On Monday, February 12, the Trump administration released its long awaited infrastructure proposal. The document, a list of “legislative principles,” provides a blueprint for the administration’s plans to spur as much as $1.5 trillion in new investments in our nation’s failing transportation infrastructure. The proposal also includes support for water resources development and land revitalization. The proposal was immediately met with skepticism and criticism from lawmakers and transportation industry insiders. The common complaints are well documented. These include: the relatively low commitment of direct federal funds ($200 million over 10 years); the proposal’s reliance on state and local governments to pick up the bulk of the tab; and a continued lack of identified resources to offset the new federal spending or fix the long-failing highway trust fund. Nonetheless, the document will no doubt kick-off an intense debate over the future of federal investment in all types of infrastructure in the United States, and spur counter-proposals from all corners of Capitol Hill.
For those of us in the public transportation industry, the primary question is where does transit fit in all of this? Will this proposal, if it becomes law, help to address the significant infrastructure investment needs that plague transit systems across the country? A close examination of the proposal reveals that transit infrastructure investments would be an eligible expenditure for much of the new funding, under certain conditions. Project sponsors would compete with a broad class of other types of infrastructure for limited dollars, and significant non-federal resources would be required. The proposal does come with several policy recommendations that could benefit the transit industry through project delivery streamlining and expanding access to various financing tools.
Direct Transit Investments
The Trump infrastructure proposal does not provide dedicated resources for direct investments for public transportation. Unlike the economic stimulus package of 2009 (American Recovery and Reinvestment Act), new resources are not distributed through existing programs. Instead, funds are divided into several new programs, and it appears that at least a portion of the new dollars would be eligible to be spent on transit infrastructure. Here is the breakdown:
• $100 billion is provided for an “Infrastructure Incentives Program.” These funds would be available for major capital projects, including “surface transportation and airports, passenger rail, ports and waterways, flood control, water supply, hydropower, water resources, drinking water facilities, wastewater facilities, stormwater facilities, and Brownfield and Superfund sites.” Broadly interpreted, this list of eligible expenditures could include public transportation capital infrastructure within the definition of surface transportation projects, and passenger rail could include light rail, commuter rail and high-speed rail. The U.S. Department of Transportation would be responsible for distributing a portion of the funds.
The new funding for this program comes with strings attached. Funding would be awarded to projects that bring significant non-federal investments to the table, while spurring economic growth, incorporating new technologies and utilizing “modernized” project delivery methods. Considering the expansive class of eligible projects, one can predict that competition for these funds would be highly competitive, and it’s likely that few transit properties would directly benefit from the new investments.
• $50 billion is provided for a Rural Investment Program. Transportation projects, including “public transportation and rail,” are eligible expenditures, along with broadband, wastewater facilities, power and electric projects and water resources development projects. It is unclear if the funds are for facilities only, or if other capital investments such as rolling stock would be eligible. Eighty percent of funds would be distributed directly to states, based on a formula that includes rural road lane miles and rural population. The remaining would be reserved for targeted grants for the different eligible project categories. Funds are available only for areas with a population of less than 50,000.
• $20 billion would be available for a Transformative Projects Program. These funds would be reserved for high-risk, high-reward projects that have the potential of significantly improving service and reducing costs. Eligible classes of projects include “transportation, clean water, drinking water, energy, commercial space, and broadband sectors.” The Department of Commerce would administer the program, and some sort of value capture agreement with project beneficiaries would be required. While there are few specifics on project eligibility criteria, new innovative transit projects could fit well within this category.
• $20 billion would be provided to expand and improve existing infrastructure financing programs, including the Transportation Infrastructure Finance and Innovation Act Program (TIFIA), Railroad Rehabilitation and Improvement Financing Program (RRIF), Water Infrastructure Finance Innovation Act Program (WIFIA), the Agriculture Rural Utilities Service (RUS) Lending Program, and Private Activity Bonds (PABs). While not all of these programs are relevant for public transportation projects, a few are important financing tools used by the industry.
Indeed, several of the reforms to these programs proposed by the Trump administration have long been sought by transit advocates. For example, the proposal would provide funds to expand access to the RRIF program for passenger rail projects. Funds would be used to subsidize the credit risk premium for project sponsors. The credit risk premium, which currently must be paid for by the project sponsor, is often viewed as an impediment to passenger rail providers for use of the RRIF program.
The proposal also recommends an expansion of the TIFIA and Public Activity Bonds Programs (PABs), which have been effectively used to finance several major public transportation infrastructure projects. The proposal recommends expanding the eligibility of the type of project that PABs can be used for, including passenger railroads (“mass commuting projects” are already eligible.)
• The remaining $10 billion would be available for a program to invest in infrastructure on public lands. This portion has little relevance for public transportation.
In addition to the funding provisions, the proposal also includes several policy recommendations, designed to streamline project delivery. Complaints about the length of time it takes to complete an infrastructure project due to inefficient federal requirements and “red tape” have been around for decades. These onerous requirements serve to increase the cost of projects and even discourage sponsors to seek federal assistance. Federal reauthorization laws such as MAP-21 and the FAST-ACT have introduced measures to streamline the project approval and delivery process, and this proposal aims to build upon those reforms by speeding implementation and introducing new measures to eliminate some of the red tape.
For example, the proposal includes a long list of recommended reforms to the project permitting process, designed to eliminate repetitive reviews which are often blamed on slowing project delivery. Particular emphasis is given to streamlining the National Environmental Protection Act (NEPA) permitting process — in fact, there are no less than 15 legislative reforms recommended. Other areas targeted for reform include streamlining clean air, clean water and historical preservation processes. The administration claims these reforms will streamline the permitting process without harming the environment. Many environmental advocacy groups and policy makers are skeptical of these claims.
Capital Investments Program (New Starts)
The one transit-specific program that receives attention in the proposal is the Federal Transit Administration’s Capitol Investment Program, commonly referred to as the New Starts program. It’s curious that this program would receive special treatment, as the Trump administration has recommended phasing out the program altogether in its latest budget proposals. Despite this fact, it’s the major focus on the one “Transit” heading included in the document. The administration recommends codifying project delivery reforms introduced in the FAST Act under the Capital Investment Grant Pilot Program. The proposal would extend these reforms to all New Starts Projects, and increase the required federal share from 25 percent to 50 percent. The proposal would also require all New Starts projects to use “value capture financing” to attract new resources. Value capture, defined as “recovering the increased property value to property located near public transportation resulting from investments in public transportation,” has been an effective financing tool used for several major projects. However, it may not be a “one-size-fits-all” solution, and I suspect transit advocates would balk at making this a permanent condition for participation in the program.
Not surprising to anyone, the Trump administration proposal also includes several provision designed to encourage public-private partnerships to finance infrastructure projects. Of note, in the aforementioned “Transit” heading, the proposal recommends removing “constraints” from federal law that discourage the use of public-private partnerships for public transportation projects. The document does not identify these restraints, or make any further recommendations on the matter.
The blueprint also recommends removing federal restrictions on the use of toll revenues on the Interstate highway system. The goal is to allow states the flexibility to use toll revenues for other infrastructure investments beyond maintaining the existing highway. This reform, if adopted, could potentially allow states to use those revenues to invest in transit infrastructure.
It’s important to remember that like all executive branch proposals, this document represents only a set of recommendations. It will be up to Congress to develop, debate and implement meaningful infrastructure investments and policy reforms. However, this is an important milestone in kicking-off the journey to perhaps a meaningful transportation infrastructure bill that could have transformational consequences. Let the debate begin!
Paul J. Dean is managing director, Dean & Dean Consulting LLC.