risk. Additionally, the use of private capital has been met with political challenges, mostly because the term public-private partnership has come to mean different things from private equity finance to public pension funds to labor stakeholders so that its real potential for public infrastructure innovation may not be fully apparent, depending on the stakeholder group defining it. Chart 4 is a useful illustration showing why infrastructure reform across multiple aspects of the delivery system is needed if we are to create a marketplace conducive for investors to engage with government partners. By aligning and integrating various elements of our current approach, well be better positioned for reform thats necessary to attract investment and accelerate project delivery. Chart 4: Infrastructure Acceleration Layer Cake
Regional infrastructure exchanges, I-Banks, Green-Banks, etc. State-Based one-stop entities ease investor concerns, and serve as members of regional State/Local project bundling and technical assistance accelerates outcomes and scale A New Pipeline better infrastructure projects and priorities fostered by using standard Common Apps and the community investment dashboard model
Source: CH2MHill
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Performance-Based Infrastructure
The West Coast Infrastructure Exchange (WCX)95 is a regional investment facilitator uniting governments, non-profits as well as community and business groups and labor organizations from west coast states, California, Oregon and Washington as well as British Columbia to collaboratively address regional infrastructure challenges, with funding currently provided by the Rockefeller Foundation. Its goal is to close the gap between available funding and infrastructure needs across multi-jurisdictions by aligning various aspects of project delivery in a way that attracts investors through a new approach called, performance-based infrastructure. It intends to: Strengthen project management; Standardize investment guidelines; Create a clearinghouse for investment-ready projects, including federal funding streams, public bonding options and private investment; Help investors identify and mitigate against risk by standardizing financing protocols; and Serve as a regional center of expertise to foster best practice sharing.
The Exchange is still in its early stages of development having just been formed in 2012 and so far, no projects have been chosen. Some partners have identified small-scale energy and water projects as priorities, but it will eventually serve projects of all sizes, large and small. Throughout 2013, it will function with an interim management team, representing each partner office coordinated by the Oregon State Treasury. After the framework is established to identify and review projects, a Director, experienced in public infrastructure management, will be chosen in April 2013. At scale, the Exchange hopes to serve as a translation point between public sector projects and private capital and as a regional center of expertise if a new national infrastructure system based on innovative partnerships emerges in Congress.
95
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United States Building Energy Efficient Retrofits, The Rockefeller Foundation, Mar. 2012, http://www.rockefellerfoundation.org/uploads/files/791d15ac-90e1-4998-8932-5379bcd654c9building.pdf 97 Ibid. 98 United States Building Energy Efficient Retrofits Market Sizing and Financial Models, State Innovation, 2013, http://www.stateinnovation.org/Uploaded-Documents/ee-retrofits.aspx 99 United States Building Energy Efficient Retrofits, The Rockefeller Foundation, Mar. 2012, http://www.rockefellerfoundation.org/uploads/files/791d15ac-90e1-4998-8932-5379bcd654c9building.pdf 100 Implementation Guide, Billion Dollar Green Challenge, Jan. 15, 2013, http://greenbillion.org/resources/ 101 More information about the Cool Schools Initiative is available here: http://www.oregon.gov/energy/SCHOOLS/COOL_SCHOOLS/Pages/Overview.aspx
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generated private sector jobs in the process. Following the audits, the legislature passed the Cool Schools Initiative that extended financing in the form of grants and loans to schools to conduct energy efficiency retrofits. In just its pilotphase, the program performed audits of nearly 400 schools, negotiated with 12 school districts to provide about $11 million in low-cost retrofit financing and committed to lending $4.7 million to eight school districts to retrofit 28 individual schools.102 The union-owned financial services company, Ullico, partnered with Oregon to invest up to $15 million to identify appropriate investments for energy efficient retrofits for public schools and infrastructure based on the pilots initial success.103 The innovation in Oregon is that the state provides the technical services to help local government identify and validate energy efficiency needs that make a project viable. Additionally, the state provides support to create financing models, which makes it feasible to complete low-cost energy efficiency upgrades. In effect, this reform centralizes the process ensuring scale efficiencies and a higher degree of expertise. States could consider a policy like this not just in colleges and schools, but across the public infrastructure.
American Federation of Teachers President Randi Weingarten and Ullico Join Gov. Kitzhaber to Announce Investment of up to $15 Million in Oregon Schools to Support Cool Schools Initiative, AFT Press Release, Nov. 10 2011, http://www.aft.org/newspubs/press/2011/111011.cfm 103 Ibid.
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projects.104 To date, the commitment has reached more than $2.7 billion of its total goal.105
Clinton Global Initiative: Investing in Post-Sandy Reconstruction and Other Critical Infrastructure
As part of the CGI pledge, the New York City Teachers Retirement System pledged $1 billion in new investments for infrastructure projects, such as improvements to transportation, power, water, communications and housing, in New York City and throughout the tri-state area.106 While all projects will be rated on the basis of their return and the funds fiduciary standards, potential investments could range from repairing bridges to rebuilding housing destroyed by the hurricane.107 Besides repairing and upgrading facilities used by hundreds of thousands of New Yorkers, the infrastructure fund could create thousands of jobs.108
NYC Teacher Pension Fund Pledges $1 Billion to Investments in Post-Sandy Reconstruction and Other Critical Infrastructure, Clinton Global Initiative, Press Release Dec. 13, 2012, http://press.clintonglobalinitiative.org/press_releases/nyc-teacher-pension-fund-pledges-1-billion-toinvestments-in-post-sandy-reconstruction-and-other-critical-infrastructure/ 105 Ibid. 106 Ibid. 107 Ibid. 108 Ibid. 109 Infrastructure Investment and Policy, The Bureau of National Affairs, Inc., Vol. 2, No.34, Aug. 22, 2011.
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and control. PPPs can have their place in the delivery of certain infrastructure projects, but they should be carefully managed to ensure theyre not used to weaken labor standards, eliminate public sector jobs or ignore public interest. States could: Pass comprehensive PPP legislation that would enable a state to enter into a contractual agreement with a private sector entity to engage them as a financer of infrastructure projects or as a provider of infrastructure related services if relevant labor protections were guaranteed. PPP legislation is an important first step between a public sponsor and a private entity, as it provides a level of predictability and transparency for the private partner to more actively participate in these kinds of arrangements, as the legislation typically prescribes a list of standards and rules, which govern a contract. Thirty-one states have enabling PPP legislation for highways, roads and bridges and 21 states have legislation for transit projects.110 Although states should be encouraged to use public financing over private financing whenever possible, particularly when municipal bonds are at record lows, debt limits and other constitutional requirements can limit that option, forcing states to seek private capital to finance critical projects. Create specialized government entities (often called PPP units) to ensure that technical capacity and expertise is in place so that PPP deals could be properly evaluated in order to protect public interests. Policymakers dont always have the right skill sets to effectively scrutinize multifaceted PPP proposals that often involve assessing complicated pricing deals, and as a result could unintentionally negotiate a bad deal for taxpayers. A PPP unit could therefore fulfill this skill gap and provide functions, like quality control, policy development and technical assistance as well as promote PPPs, thus providing a necessary safeguard to uphold public interest. States should consider also including voices in the decision-making process that represent public interest and labor, among other stakeholder groups to ensure their interests are well-protected, including public input and access to information prior to and throughout the bidding process. Only three states have dedicated units California, Virginia and Michigan.111
110
Emilia Istrate and Robert Puentes, Moving Forward on Public Private Partnerships, Brookings Rockefeller, Dec. 2011. 111 Ibid.
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Bar or limit certain privatization services. Some states already prohibit the privatization of services, like corrections, that have a high level of responsibility, and when its determined that a public employee can perform the service. Additionally, states could call for a thorough evaluation of all in-house alternatives, with public employees and unions providing input in preparing alternatives.
Establish prequalification and responsible contracting policies that ensure public contracts are awarded to responsible bidders, with demonstrated track records of providing high quality work and meeting project deadlines. This could include a screening process that requires bidders commit to meeting certain responsible contracting standards, including good wage and benefit requirements for workers, worker preference to those who would be displaced by a new contract, correctly classifying workers as employees and providing a history of work performed for other government agencies.
Lessons Learned
PPP contracts that lack certain safeguards can end up costing government more in the long-run. For example, in 2008 Chicago signed a 75-year contract with a private company to operate its parking meters in return for a $1.1 billion payment.112 Since taking over the meters, the company has raised rates each year, which now stand at $6.50 per hour the highest amount charged by downtown parking meters in the U.S. California signed a 35-year contract with a private company that agreed to finance, build
112
Dubious Distinction for Downtown Parking Meters, CBSNews.Com, Dec. 27, 2012, http://www.cbsnews.com/8301-201_162-57560922/dubious-distinction-for-chicago-parking-meters/
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and manage the South Bay Expressway a toll-road, with revenues paid to investors.113 The company filed for bankruptcy in 2010 just three years after the commitment was made. Virginia also has experience dealing with a failed PPP. Since entering into a contract with a private company to build and manage the Dulles Greenway in 1993, the highway is burdened with debt and tolls continue to rise.114
113
South Bay Expressway emerges from bankruptcy, U~T San Diego, Apr. 4, 2011, http://www.utsandiego.com/news/2011/apr/14/south-bay-expressway-emerges-bankruptcy/ 114 Dulles Greenway: Deal or No Deal?, Washington Business Journal, Feb. 8,2013, http://www.bizjournals.com/washington/print-edition/2013/02/08/dulles-greenway-deal-or-no-deal.html 115 See also: Minnesota Taxpayers Transportation Accountability Act Minnesota Statutes 2008, section 161.3203, subdivision 4 (Laws 2008, Chapter 287, Article 1, Section 16); most recent version published: https://www.revisor.mn.gov/statutes/?id=161.3203
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to awarding a contract. It could include a description of past work performed for government agencies and a general assessment showing whether the work was delivered safely, on schedule and within budget. Foster greater capacity and collaboration among government agencies responsible for infrastructure spending to conduct oversight activities and share best practices.
Looking Forward
Several pieces of federal legislation that impact infrastructure spending are either waiting for Congress to approve them or set to expire in the near future unless reauthorization occurs. Democratic governors are encouraged to put pressure on their congressional delegations to urge them to pass these bills calling for more federal funding. Failure to address these issues in a timely matter could impact infrastructure projects in every state, thus putting the publics safety at risk and increasing economic uncertainty, with job loss possible. Whenever public money is used in any form, protections should be in place to guarantee that such programs uplift the states and local communities and dont contribute to the lowering of living standards of workers by reducing wages and benefits. When federal dollars or assistance are used to leverage funds, as in the items listed below, all relevant labor protections should be guaranteed.
Moving Ahead for Progress in the 21 Century Act (MAP-21), A Summary of Highway Provisions, Jul. 17, 2012, http://www.fhwa.dot.gov/map21/summaryinfo.cfm
st
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revenues currently dont cover transportation infrastructure needs after adjusted for inflation, the uncertainty of future reauthorizations and funding levels remain uncertain unless Congress takes action to revise or replace the funding source (e.g., motor fuel taxes) so that revenues are aligned with current needs.
Merkley Passes Infrastructure Jobs Bill Through Committee, Oregon Senator Jeff Merkley Press Release, Mar. 20, 2013, http://www.merkley.senate.gov/newsroom/press/release/?id=172f2d41-d9a344ec-9324-c99adebfc73a
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within the EPA for water infrastructure investment, with an authorization of $50 million per year for five years, beginning in 2014 and ending 2018.118
Water Resources Development Act of 2013, http://www.epw.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_id=80046722-a3c02ffb-bc3e-d936ea2e2aef 119 A more thorough summary of the proposed Water Quality Protection and Job Creation Act is available here: http://www.cleanwaternetwork.org/sites/default/files/Summary%20of%20Water%20Quality%20Protection %20and%20Job%20Creation%20Act%20(3).pdf
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could be used to leverage private capital. The purpose of the legislation is to encourage building owners to take voluntary action to reduce emissions of air pollutants, per section 302 of the Clean Air Act, which would stimulate investment that generates new jobs and promote entrepreneurship and innovation in clean technology industries.
Lawmakers unveil an online sales tax bill, again Politico, Feb. 15, 2013, http://www.politico.com/story/2013/02/lawmakers-unveil-an-online-sales-tax-bill-again-87695.html
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consensus standards and ensure adequate staffing. Federal dollars are used to supplement local resources to ensure that fire departments large and small have the staffing to meet any challenges. Even with impending cuts through sequestration, the program should be maintained.
Urban Area Security Initiative and the State Homeland Security Grant Program
Both the Urban Area Security Initiative (UASI) and the State Homeland Security Grant Program (SHSGP) provides needed resources for large metropolitan areas and state government resources for emergency managers to plan, train and prepare for any response.
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State and local governments and their respective employees have strived to provide fair wages and benefits over the years. Proposals that would force employees to pay federal taxes on the value of their employer-sponsored health and retirement benefits would greatly reduce the standard of living for dedicated public employees and should be opposed.
Conclusion
Lost opportunity and productivity describe the current state of our infrastructure. Congested highways, crumbling bridges, dilapidated airports and leaky pipes threaten our nations competitive edge at a time when efficiency is vital to economic growth and job creation. Underinvesting in infrastructure hurts businesses and workers. Democratic governors across the U.S. are using various financing mechanisms to undertake infrastructure projects in their own states, with some making bold funding changes in order to generate more revenue for infrastructure. Yet bi-partisan support for more spending at the national level is necessary to adequately address Americas infrastructure challenges, especially when our economy is so fragile and jobs are desperately needed.
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