New Partnerships for Accelerating Infrastructure Investments

August 23, 2010

Thank you very much Mayor Villaraigosa. I am pleased to be here and very much appreciate your invitation to discuss Los Angeles’ 30/10 Initiative and transportation reform with you and Senator Boxer. As you know, the proposal is profoundly important to the future health and prosperity of the Los Angeles metropolitan area. But its effects will also be felt throughout the country. Not just because the regional economy of Los Angeles is the nation’s second largest, but because metropolitan leaders are looking at innovative proposals like 30/10 as a new direction for transportation that reorients the federal partnership with states and metropolitan leaders, along with local governments and the private sector.

The 30/10 plan is a prime example of the kind of 21st century compact that this country needs. It at once challenges our nation’s state and metropolitan leaders to develop deep and innovative visions to solve the most pressing transportation problems. At the same time, the federal government must become a permissive partner that also holds these places accountable for advancing their tailor-made, bottom-up vision. The reauthorization of the nation’s surface transportation law presents an important opportunity to put in place several key components of this new partnership.

There are also several megatrends that make this a salient and critical conversation today:

Our national economy is in the midst of broad and intensive restructuring. This is partially unintentional and precipitated by the most severe economic crisis in more than a generation. The reverberations from the Great Recession are still strongly felt. In response, major attention is being given to moving away from the over-leveraged, consumption-driven economy that preceded the recession to one focused on globalization, technology, and production.[1] Los Angeles exemplifies this trend with its post-recession emphasis on exports, low carbon infrastructure, and innovation.[2]

At the same time, the U.S. is undergoing the most remarkable socio-demographic changes it has seen in nearly a century. The number of seniors and boomers already exceeds 100 million, and racial and ethnic minorities accounted for 83 percent of our population growth this last decade. But unlike our international counterparts in Europe and parts of Asia, the U.S. is also growing rapidly overall. Our population exceeded 300 million in 2006, and we are on track to hit 350 million in the next 15 years.[3]

Cities and large metropolitan areas—Los Angeles, in particular—are leading this transformation and will, in many ways, determine the path forward. America’s 100 largest metros already account for two-thirds of our population and generate 75 percent of our gross domestic product. Comparing Los Angeles’ metro economy to that of other entire nations, it is just about the size of Turkey: the world’s 17th largest.[4] What is more is that most of the future growth of the U.S. is expected to occur in these places. About 60 percent of the future residential growth will be in just the 50 largest metros. Any path to prosperity will run directly through our metropolitan areas.[5]

The challenge is for us to connect this macro vision to metro reality, the macro to the metro. We need to leverage the market energy and creativity found in our metros with smart, game-changing federal and state actions. Because how, where, and in what form we build in the future carries far-reaching implications for the health of our environment, our energy and economic security, and will continue to be a barrier to our metropolitan areas’ economic success and our ability to compete globally.

But it also demands that we follow a different path than the one pursued in the past decade. Significant new constraints have emerged that will require us to throw out the old 20th century playbook and devise fundamentally new approaches for how we think about the built environment, growth and development patterns, and the quality of place.

One is the imperative of lower carbon. The world economy is rapidly moving away from carbon-based fuels and towards new sources of energy, driven in part by state, national, and international goals and agreements. Current discussions are too narrow have obscured how profound and market-driving a transition this will be.

Another is our nation’s current fiscal situation. After several years of national economic uncertainty, a tense new climate of austerity has sharpened debates over government spending, economic development, and the physical growth of states and metropolitan areas. Leaders in this environment are eager for fiscally prudent ways to simultaneously invest in what matters, stimulate their economies, create and retain jobs, and operate smarter and more efficiently.

The U.S. is also facing unprecedented constraints when it comes to its natural resources. Driven by cheap land, abundant water, and low cost energy, American development patterns over the last several decades followed the same sprawling, consumption-oriented style as our national economy. Accommodating future growth will require a long-time partnership of all relevant actors—public, private, and non-profit—to design the kinds of accessible and sustainable communities the market is increasingly demanding.

This is where the 30/10 Initiative comes in. While promoted as a short-term creator of much-needed construction jobs, it represents far more than that. It also gives Los Angeles and the watching nation an opportunity to redefine the physical form of metropolitan areas in light of these significant economic, technological, environmental, demographic, and fiscal imperatives and opportunities. Moreover, it is emblematic of the unusual kind of 21st century self-help that the federal government should explicitly recognize and embrace.

Increasingly, metropolitan areas around the country are acting on their own to envision, design, and finance the next generation transportation system in America. Those places—especially in the west—are taxing themselves, dedicating substantial local money, and effectively contributing to the construction of the nation’s critical infrastructure system.[6]

Transit projects like FasTracks in Denver, RailRunner in New Mexico, and FrontLines and Trax in the Salt Lake area are all substantially financed by voter-authorized payroll or sales tax increases and so epitomize the new spirit of bottom-up initiative. In metropolitan Phoenix, for example, voters in Maricopa County approved Proposition 400 in 2004 which extended a half-cent sales tax for regional transportation for another 20 years. That bit of local effort will generate over $11 billion over time to expand regional transit service (including the expansion of the region’s new light rail system) but, like Los Angeles’ Measure R, it will also dedicate billions for freeway upgrades, additional lanes, and improved interchanges, including substantial improvements to the national interstate system.

In the Las Vegas area, Clark County taxpayers have poured some $1.3 billion into construction of the Bruce Woodbury Beltway, a 53-mile freeway that will be added to the interstate system. Other major metro areas like Salt Lake, Charlotte, St. Louis, Oklahoma City, Seattle, and Milwaukee have also gone to their voters for approval of ballot initiatives to fund a mix of light rail and bus lines, highway projects, commuter rail and corridor preservation. A coalition of business and civic leaders in the Dallas Metroplex, for that matter, is pushing state legislature to give metros in Texas the authority to do the same.

In short, metropolitan areas across the country are laboring hard to keep up with system maintenance, enhancement, and expansion needs—even along national corridors—on which they are investing substantial local resources. Metros like Los Angeles need some sort of recognition from Washington that it takes local as well as federal funding to co-produce a sound national transportation system.

So as Congress continues to develop its plans for the reauthorization of the nation’s surface transportation law it should support metro areas that raise their own revenue for the long term. Though a new partnership, the federal government should provide incentives to metropolitan areas that secure long-term and substantial regional funding sources approved for a minimum of 20 years and that equal a significant (one-third to one-half) portion of the annual federal transportation funding received. As to the incentives, a possible menu of options might include: more direct funding to metropolitan planning organizations (MPOs), more flexible “mode neutral funding,” more streamlined planning processes, more direct reporting to federal agencies, and reduced bureaucracy.[7]

Clearly there are many details to work out and vet under such as scheme. Legitimate questions can be raised, for one thing, about whether the “new partnership” would lead to new reliance on sales tax funding sources that are at once regressive and susceptible to volatility. Likewise, some metros will quibble with the specifics of the eligible local funding and the 20-year and funding thresholds. However, the sales tax is but one potential source of funding and all funding options and timeframes should be on the table for discussion.

Beyond the particulars of the funding source, a critical element of any new federal-metro partnership should be enhanced accountability and adherence to national performance goals. To that end, the federal government could supplement its funding to MPOs (and states, for that matter) that demonstrate progress toward meeting such goals. In other words, the primary measure of MPO quality should not just be how well it raises money, but how well they optimize returns on their investments.

And as part of the proposed “vertical” partnership between the federal and metro level, MPOs should also strive to build on the “horizontal” partnerships between related policy areas of housing, transportation, and environment. The metropolitan transportation plans already mandated by federal law should be explicitly coordinated with requirements for Consolidated Housing Plans, for example. Such a multi-dimensional approach would help spend scarce resources better.

But a major piece of the federal recognition of metropolitan innovation in the context of the transportation reauthorization is to help accelerate projects like those embodied in the 30/10 Initiative. There are several options.

One is to better leverage the Transportation Infrastructure Finance and Innovation Act program for major initiatives like 30/10. TIFIA dates from 1998 and was created to help finance transportation projects of national or regional significance. The program is managed by the Federal Highway Administration and provides three forms of credit assistance – secured (direct) loans, loan guarantees, and standby lines of credit to a wide range of public and private entities. The allure of TIFIA financing comes from its low and fixed interest rate that is equivalent to the Treasury rate, and from the fact that TIFIA loans are often subordinate to other senior obligations.

TIFIA has been successful in supporting a wide range of project-specific applications such as roads that are directly supported by toll revenues. However, its utility would be greatly enhanced if TIFIA were amended to support applications that contain multiple projects such as requested by 30/10. Today, the TIFIA program deals with applications on a project basis But when those projects are part of one holistic package and funded primarily by the same revenue source (such as a regional sales tax) the federal government should be able to provide one upfront credit commitment.

However, a revised TIFIA should take steps to ensure that the spirit of the program—to fund projects of national or regional significance that transcend state and local boundaries—is not undermined by allowing packaged smaller projects to be eligible. Therefore, it is critical to add more clarity and specificity to recent U.S. Department of Transportation efforts to apply performance metrics to their assessment of TIFIA projects. Goals need to be made explicitly clear and transparent so applicants have confidence they can assemble projects that fit with the program’s objectives.

The other problem is that TIFIA has become so attractive in recent months that it is now oversubscribed with a record 39 loan applications for a range of transportation projects. Combined, the applicants are seeking $13 billion in finance assistance to support $41 billion in projects which is far more than the program’s $1 to $2 billion dollar annual capacity.[8] Large-scale programmatic applications, such as what the 30/10 is proposing, are outsized for TIFIA’s annual budget authority of $122 million. So after the critical reforms around eligibility and performance, TIFIA should be expanded in accordance with the widespread interest in the program outside of Washington.

In fact, the federal government should take steps to streamline and coordinate existing federal transportation credit assistance programs overall. The U.S. DOT’s new Office of Innovative Delivery manages several finance tools that issue assistance in the form of loan subsidies, loan guarantees, and bond issuances. As that office matures, it should strive to coordinate programs in addition to TIFIA such as Railroad Rehabilitation & Improvement Financing (RRIF), and Private Activity Bonds (PABs) so public and private sector actors can help package up a variety of federal credit tools. Applicants could be able to apply to more than one program at the same time, and be able to receive notification of awards at the same time.

As with the reformed TIFIA program, these programs should fund projects on the basis of demonstrable merit and analytical performance measures. The coordinated evaluation teams should take lessons from the TIGER program and apply common intermodal standards to all applications. If all this is done correctly, the federal government will create more “bang for its buck” through relatively inexpensive reforms, economies of scale, and well-aligned goal setting. Fortunately, there is already precedent for this sort of coordinated, cross-financing approach. Denver’s recent Union Station makeover is as an example of loan program coordination as it was the first project to receive both RIFF and TIFIA funding.[9]

These critical fixes to the federal transportation program have the potential to unleash a new kind of innovation, experimentation, and creativity that resides closest to the ground. The 30/10 Initiative is one of those unique proposals. It already stands as a symbol of what’s possible when we rethink old, siloed models for infrastructure investment.

[1] Bruce Katz and Jennifer Bradley, “Growth Through Innovation: A Vision of the Next Economy,” Brookings, June 2010.
[2] For Los Angeles’s economic performance during the recession see Howard Wial and Richard Shearer, “Tracking Economic Recession and Recovery in America’s 100 Largest Metropolitan Areas,” Brookings, June 2010.
[3] Alan Berube and others, “State of Metropolitan America: On the Front Lines of Demographic Transformation,” Brookings, May 2010.
[4] Brookings calculation based on 2009 figures from Moody’s, 2010, and the International Monetary Fund, The World Economic Outlook Database, April 2010.
[5] Alan Berube, “MetroNation: How U.S. Metropolitan Areas Fuel American Prosperity,” Brookings, 2007.
[6] Mark Muro and Robert Puentes, “Helping Those Who Help Themselves,” The New Republic, The Avenue, May 27, 2010.
[7] Maricopa Association of Governments, “United States Department of Transportation and Metropolitan Planning Organizations: A New Partnership,” Phoenix, 2010.
[8] Roy Kienitz, Testimony before the Committee on Environment and Public Works, United States Senate, Hearing on “Federal, State and Local Partnerships to Accelerate Transportation Benefits,” March 11, 2010.
[9] “Transportation Secretary Ray LaHood Announces $300 Million for Denver Union Station Redevelopment,” U.S. Department of Transportation Press Release, DOT 143-10, July 23, 2010.