Chicago realizes it will have to put more of the heavy infrastructure lifting on its broad shoulders because the federal government isn’t pulling its weight. The city recently launched the Chicago Infrastructure Trust to attract private financing for rail, road and other infrastructure initiatives. Private investors already have invested $1.7 billion in private capital, attracting the notice of other cities and states that don’t expect Congress to match infrastructure spending with promising rhetoric.
“When we’re competing against cities around the world that are making major infrastructure investments, Chicago’s development cannot depend on that kind of dysfunction, whether in Washington or in our state capital,” Mayor Rahm Emanuel wrote in an editorial for Politico.
The challenge for such local and state efforts to attract private investment to upgrade dilapidated roads, bridges and waterways is that dysfunction can come from within, not just from Congress. Chicago will lose about $10 billion in potential revenue over the next 75 years through a bad deal with a Morgan Stanley-led private consortium struck in 2008, according to reports.
Governments also must make sure private partners deliver and don’t overinflate expected toll revenue, only to have to increase charges further to break even. Many states also lack a clear procurement system for public-private partnerships, and public agencies’ overall familiarity with such pacts is lacking, according to an annual Urban Land Institute report.
Public-private partnerships aren’t the only way states are attempting to offset dwindling federal aid. States have had mixed success in their efforts to raise fuel taxes, the main revenue generator for highway construction, while Congress and President Obama resist tying the national fuel tax to inflation, much less raising it after nearly two decades.
The improving economy also is helping states refill coffers after federal stimulus funding ran out, but that’s not enough, particularly as local and city governments increasingly try to boost economic activity through investments in freight rail and coastal and inland ports.
New Jersey, Maryland and Pennsylvania have raised tolls on major routes, and other states are expected to follow. The trucking industry has fired back, warning that rising toll rates jeopardize carriers and raise consumer prices. Steve Grabell, chief financial officer of New Jersey-based logistics company NFI Industries, urged Congress last month to give more oversight to toll facilities involved in interstate travel.
“These added costs have forced us to reroute our trucks to less efficient secondary roads, which raises our costs and increases congestion and safety concerns,” Grabell said.
One would think that because the federal government is giving less money to cities and states that Congress would make it easier for the former to fund their own infrastructure initiatives. Not so. Provisions within the Senate’s two-year, $109 billion surface transportation bill would make it harder for states to partner with the private sector, said Emil Frankel, director of transportation policy for the Bipartisan Policy Center.
“Our argument is that federal grants for transportation infrastructure are at best stagnating,” he said. “Cities and states have to do more, and the minimum the federal government can do is get the hell out of the way.”
Language within the Senate bill would forbid states from using private activity bonds to finance leased highway projects and make such leases less attractive to investors by extending depreciation timetables. Numerous transportation policy groups, including Building America’s Future, the Brookings Institution and the American Association of State Highway and Transportation Officials, support a push for more flexibility in state financing.
But Frankel doubts Congress will heed the suggestions as House and Senate leaders hash out the final bill in conference. He hopes Congress will be more inclined to listen when it begins drafting a new surface transportation bill, perhaps as soon as next year. In the meantime, transportation advocates can take solace in that the current transport plan will likely increase annual funding for TIFIA, the Transportation Infrastructure Financing and Innovation Act, from $120 million to $1 billion.
The increased funding, backed by the Senate bill and the House 90-day extension, would leverage private investment to as much as $8 billion to $10 billion, Frankel said. The surface transportation plan also will likely continue to fund the Railroad Rehabilitation and Improvement Financing program. The RRIF provides direct loans and loan guarantees for up to $35 billion in rail work, with a fifth of the capacity reserved for freight rail.
The prospects of the creation of a national infrastructure bank, pitched by Obama, appear poor. Although the president pitched spending $10 billion to create a bank, it’s not clear whether the institution would give out grants, make loans or both. Frankel said it would be more prudent to maximize the use of TIFIA and RRIF before launching a much grander funding mechanism. But that increased funding capacity has less of an impact if Congress restricts the ability of states to attract private capital.