- FUNDING THE NATION'S FREIGHT SYSTEM

[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]

FUNDING THE NATION'S FREIGHT SYSTEM

=======================================================================

(113-38)

HEARING

BEFORE THE

PANEL ON
21st-CENTURY FREIGHT TRANSPORTATION

OF THE

COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

__________

OCTOBER 10, 2013

__________

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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina ELEANOR HOLMES NORTON, District of
JOHN J. DUNCAN, Jr., Tennessee, Columbia
Vice Chair JERROLD NADLER, New York
JOHN L. MICA, Florida CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana STEVE COHEN, Tennessee
BOB GIBBS, Ohio ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York JOHN GARAMENDI, California
DANIEL WEBSTER, Florida ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida JANICE HAHN, California
JEFF DENHAM, California RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky DINA TITUS, Nevada
STEVE DAINES, Montana SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas CHERI BUSTOS, Illinois
TREY RADEL, Florida
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
------ 7

Panel on 21st-Century Freight Transportation

JOHN J. DUNCAN, Jr., Tennessee, Chairman
GARY G. MILLER, California JERROLD NADLER, New York
ERIC A. ``RICK'' CRAWFORD, Arkansas CORRINE BROWN, Florida
RICHARD L. HANNA, New York DANIEL LIPINSKI, Illinois
DANIEL WEBSTER, Florida ALBIO SIRES, New Jersey
MARKWAYNE MULLIN, Oklahoma JANICE HAHN, California
CONTENTS

Page

Summary of Subject Matter........................................ iv

TESTIMONY

Hon. Sean T. Connaughton, Secretary of Transportation,
Commonwealth of Virginia....................................... 5
Leif Dormsjo, Deputy Secretary, Maryland Department of
Transportation................................................. 5
Robert D. Atkinson, President and Founder, Information Technology
and Innovation Foundation...................................... 5
Jack L. Schenendorf, of Counsel, Covington & Burling LLP......... 5
David Seltzer, Principal, Mercator Advisors LLC.................. 5

PREPARED STATEMENTS SUBMITTED BY WITNESSES

Hon. Sean T. Connaughton......................................... 36
Leif Dormsjo..................................................... 47
Robert D. Atkinson............................................... 53
Jack L. Schenendorf.............................................. 62
David Seltzer.................................................... 105

SUBMISSION FOR THE RECORD

American Road and Transportation Builders Association (ARTBA),
written statement, and Budgetary Impact of Highway
Transportation Services Tax, prepared for ARTBA by
PricewaterhouseCoopers......................................... 119
[GRAPHIC] [TIFF OMITTED] T5021.001

[GRAPHIC] [TIFF OMITTED] T5021.002

[GRAPHIC] [TIFF OMITTED] T5021.003

[GRAPHIC] [TIFF OMITTED] T5021.004

FUNDING THE NATION'S FREIGHT SYSTEM

----------

THURSDAY, OCTOBER 10, 2013

House of Representatives,
Panel on 21st-Century Freight Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The panel met, pursuant to call, at 1:00 p.m., in Room
2167, Rayburn House Office Building, Hon. John J. Duncan, Jr.
(Chairman of the panel) presiding.
Mr. Duncan. I want to go ahead and call this hearing to
order because we may have some votes here in just a few
minutes.
And, first of all, I want to welcome everyone to this
hearing of the Transportation and Infrastructure Committee's
Panel on 21st-Century Freight Transportation.
And, as I mentioned, it looks like we may have votes
anywhere from 1:40 to 2:10 this afternoon. So, with that, I
want to recognize Ranking Member Nadler for a unanimous-consent
request.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, I request unanimous consent that the chairman
be permitted to declare a recess during today's hearing.
Mr. Duncan. All right. Hearing there are no objections,
that will be so ordered.
This special panel was created by Chairman Shuster and
Ranking Member Rahall of the Transportation and Infrastructure
Committee to examine the current state of freight
transportation in the United States and how to improve that
transportation so we can strengthen our economy.
Under the House and committee rules, this panel exists for
6 months. We held our first hearing on April 24th, so we have
less than 2 weeks left before we must conclude our activities.
In the 6 months that we have been together, the panel has
held six hearings, participated in three roundtable
discussions, and traveled to southern California, the Memphis
region, and the New York City region. We have met with numerous
members of the freight community and discussed many different
aspects of the Nation's freight transportation network and how
it impacts each of us in our everyday lives.
The panel is working on drafting a report that will provide
recommendations to the committee on ways to modernize the
freight network and make the United States competitive in the
21st century. We have been working very hard toward this goal,
and we plan to issue our report to the committee in the next
couple of weeks.
Our discussion this afternoon is the last public hearing
the panel will have, and we have saved a very important topic
for our final hearing. Today, the panel will receive testimony
on ways to raise new revenue and how to use existing revenue
more wisely in the funding of freight infrastructure projects.
There are many sources of funding for freight projects.
Federal trust funds, State and local revenue, and private
investment combine to deliver projects that facilitate the
movement of freight around the United States.
A safe, efficient, and reliable intermodal freight
transportation network is critical to the Nation's long-term
economic health and competitiveness. Unfortunately, a
congressionally established commission found that, over the
last several decades, investment in the Nation's freight
network has not kept pace with the needs of our economy.
Our purpose today is to hear from our expert panel of
witnesses on this topic so that we can make better decisions in
the future regarding how to invest in freight transportation
infrastructure. There are many different proposals, and all of
them have strengths and weaknesses. We will hear from our
witnesses and carefully weigh what they have to tell us.
We have an excellent panel of witnesses before us today.
And it is a good timing for them to be here right at this key
point in the activities of this panel. I am confident that they
will be able to help us understand the different proposals
regarding new sources of funding for freight projects as well
as ways to better use the funds already available to us.
We have the Honorable Sean Connaughton, who is secretary of
the Virginia Department of Transportation; Mr. Leif Dormsjo,
who is the deputy secretary for the Maryland Department of
Transportation; Mr. Robert Atkinson, who is president of the
Information Technology and Innovation Foundation; an old
veteran of this committee, our friend, Jack Schenendorf, former
staff director of this committee, who is of counsel for
Covington & Burling; and Mr. David Seltzer, who is the
principal for Mercator Advisors.
Thank you very much for being here.
And I now will yield and recognize the ranking member, Mr.
Nadler.
Mr. Nadler. Thank you, Mr. Chairman. And thank you for
holding this important hearing.
As I said at the panel's initial hearing, we believe that
the overarching and most important question facing this panel
is how best to fund and finance the freight transportation
system over the long run. Throughout our hearings, we have
consistently heard testimony that, despite the significant
growth in use of our infrastructure, we are not making the
investments necessary to bring these systems up to date, much
less making the investments necessary to accommodate future
growth.
If we fail to address this underlying question of how to
pay for the Nation's intermodal transportation network, all we
will have are lofty visions, stacks of plans, and piles of
freight network maps. That will not address the Nation's goods-
moving needs or strengthen our economic competitiveness.
SAFETEA-LU established two commissions to frame the choices
confronting Congress in developing a 21st-century surface
transportation system and to recommend how best to pay for it.
In terms of investment levels, both commissions reached very
similar conclusions: One, we are significantly underinvesting
in all modes of surface transportation; and, two, significant
increases in investment from all levels of Government and from
the private sector are necessary to meet the future needs of
the Nation's surface transportation network.
The policy commission called for an annual investment of
between $225 billion and $340 billion every year by all levels
of Government in the private sector over the next 50 years. The
current annual capital investment from all sources in all modes
of transportation is $85 billion--in other words, between a
third and a quarter of what is necessary. Unfortunately,
Congress ignored these findings and recommendations and
authorized 2 years of relatively flat investment levels in MAP-
21.
While Congress has avoided making difficult choices to fund
transportation investment, many States have not. A number of
States have enacted ambitious legislative solutions--lucrative
to their infrastructure--to generate additional revenue to meet
their transportation infrastructure investment needs. We are
pleased to have two of those States, Maryland and Virginia,
with us today.
The message we should take from the passage of State
transportation revenue packages should not be that the States
can take care of the funding gap we face on their own. Yes, the
States are doing more, but so must, emphatically, the Federal
Government.
Ensuring that the transportation needs of interstate
commerce are met is a fundamental role of the Federal
Government. The safe and efficient movement of freight through
the United States impacts the day-to-day lives of every
American and is critical to the long-term economic health and
competitiveness of the Nation.
And I would add that, with the possible exception of the
current day, all the major political parties in the United
States since Albert Gallatin was Secretary of Treasury, since
Henry Clay presented his American System, since the Whigs
supported the American System, the transcontinental railroad,
right up to today, all major American political parties have
supported the Federal Government's role in infrastructure. And
that must continue.
Mr. Chairman, this panel has the opportunity and the
responsibility to provide the Federal leadership necessary to
ensure that funding is available to attain a freight
transportation network that works for the 21st-century economy.
The Transportation Committee has traditionally been the lead
advocate in Congress for increased investments in our Nation's
infrastructure. If we do not step up to the plate and demand
that the necessary investments are made, we will continue to
limp along in current funding levels, and the purchasing power
of those dollars will continue to decline.
This panel and its forthcoming report provide an ideal
opportunity to show that the Transportation and Infrastructure
Committee is serious about addressing the needs of the Nation's
intermodal transportation network and reducing the growing
infrastructure investment deficit. It is my hope that the work
of this panel will provide a framework for the committee to use
in developing legislation that include the tools and the
resources to meet the future needs of all modes of
transportation and develop a 21st-century intermodal
transportation network.
Again, Mr. Chairman, thank you for holding this important
hearing. I look forward to hearing from the testimony of our
witnesses on this matter.
I thank you. I yield back.
Mr. Duncan. Thank you very much. Mr. Miller.
Mr. Miller. I am really interested in hearing the
witnesses. You know, freight movement is extremely important in
my district. Its critical, competitive nature we need out
there. Financing is an issue everybody is dealing with.
Especially with the shutdown today, financing is becoming
critical.
I am going to be very brief. I have some questions for the
panel, but I would like to hear the presentations. I yield
back.
Mr. Duncan. Thank you very much. Ms. Brown.
Ms. Brown. I would like to hear the witnesses also, so I
yield back on questions.
Mr. Duncan. All right. Mr. Hanna.
Mr. Hanna. Nothing, sir.
Mr. Duncan. All right. Mr. Sires.
Mr. Sires. I would like to hear the witnesses.
Mr. Duncan. All right.
Mr. Nadler. Only Mr. Hanna didn't say he wanted to hear the
witnesses.
Mr. Duncan. Mr. Webster.
Mr. Webster. No, thanks.
Mr. Duncan. All right. Ms. Hahn.
Ms. Hahn. I would like to hear the witnesses, but I am
giving my statement first.
Mr. Duncan. Go ahead.
Ms. Hahn. There are 10 microphones, and I have one of them.
Mr. Duncan. Yeah.
Ms. Hahn. Chairman Shuster and Ranking Member Rahall both
said that when it comes down to finding ways to finance our
Nation's transportation system, all options need to be
considered. I think this hearing is going to provide a perfect
forum to discuss all those options.
In a couple of weeks, our committee is expected to issue a
set of recommendations to the full committee on freight policy.
One of the most important recommendations we will need is an
answer to how we are going to come up with a long-term solution
to funding our Nation's transportation system. In fact, it is
questionable how effective any other recommendation will be
without addressing this issue.
Nowhere is that more evident than the problem in Los
Angeles. According to a recent report, nearly 64 percent of our
roads in Los Angeles County are listed in poor condition and
costing our drivers $832 a year, well over the national average
of $377. This is frankly appalling, and I believe it is a
reason we need to be looking at any and all options to address
the continuing funding shortfalls in the Highway Trust Fund.
And as a driver of an electric vehicle who has not been to
the gas station in 2 years, I am very interested in exploring
another way so that people like me can pay our fair share by
vehicle miles traveled. So I hope we can hear some good
information on that proposal.
Thank you very much.
Mr. Duncan. Thank you. Mr. Mullin.
Mr. Mullin. Well, with, you know, respect to my colleague's
comment about the electric vehicle, her and I have discussed
this, my diesel truck more than pays her way. So I am ready to
just hear what the witnesses have to say.
Mr. Duncan. All right. Mr. Lipinski, do you have any
statement?
Mr. Lipinski. Thank you for holding this hearing.
Obviously, everyone knows, we have gone through all these
hearings all over the country, and the bottom line is how are
we going to pay for this. So I look forward to hearing from the
witnesses.
Mr. Duncan. All right. Well, thank you very much.
And since this is our final hearing, I will say this: that
almost everybody on this committee wanted to serve on this
panel, but we wanted to keep this to a smaller size and get
people who would be more active in it. And it shows you how
active all the Members are when 10 of the 11 members of this
panel are here today to hear your testimony. So let's begin.
Our first witness is the secretary of the Virginia
Department of Transportation, the Honorable Sean Connaughton.

TESTIMONY OF HON. SEAN T. CONNAUGHTON, SECRETARY OF
TRANSPORTATION, COMMONWEALTH OF VIRGINIA; LEIF DORMSJO, DEPUTY
SECRETARY, MARYLAND DEPARTMENT OF TRANSPORTATION; ROBERT D.
ATKINSON, PRESIDENT AND FOUNDER, INFORMATION TECHNOLOGY AND
INNOVATION FOUNDATION; JACK L. SCHENENDORF, OF COUNSEL,
COVINGTON & BURLING LLP; AND DAVID SELTZER, PRINCIPAL, MERCATOR
ADVISORS LLC

Mr. Connaughton. Mr. Chairman, members of the committee,
thank you very much for having me here today. The opportunity
to talk----
Mr. Nadler. Could you use the mic?
Mr. Connaughton. Is it on? Can you hear it, sir?
Mr. Duncan. Maybe pull it closer to you maybe. I don't
know.
Mr. Connaughton. Is it on? Can you hear me now? OK.
Mr. Chairman, members of the committee, thank you very much
for having me here today. We appreciate very much the
opportunity to talk about freight and freight mobility. This is
something that is very important to Virginia, and we are very
excited to see in MAP-21 at least the first real discussion of
freight and freight planning at a national level.
In Virginia, we can look at freight as a key ingredient of
our economy. Just some of the numbers for you to think about is
that almost 50 percent of our State's gross domestic product is
actually related to freight-related industries. Twenty-eight
percent of our GSP and then 34 percent of our employment are
tied to industries that use our freight system.
Because of that, Virginia has been a leader when it comes
to freight. We have, actually, different funds that we use for
our freight system. We actually have three different funds that
are paid for out of dedicated fees and taxes that support our
freight rail system. We have one that is for the Class I
railroads, another one for the Class III railroads, and another
one for rail industrial access.
We also have a specific fund for our port and for
supporting capital improvements in and around the Port of
Virginia, which is one of the largest ports on the east coast.
And then, finally, we have a very, very vibrant freight
mobility program within our State DOT. And what we do there is
we have a--we actually were one of the leaders in actually
coming out with a State freight plan and trying to match it up
with projects in different parts of the State where we have
could actually make some improvements on the highway system
that also would help move our freight system forward.
One of the challenges that we are facing, like most other
States and most of our entire program, is that we are
essentially running out of money because we were completely
dependent on the gas tax. The gas tax in Virginia had not been
raised in almost 26 years. Just due to inflation, we saw almost
a 54-percent reduction in the buying value due to inflation.
But then on top of it, what we also started seeing is some
of the comments were made before about the introduction of
alternative-fuel vehicles, the much higher CAFE standards, and
the fact that we were just seeing some changes in our driving
patterns in Virginia and our driving habits. What that
essentially meant was that we had seen, even though we had more
cars registered in the State, more vehicle miles being driven
in the State, we actually saw a decrease in the amount of gas
tax revenues coming in.
The State decided, through--you know, we did everything,
like I say, that we were supposed to do. Been very, very
innovative with the moneys we had--all types of public-private
partnerships. We established our own infrastructure bank. We
did everything that I think most DOTs were encouraged to do
with innovation. But even after that, we could show very
clearly to our legislature that we needed additional revenues.
We ended up actually putting forward a very, very, I am
going to say, different proposal--and that came from our
administration, from Governor McDonnell's administration--that
we would do away with the gas tax and switch it over to a sales
tax. And, essentially, the sales tax, when we looked at what
the sales tax reflects, it is much more indicative of economic
activity in Virginia and obviously in other parts of the
country.
Our House of--essentially, our House of Delegates supported
that and actually reported it out. Our Senate did not, and they
supported, actually, an increase in the gas tax. What we ended
up doing was seeing a compromise where we actually reduced the
amount of gas tax, at the same time bumped up the sales tax,
and ended up dedicating all of that to transportation.
We ended up having other additional fees and some general
revenues that were increasingly dedicated to transportation. We
put a $64 fee on all alternative-fuel vehicles. And,
essentially, what this has meant is that we are going to be
generating about $1.5 billion more a year for our
transportation program in Virginia, which not only will go to
highways but it will go to transit, it will go to passenger
rail, our intercity passenger rail. It will also go to our port
fund and our rail funds, as well.
So, essentially, what we have been able to do is make our
transportation funding program much deeper, much broader, and
much more well-founded, to the point that, actually, we have
now been put on--because we have a special fund in Virginia,
when I sell bonds and go out to the market, like we are
shortly, we are actually rated a little bit differently, and we
actually have a positive outlook because of the changes we made
this year in Virginia.
And, actually, our estimates are tracking right along with
what we said they were going to do. And what is interesting
about it is we saw again and continue to see a decrease in the
amount of revenues coming in from the gas tax.
So, I think in Virginia we understand as a jurisdiction, as
a State, that this is very, very important, freight. It is
critical to our economic activities and our future. And we very
much encourage, obviously, the Federal Government to take much
more of a leadership role in this area, particularly because
all the improvements that we make in Virginia are for naught if
our neighbors to the east and west and to the south don't make
the similar types of improvements, as well.
So thank you very much.
Mr. Duncan. All right. Thank you. Mr. Dormsjo.
Mr. Dormsjo. Chairman Duncan, Ranking Member Nadler----
Mr. Nadler. Use the mic, please.
Mr. Duncan. I don't know why these microphones aren't
picking up, but apparently you are going to have to sit very
close to the microphones.
Mr. Dormsjo. OK. I hope that helps.
I am here to talk about three issues. I wanted to discuss
how the State of Maryland has used public-private partnerships
to leverage private investment in infrastructure but freight
more specifically. I also wanted to talk about the
comprehensive transportation revenue package that the Maryland
General Assembly passed earlier this year. It is of a similar
scale to the Virginia measure, but we got there in a somewhat
different way. Lastly, I also wanted to talk about some
successful examples of our State working in partnership with
the Federal Government.
First of all, with regard to freight public-private
partnerships, in 2009 Governor O'Malley launched an initiative
to develop a marine terminal berth in the Port of Baltimore,
the Seagirt Marine Terminal, to accommodate larger vessels that
will transit the Panama Canal after the expansion project is
completed in 2015. To do so, we needed to attract private
investment to deepen the berth at our existing terminal and to
install the most modern, state-of-the-art cranes to handle the
cargo coming in on those larger vessels.
We did not have the resources in our budget to execute that
project at the time. We had the designs completed, but they
were essentially sitting on a shelf. We were unable to execute
that critical project.
We used a 12-month solicitation process to evaluate public-
private partnership proposals, and when we got to the end of
that process, we successfully contracted with a firm, Ports
America Chesapeake, to enter into a 50-year lease and
concession agreement where they would be required to make $250
million in upfront investment and then have the operations and
maintenance responsibility for the facility on a go-forward
basis.
In addition to shifting those costs to the private sector,
the State benefited from a revenue share on the cargo that came
in over time, reducing our exposure to the downside risk that
the traffic would not show up.
That deal was consummated in 2010. In 2012, the whole
project was completed. We had the berth developed, the dredging
done, and the cranes installed much faster than the State of
Maryland would have been able to do on our own through a
traditional procurement.
It was a very significant project because it represented a
true partnership between the public and private sectors. Not
only was the private sector able to use tax-exempt private
activity bonds for this transaction at investment grade, but we
were able to bring along our partners in the labor unions,
particularly the longshoremen and the crane mechanics
represented by AFSCME. They were all stakeholders in this deal
to make sure that we had not only the best technology installed
at the facility, but also solid labor relations and efficient
and harmonious dealings with the staff. So it was truly an
example of business, Government, and labor working together.
We anticipate that the investment and the revenues
generated from this project will exceed $1.3 billion over the
life of the 50-year contract.
With that success, the State of Maryland ventured into
other P3 projects. In 2012, we completed a P3 project to
redevelop two travel plazas along Interstate 95. Both the
Chesapeake House and Maryland House happen to be two of the
busiest rest areas in the entire country, and they had aged
significantly in terms of their amenities and were in need of a
refresh. We entered into a public-private partnership to
redevelop those facilities, and we are halfway completed with
that project.
Next year we will be working with the Federal Transit
Administration as we go through a solicitation process for a
public-private partnership to deliver a $2.2 billion light-rail
project in the suburbs of Washington, DC. That is the Purple
Line project.
So we have viewed public-private partnerships as a tool. It
is not a way to supplant or replace the need for steady
investment from both the State and Federal Governments in
transportation, but we do think that for 5 to 15 percent of our
capital needs, public-private partnerships are a suitable
application.
I want to turn my attention briefly to the Transportation
Infrastructure Investment Act, which was passed in Maryland
earlier this year.
We, too, understood that we were falling behind with regard
to system preservation and transportation investment across
many modes in the State of Maryland. The General Assembly acted
earlier this year to raise $4.4 billion over 6 years for the
Transportation Trust Fund that we have in the State of
Maryland.
We did rely on the gas tax. We did not take the more novel
approach that Virginia did. We do believe that there is a
linkage between gasoline consumption and the utilization of the
transportation system.
There were three components of our bill. The first was a
CPI adjustment to the existing gas tax. The second component
was the gradual introduction of the sales tax to gasoline
purchases. And the third component was tying inflation
increases to our transit fare policy. And so, between those
three measures, we were able to bring in $4.4 billion of new
investment.
The last thing I wanted to mention is that we have had some
successful partnerships with the Federal Government through the
TIGER program. If there were followup questions on that
specific project, I would be happy to answer those.
Mr. Duncan. All right. Thank you very much. Mr. Atkinson.
Mr. Atkinson. Thank you, Chairman Duncan and Ranking Member
Nadler and other members of the committee. It is a pleasure to
be here today.
I am president of ITIF, a think tank, but I served as the
chair of the National Surface Transportation Infrastructure
Finance Commission, one of the two commissions that was created
under SAFETEA-LU. We focused principally on surface
transportation, so that is what my comments today will be on.
And I will stress that they are my comments, not necessarily
the Commission's comments.
I think one of the key factors to recognize is, because
truck freight shares so much of the same network with passenger
vehicles, that improving freight transportation on the roads
essentially means improving the entire system, not just the
truck system. And, currently, the performance and conditions of
highway system in the U.S. are certainly substandard.
There are certainly specific improvements that could be
made that would target truck travel. These could include the
establishment of truck-only toll lanes, a stronger focus on
expanding last-mile investments around ports, and relieving
freight bottlenecks. I would add that if we want to move toward
a truck toll lane system, which the Commission supported, that
is going to require Congress to alleviate some of the
restrictions on tolling the existing interstate system.
When it comes to raising revenues--I think that is the key;
if we don't raise enough revenues, we are not going to be able
to make the investments we need--the Commission really focused
on two areas.
One is in raising existing revenues. And with regard to
trucks, one of the key recommendations we made was to increase
the heavy vehicles use tax. This is a tax that has not been
increased since 1983 and essentially now, in inflation-adjusted
dollars, is half of what it was 30 years ago. Doubling this
would restore the purchasing power to 1983 levels and would
raise an additional approximately $1 billion a year. In
addition, we recommended indexing the HVUT and the tire tax,
excise tax on tires, to inflation.
In the moderate term, what the Commission strongly
recommended was that the country transition to a vehicle miles
travelled tax system, not just because of the issue that the
Congresswoman raised about nongasoline vehicles, but because
having a VMT system allows a much more efficient system of
pricing that is related to costs imposed.
That is a complex endeavor, to be sure, but one of the
recommendations that I would make is that for a VMT system,
that we start with trucks. Trucks are much easier to do. There
are fewer of them than passenger vehicles. The costs per truck,
as a share of total costs, is significantly less. And the
advantages of doing a truck VMT system would be significant
because trucks impose higher costs on the overall system that a
VMT system could charge for.
Now, one of the things that you will hear is that there are
specific problems with a truck VMT system, and let me just
mention what some of those objections are.
One is that a VMT system would essentially be a tax
increase. It is important to stress that the VMT system is
completely agnostic toward how much money one raises. You could
have a VMT system that raises less money, the same amount of
money, or more money; it is completely separate. So the notion
that this would be used to raise more money from trucks, I
think, is not a valid objection.
A second objection that we hear is that this would be
double taxation. Trucks already pay money; why would we ask
them to pay more? And, again, if we did this the way the Oregon
pilot program did, you would rebate existing taxes. So trucks
who are in a VMT system would not pay the heavy vehicle use
tax, the tire tax, other truck taxes, nor would they pay the
diesel tax. You can design systems that easily make it so they
don't have to pay double taxes.
A third concern we hear about is privacy. It is a
complicated question but, frankly, I think, in some ways quite
simple. You can design a VMT system that is 100 percent
private, where nobody knows what roads the truck went on, the
time of day, any of that. Only the truck knows that, if you
will. Just as when you drive in your own car with a Garmin or a
TomTom or other type of device, Garmin doesn't know where you
are, you know where you are. The satellite just gives you
information. So I think it is important to recognize the
privacy issue is really a political issue. It is not a real
issue, in the sense of you can design systems that are
completely anonymous.
Lastly, cost. There have been some claims that such a
system would cost a lot of money. There is a study done for the
State of New York moving to a truck-only system, and it found
that it would cost a little bit more than the gas tax in terms
of administrative costs but not significantly more.
Finally, I would say the Commission agreed and argued that
we need to have a better and more up-to-date cost-allocation
study on how much trucks actually do pay. The last allocation
study was more than 12 years old, but what it found was that
certain trucks--but, overall, heavy trucks only pay between 85
and 90 percent of the costs they impose on the system,
suggesting that the actual payments by trucks should go up.
Now, again, the Commission recommended that Congress charge DOT
with updating that study and find out if that misallocation is
still the case today.
Thank you very much.
Mr. Duncan. Thank you very much. Mr. Schenendorf.
Mr. Schenendorf. Thank you, Chairman Duncan, Ranking Member
Nadler, and other members of the panel, for giving me this
opportunity to appear before you today.
This panel has the difficult task of developing
recommendations on ways to modernize the national freight
system. In today's political climate, this task must seem
almost impossible. But I am, nevertheless, optimistic----
Mr. Duncan. We are going to have to have you get--I am
sorry, I don't know what is happening. But we are going to have
to get you a lot closer to the microphone.
Mr. Schenendorf. Is that any better?
First, the--but I am optimistic for four reasons.
First, the need for increased investment in our national
multimodal freight network is irrefutable. It has been
thoroughly documented by commission after commission, study
after study, and report after report. And as you saw in your
September 24th hearing, the users of the national freight
network, the ones who pay the freight bills, are pleading for
increased investment.
Second, there has been a long tradition of bipartisan
support for promoting the safe and efficient transportation of
goods in interstate and international commerce. Since the first
days of the Republic, our national leaders from all parties
have made Federal investment in our waterways and ports, our
railroads, our highways, and our airports a priority. I think
the vast majority of Republicans and Democrats in Congress
today are looking for something they can agree on, something
they can accomplish together. This could be that thing.
Third, the users of the system are not only willing to pay
for this increased investing, they are asking to pay more. This
is extraordinary in today's political climate. All they ask is
that the fees be fair and that the revenues be invested wisely
to increase the speed, capacity, and reliability of our
multimodal freight network so that they can compete in the
global marketplace.
Fourth, increased investment and paying for it through user
fees so as to not increase the deficit or debt is critical to
any pro-growth economic agenda. Without systemic improvements
to the national transportation network, freight transportation
will become less efficient and reliable, hampering the ability
of American businesses to create private-sector jobs and
compete in the global marketplace.
For these reasons, I believe that the vast majority of
Members of Congress understand the need to act. This provides a
great opportunity for Republicans and Democrats to once again
come together and show the American people the two parties can
solve problems together.
I would now like to turn to the options for funding and
financing the improvements to the national network. My written
testimony, including the appendices, discusses a number of
options. Suffice it to say that an all-of-the-above approach is
needed. Federal, State, and local governments and the private
sector need a full toolbox of funding and financing options if
we are to close the freight investment gap.
I would urge you to also think outside the box and consider
new ideas. One such idea is the proposal set forth in Appendix
C, which is a paper written by Elizabeth Bell, an associate at
Covington, and myself. This proposal would employ two targeted
user fees--a Federal interstate user fee and a Federal motor
carrier user fee--to supplement, not replace, existing Federal
transportation revenue sources.
All vehicles using the Interstate Highway System would pay
the Federal interstate user fee, which would be collected
through an E-ZPass type of system that would be entirely
electronic with no tollbooths. Fees would be established on a
corridor basis, with the fees on less congested rural portions
of the interstate less than the fees on highly congested
portions, thereby reflecting the different costs associated
with repair and modernization. The fees would be set at the
level necessary to pay for the improvements--no higher, no
lower.
It would be a pay-as-you-go system--no debt service, no
diversion, no demand management fees. All of the revenues
generated by the fee would be deposited in a special account in
the Highway Trust Fund and would be used exclusively to
modernize the Interstate Highway System, the backbone of the
national freight network.
The Federal motor carrier user fee would be imposed on
commercial trucks' usage of all roads and would be collected
through a GPS-type system currently being used by many trucking
companies. Importantly, trucks would not be double-charged for
miles traveled on the interstate. Rather, those files would be
recorded through the Federal interstate user program. All of
the revenues generated by this fee would be deposited in
another special account in the trust fund and would be used
exclusively for freight-related improvements, including
intermodal facilities.
The entire national highway network would benefit by this
approach. Together, these two user fees would take pressure off
the Highway Trust Fund and allow its exiting revenues to be
used to upgrade the noninterstate highways on the national
network.
In conclusion, Mr. Chairman, the national surface
transportation network is a crucial and dangerously neglected
driver of our economy. As a country, we cannot avoid making the
choice to address this problem, and inaction is the wrong
choice. We must act now.
Mr. Duncan. Thank you very much, Mr. Schenendorf. Mr.
Seltzer.
Mr. Seltzer. Thank you, Mr. Chairman. And I'd like to thank
the panel for inviting me to testify this afternoon.
You have heard expert testimony today from several of the
witnesses concerning Federal policy toward funding issues. I
would like to briefly survey Federal policy regarding financing
tools, both those currently available and several potential
initiatives for the panel's consideration.
Federal policymakers have four broad policy tools to
stimulate infrastructure investment: grants, regulatory
streamlining, credit assistance, and Tax Code incentives.
Grant funding, as we are all acutely aware, is severely
constrained by fiscal limitations. Regulatory reforms have
little, if any, fiscal impact but may not provide a deep enough
subsidy to advance major projects.
The last two Federal policy categories, credit assistance
and Tax Code incentives, appear more promising today because
they, (A) encourage project sponsors to identify new revenue
streams to support financing; (B) bring the market discipline
of private co-investment, which can improve project selection;
and, (C) avoid the high-scored budgetary cost associated with
traditional grants.
There are four existing Federal financing tools applicable
to freight projects.
First, private activity bonds, or PABs. To date, a total of
$8.2 billion of the $15 billion national volume cap for highway
and intermodal freight PABs have been issued or allocated. Of
the 17 projects selected by USDOT, 4 are specifically for
intermodal freight projects, all part of CenterPoint
Intermodal's Midwest real estate portfolio.
Second, TIFIA. Since inception, USDOT has made a total of
$11.8 billion in loans for 36 projects. Two of the loans,
totalling $390 million, 3 percent of the total, are for
freight-only or predominantly freight projects--Reno
Transportation Rail Access Corridor and Port of Miami Tunnel.
Third, the RRIF program. As of September 30th, FRA reports
making 33 direct loans, totalling $1.7 billion. Approximately
half of the dollar volume was for 27 different freight rail
projects, the balance for passenger rail.
Finally, State infrastructure banks, or SIBs. These, as you
know, are loan-revolving funds seeded with Federal grants and
State matching funds. Most of the loans have been for highway
projects. To date, only Colorado and Pennsylvania have set up
Federal loan accounts for freight rail, with relatively small
loan activity.
Now, looking toward the future, while TIFIA and RRIF have
played a useful role, many observers believe that Federal
credit assistance could be provided more effectively if there
were a stronger institutional platform, such as an independent
Government corporation. It could have an independent board of
directors and an expert staff drawn from industry, whose sole
mission would be to provide and monitor credit assistance to
projects of national and regional significance. This national
entity could also make loans to SIBs, which, in turn, could re-
lend the funds to local freight and other projects.
In addition, the Federal Tax Code could play an expanded
role. Unlike Federal credit, tax incentives do not require the
Government to assume default risk on loans. And if policymakers
wish to provide long-term financing at rates below the Treasury
rate--the typical TIFIA and RRIF lending rate, which today is
about 3.75 percent--the budgetary cost of doing so should be
cheaper using the Tax Code than Federal credit.
Now, the administration earlier this year proposed
expanding the PAB volume cap for highway and intermodal
projects from $15 billion to $19 billion. While that is a step
in the right direction, in today's market there is only a
minimal savings, about a quarter of 1 percent, between PAB and
taxable borrowing rates.
The administration has also proposed an optional taxable
bond program with a 28-percent interest subsidy. If that
proposal were broadened to also include freight facilities
conferring public benefits, this would be more cost-effective
than PABs, further reducing borrowing costs for freight
projects by a quarter to a half a percent.
An even more effective tool would be establishing a new
class of qualified tax credit bonds for surface transportation.
These are taxable-rate State and local debt obligations where
investors receive an annual tax credit in lieu of cash interest
from the borrower. A Federal subsidy of the interest on these
long-term bonds is tantamount to a 60- to 70-percent outright
grant in terms of the financial benefit to the project.
Two companion bills with bipartisan sponsorship were
introduced in June to establish a $50 billion transportation
tax credit bond program, H.R. 2534 and S. 1250, the
Transportation and Regional Infrastructure Project, or TRIP,
Bonds Act. Either of these bills could serve as a basis for
legislation assisting freight.
In conclusion, in an era of constrained Federal resources,
a combination of credit and tax incentives can play an
important role in advancing major freight investments with a
relatively small Federal budgetary impact.
Thank you for the opportunity to appear before you.
Mr. Duncan. Well, thank you very much.
As usual, I am going to save my questions until the end and
yield to my Members at this time, starting with Mr. Miller.
Mr. Miller. Thank you, Mr. Chairman.
Mr. Seltzer, I enjoyed your testimony. I am used to hearing
a lot about fee increases and taxes and such, and you are being
a little more innovative out there. I serve on Financial
Services and we hear a lot of that, and we talk about
Government involvement in HUD and Export-Import Bank. The
difference is Export-Import Bank lends to a diverse sector out
there, so there is no risk associated with one sector crash
versus another, so they are pretty diverse.
And in your testimony, I would like to focus on the large
freight infrastructure projects, independent Government
platform you talked about. And if you create and amass capital
to finance these projects, who would underwrite these
platforms?
Mr. Seltzer. In my testimony, I suggested a Government
corporation that could take a portion of the responsibility
currently being managed by Department of Transportation under
the TIFIA and RRIF programs. So it would basically be the same
suite of credit products but through a separate organization
whose sole focus would be extending credit assistance.
Mr. Miller. Now, I recognize the benefit we provide through
HUD and we provide through Export-Import Bank. You know, we are
concerned about taxpayer risk. But just a question: Why can't
the private sector finance these projects now?
I am not opposing what you are saying. I am throwing some
questions out that you will be asked.
Mr. Seltzer. Well, in the transportation sector, it is a
very small segment of projects of any mode that are fully self-
supporting from user charges. Most of them, even the recent
toll roads and express lanes, have had some segment of
governmental-contributed capital or assistance, whether it is
State, local, or Federal dollars, in order to provide the
service at a cost-effective charge to the public.
Mr. Miller. There is always going to be a concern about
politics getting involved, that financial decisions might be
made in questionable ways. How would you monitor the progress
of this if it did occur?
Mr. Seltzer. That is an excellent question. I think
sunlight is the best disinfectant, and if you had a bipartisan
board of people from the transportation and finance and
construction sectors whose deliberations would be open to
public purview, I think that would reduce the likelihood of
politically motivated decisions being made.
Mr. Miller. I introduced a bill to replace Freddie and
Fannie. And the biggest concern there and I have here is: How
do you establish the necessary capital reserves to protect the
taxpayers from losses?
Mr. Seltzer. Another valid point. So Freddie Mac and Fannie
Mae were GSEs, Government-sponsored enterprises, that had
private shareholders. And part of the----
Mr. Miller. Which never worked. They made the profits, and
the Government and taxpayers took the risk.
Mr. Seltzer. Right. So the concept here would be a
Government corporation, like the Export-Import Bank or Overseas
Private Investment Corp., that I think most observers feel have
been operated prudently, but there is no private shareholder--
--
Mr. Miller. So you are going to have internal underwriting
done by the facility agency, whatever you want to call it, so
you are keeping Government and other entities out. You are
underwriting these projects based on the merit of the project.
Is that how it is to be done?
Mr. Seltzer. Yes, sir.
Mr. Miller. OK.
You also state in your testimony the regulatory reforms.
And I did the first one in 2005 that said, if you meet NEPA
standards, you don't have to go through your, you know, State
twice and do both. There are adverse financial impacts if you
don't do that, if you don't streamline it, and that can be very
helpful to streamlining projects if you do it improperly.
Then you go on to mention the usefulness of streamlining to
permit an environmental review process. Beyond permit an
environmental review process, are there additional ways we can
reduce regulatory burdens?
Mr. Seltzer. I am sure there are. And I would like to
invite my colleagues, particularly the two State DOT----
Mr. Miller. Well, that is my question. How can Congress
help you?
Mr. Seltzer. Well, I think on the environmental side, we
have seen the benefit of that with the expedited treatment in
terms of the NEPA process.
In my own view, that is a necessary but not sufficient
condition to bring projects to financial feasibility. They
still, in many cases, need some other form of governmental
assistance.
Mr. Miller. OK. The question we need to ask, if you are
looking for that, is, what obstacles do you foresee in
attempting to achieve regulatory reform in regards to freight?
Mr. Seltzer. As a consultant, I think I would answer with
the standard phrase: Clearly, that is a subject worthy of
further study.
Mr. Miller. God bless you. Thank you.
I yield back.
Mr. Duncan. Thank you.
Mr. Nadler?
Mr. Nadler. Thank you.
Mr. Connaughton and Mr. Dormsjo, can you address your
States' freight investment needs under the current highway
formula program, even with the higher share, or will you still
have unmet needs?
Mr. Connaughton. Mr. Nadler, in Virginia, we receive around
$900 million per year from our highway allocations and our
transit allocations. That is becoming a smaller and smaller
portion of our overall program. Just a few years ago, it might
have been one-fifth. In the next 5 years, it will be down to
one-seventh of the amount of money we get for transportation.
Mr. Nadler. So you still have unmet needs.
Mr. Connaughton. Yes, sir. In fact, and we are--and we
took, obviously, these steps this year. However, when you look
at--Virginia is--and I am going to say a positive thing--we are
continuing to grow, the economy is still strong, population
growth----
Mr. Nadler. You are still going to need it.
Mr. Connaughton [continuing]. But we still have needs.
Mr. Nadler. Thank you.
Mr. Dormsjo, same answer?
Mr. Dormsjo. Essentially, yes. I don't think the
proportions that Secretary Connaughton mentioned match up
exactly with Maryland, but----
Mr. Nadler. OK.
Mr. Dormsjo [continuing]. The answer is yes.
Mr. Nadler. Given the significant backlog of maintenance
and reconstruction needs facing States, given what you just
said, it is clear we need additional resources.
We also need a different way to fund these projects,
because freight investments, particularly large-scale,
multijurisdictional projects do not fare well in a flat-funded,
State-based formula plan.
Mr. Connaughton, do you agree with this assessment? And do
you agree that there is a need for a strong Federal role and
dedicated revenue stream to advance intermodal freight
projects, particularly multi-State?
Mr. Connaughton. Yes, sir, very much so.
In fact, just to give you an example for us is the I-81
corridor that runs through Virginia. We are the largest portion
of I-81. It is almost 325 miles. And it is the highest
percentage of trucks in any road in Virginia. The challenge we
have is it is very expensive. We are taking bits and pieces and
expanding it. But if you think about it, we get to Maryland and
West Virginia, which only have between, I think, the two of
them, only about 25 miles' worth of that road.
So we can spend all this money; yet, however, if our sister
States don't end up spending as much money, we are very low
priority for them. I mean, this is the challenge, and this is
really where we need Federal leadership, when looking at what
happens in other States. When you make these investments in
specific States, what happens in the next State down?
Mr. Nadler. Mr. Dormsjo, same question.
Mr. Dormsjo. Yes. I would say that one of the most
compelling arguments that we articulated during the legislative
session in Annapolis when we were talking about the need for
increased investment and infrastructure was the ability to make
sure that we had adequate matching dollars for Federal funds
across many modes. That really captured the attention of our
legislature. The prospect that we would not have adequate local
dollars to match against the Federal programs was something
that had great resonance.
Mr. Nadler. Thank you.
Mr. Schenendorf and Mr. Atkinson, both commissions on which
you served called for increasing and indexing the gas tax and
existing truck-related user fees as part of their
recommendations for addressing the near-term investment gap. We
have heard criticisms of this recommendation since many believe
the gas tax is antiquated and inefficient.
Can you explain the Commissions' rationale for continuing
to rely on the gas tax in the near term? And how long do you
feel the gas tax will remain a viable revenue source to finance
surface transportation investments?
Let me give it all to you at the same time.
And can you discuss some of the other revenue options
available to Congress to generate revenue for freight-related
transportation projects? And did your commissions evaluate the
importance of maintaining or strengthening the user linkage to
the revenue source?
So, what is the rationale for continuing to rely on the gas
tax in the near term? How long will the gas tax remain viable?
What other revenue options do we have available?
Mr. Atkinson. I could start.
The reason we, the Commission--first of all, I should add,
by the way, our commission was really--was a wonderful
experience, in many ways, because it was a very diverse group
of individuals, diverse from political affiliation, diverse
from across the country.
And when we started the Commission, as a broad
generalization, we had a, shall we say, a concern among
Republican members of the Commission with increasing gas taxes
and a concern among Democratic members among moving to PPPs and
tolling and public-private partnerships. By the end of our
deliberations over 18 months, we all agreed that we needed more
revenue from the gas tax and we needed more tolling, we needed
more PPPs. So we were able to come to a consensus.
The reason we argued for the gas tax so strongly in the
short and medium term is we believe that the system is best
funded by user fees. Using other kinds of fees to fund the
system lead to inefficient behavior. That is the principal
reason.
Mr. Duncan. Let me apologize to all the witnesses. We have
had votes going on for about 8 or 9 minutes now, so we are
going to have to stop and take a couple of votes. And then we
will start the questioning at the conclusion of those votes. I
apologize, but we will be in recess.
Thank you.
[Recess.]
Mr. Duncan. All right. We are going to come back into
session now, and I am going to have Mr. Nadler repeat his
question to some extent, and, Mr. Atkinson, you can answer.
Mr. Nadler. Thank you. I was asking Mr. Schenendorf and Mr.
Atkinson can you explain the Commission's, referring to the
Commission that you all served on, rationale for continuing to
rely on the gas tax in the near term, how long do you feel the
gals tax will remain a viable revenue source for surface
transportation, and can you discuss some of the revenue options
available to Congress for freight-related transportation
projects? For Mr. Atkinson and Mr. Schenendorf, or Mr.
Schenendorf and Mr. Atkinson, whichever way you want.
Mr. Atkinson. Well, thank you.
I think I talked a little bit about the tax gas. One of the
key reasons we endorsed the gas tax, or other types of programs
like a VMT, is we believe that users should pay the full cost
of their--the costs they impose on the system, and cross-
subsidies through other means just leads to inefficiency. If
users have to pay what they are imposing, they will use the
system most efficiently.
In terms of your question how long will the gas tax last as
a viable source, it will last a long, long time. It is just
really a question of what the rate is. We are a long way away
from moving to a fleet that is not powered by gasoline, at a
minimum, I would argue, 20 years away. That is not to say we
shouldn't plan now and move to a VMT. I think we should move to
a VMT immediately on trucks because of all the benefits. But
the gas tax is a long-term sustainable revenue source.
We did review a lot of other revenue sources in our report,
which I would encourage you to look at if you haven't. As I
mentioned, there are vehicle fees for trucks, there are custom
fees, there are container fees. There are a whole range of fees
that we can look at. Our whole focus was on aligning those fees
as closely as possible to what the users should pay.
Mr. Schenendorf. Mr. Nadler, we came to very, very similar
conclusions actually as the other commission. We started off by
projecting out economic growth and population growth out for a
number of years from the time we started the study, and
basically what that showed is that you needed to make a very,
very significant investment in the overall national system in
order to, one, preserve what we have and rebuild the interstate
system, which is 50 or 60 years old now, and also to provide
the additional capacity that is needed. And of all the revenue
options that we looked at, the only ones that generated in the
short term the revenue that was needed if you applied the user
fee principle, which we strongly believed in, was the gas tax.
That was the only way to generate the money.
Mr. Nadler. And not the VMT tax?
Mr. Schenendorf. The VMT tax would generate it, but in
order to have the VMT tax--and we endorsed the VMT, a shift to
the VMT tax, but that is going to take a period of time in
order to implement that. I think Rob is right that you could do
it more quickly on the trucking side of it. But to actually
implement that as a replacement for the gas tax is at least, in
my judgment, 10 to 15 years from now before you would be ready
for that, if then. And therefore in this interim period, you
have to find some alternative, and the gas tax is actually a
very, very good surrogate for a user fee during that period.
Now, I was asked a question. The paper that we read was
basically if you couldn't raise the gas tax, and you couldn't
get to the VMT quickly enough, what could you do in the
interim, and that is where using the E-ZPass-type system, which
the public accepts on the interstate to generate the funds for
the interstate, combined with the truck user tax, which could
be implemented more quickly, is something that could be put in
place fairly quickly. Not a year or two; it would probably take
3 or 4 years to get that completely up and running, but that
could be done in order to generate the additional revenues that
you need.
Again, I would encourage you, we looked at a number of
options, too, and we had a color chart, which is in appendix B
of my testimony, which basically lays out those options and
then kind of analyzes them across a number of criteria.
Mr. Nadler. Thank you. My time is way expired. I yield
back.
Mr. Duncan. Thank you very much.
Mr. Webster.
Mr. Webster. Thank you, Mr. Chairman. I can't remember
exactly who said this, but I think it was one of the two DOT
Secretaries. Who raised $1.5 billion?
Mr. Connaughton. Virginia, sir.
Mr. Webster. Virginia. OK. Is that a 1-year immediate raise
in $1.5 billion, or is it over a period of time?
Mr. Connaughton. That is per year.
Mr. Webster. Per year. And you did a tax swap?
Mr. Connaughton. What we essentially did was we originally
proposed to do away with the gas tax and switch over completely
to a sales tax, essentially make it revenue neutral the first
year, but because the sales tax grows, it would bring much more
money in. The compromise at the end of the day was a diversion
of some general revenues over a swap out, lowering the gas tax
by almost 7 cents a gallon and then upping the statewide sales
tax by 0.3 percent.
Mr. Webster. Was that part revenue neutral?
Mr. Connaughton. No, sir. But by the time--quite honestly,
it was started that way, but----
Mr. Webster. So initially it was revenue neutral, and then
it grows.
Mr. Connaughton. That is right. But because of the way it
has now been set up, this year it will generate close to $1
billion more, and then it moves up within 2 or 3 years, when
all of it is phased in, $1.5 billion a year.
Mr. Webster. Do either of you have an infrastructure trust
fund or kind of an infrastructure bank of some sort?
Mr. Connaughton. We do, sir. We have a Federal one, but we
have a pure State one with only State money that we use to fund
projects.
Mr. Dormsjo. Maryland does not.
Mr. Webster. How do you fund the SIB?
Mr. Connaughton. We have moved--we are entitled to a
certain percentage of the State's revenue surplus every year,
and we have been running surpluses, so we have transferred
about $400 million into our bank, and we have used it for
various projects where we have lent money to a bridge project,
we lent money to a road project, another road project. We have
something for our port. We lend at very low interest rates just
so it becomes a foundation loan to help the overall project
move forward.
Mr. Webster. So all of the projects that would qualify
would be revenue-producing?
Mr. Connaughton. Yes, or the sponsor, such as a locality,
or in one case it is actually a development that actually is in
a key location that they are going to have to build this road
anyway, and they proffered to do it, but we were able to move
it up faster and actually provide transportation relief now.
They are paying these proffers, the development proffers, back
as essentially for the debt service on the loan.
Mr. Webster. OK. Then when you did the tax swap, you were
only trading gas tax and sales tax, but I think you said you
added in some general revenue?
Mr. Connaughton. Yes, sir. We actually took a small--there
was a fight. Our senate and our house, one wanted new revenue,
one wanted diversion from existing revenues. They ended up
doing a little bit of additional revenues and a little bit of
additional general fund revenues being dedicated, as well as an
alternative fuel vehicle tax, as well as an increase, a slight
increase, in our motor vehicle sales tax, which is a separate
tax from the sales tax.
Mr. Webster. And in Maryland you raised money also,
additional revenue. Didn't you say you did that?
Mr. Dormsjo. Yes. The gross majority of the revenue was
from new taxes, but there was some additional bonding capacity
that came from our general operations. That was a small part of
it.
Mr. Webster. Was it sales tax, or was it a gas tax?
Mr. Dormsjo. It was a combination of an incremental
increase on the existing gas tax, the volume-based tax, and
then the gradual application of the sales tax to gasoline, not
a broad sales tax increase.
Mr. Webster. I had one other question about the tolling of
the interstate with an E-ZPass. Was that based on level of
service, or is it based on just a per-axle cost? So in some
cases where you do revenue, you know, based on the flow of
traffic, so you are paying for a service, or was that for axle,
just a per-axle charge?
Mr. Schenendorf. First of all, it could be designed in
different ways. I believe that we concluded that it would
probably be a different charge for trucks than it would be for
automobiles. But it was basically the service level. In other
words, corridors that were--didn't have a great deal of
traffic, didn't go through urban areas, didn't have big
congestion problems, those corridors would pay a lower fee than
the I-95-type corridors, which have very heavy congestion,
those segments wearing out, that the cost to modernize that
corridor would be much greater, and so people traveling in that
corridor should pay a little higher fee. So we thought of it
mostly in terms of service for the corridors.
Mr. Webster. Thank you very much.
Mr. Duncan. Thank you very much.
Ms. Hahn.
Ms. Hahn. Thank you, Mr. Chairman.
So as I said in my opening statement, one of the options I
am interested in exploring is the VMT. Mr. Atkinson, you talked
the most about it, but I don't know some of the other members
of the panel had any comment. I know Oregon has been vetting
this for, I think, 10 years, and they are going to roll it out
in a pilot program in 2015.
Have you looked at what they have studied, what they have
learned? And what are the--I know you were talking about it
only in terms of trucks, but I am interested, of course, and as
we said, we are encouraging more people to drive alternative-
fuel vehicles, electric vehicles, vehicles that get a lot more
mileage per mile.
So what are the downsides; what are the upsides; is this
something we ought to look at at a Federal level?
Mr. Atkinson, you can answer, but if some of the others
have any comment on what you think the VMT--what are the
upsides, what are the problems that you think we would
encounter?
Mr. Schenendorf. Well, just as a comment to what Rob had
said, our commission came to the same conclusion, that we
definitely in the long term need to find a replacement for the
gas tax; that VMT types of proposals seem to make the most
sense, but it is going to take time to get there. There are a
number of obstacles that have to be overcome, and some of them
political, some of them technical, some of them just getting
the entire fleet to be ready to shift to that kind of approach
that was going to take time.
You know, I still think that you are talking 10, 15 years
from now before you could really, on a nationwide basis, move
to that kind of an approach. We recommended that basically you
do it as quickly as possible; that you do the research, you do
the pilot studies, like Oregon, and you do whatever else you
need to do to be able----
Ms. Hahn. Do we have to do it again, or can we look at what
Oregon is doing and learn from them?
Mr. Schenendorf. Oh, we will learn from what Oregon is
doing, but I think is going to take more and different kinds of
approaches to eventually get us to the point where something is
ready for nationwide implementation.
Mr. Atkinson. Just quickly, there is a study that DOT
funded, I think at the University of Iowa, that looked more in
depth, and I would encourage you to look at what the results of
that study have been.
I actually think we can get to a VMT in a certain number of
years, but each year we wait is another year we won't get to
it. So it is just really a question of beginning that process.
That is one of the reasons why going to a truck VMT first is a
good approach, because the system you will build for that will
be a system that can scale up and then be used for the
passenger VMT system.
Part of what has to happen ultimately is that original
equipment manufacturers of cars and trucks will need to be
installing essentially these on-board units as part of the
original equipment, and that takes a while for the fleet to be
able to do that.
Ms. Hahn. Why can't we just use the odometer?
Mr. Atkinson. You certainly could. But what our commission
argued is that the biggest benefit from the VMT is actually not
raising the money, it is being able to price roads more
accurately. So, for example, lots and lots of places would like
to move to congestion pricing as a way to manage congestion in
peak hours. It is very, very hard to do that without a VMT. If
you had a VMT, you can just easily do congestion pricing by
just pricing the lookup table that says between 7 a.m. and 9
a.m., you have to pay this for the road.
The second thing about that is for trucks you can easily
install axle weight sensors so that each truck has a weight
sensor, and then you price according to the road you are on,
can it handle heavy weights. You price according to the weight
of the truck.
In Germany they found after implementing their heavy
vehicle toll system, VMT system, that they reduced empty truck
travel by about 10 percent because trucks were now being more
efficient. So I think that is the main reason is you can just
get much more efficiency.
Ms. Hahn. Thank you.
So, Mr. Dormsjo, how do I--I have heard everybody say it,
and I wasn't sure how to pronounce it.
Mr. Dormsjo. Dormsjo.
Ms. Hahn. OK. We were close.
So I was very interested in the Port of Baltimore and the
project, the public-private partnership project that you--I
couldn't see in the testimony exactly how much that one
terminal initially cost.
Mr. Dormsjo. It was about $110 million, and then there were
$140 million of related highway improvements.
Ms. Hahn. Were you able to use any of your Harbor
Maintenance Tax dollars for that project?
Mr. Dormsjo. No.
Ms. Hahn. Yeah. That was all I was thinking about,
listening to you was I love public-private partnerships. I
think that is great. I was curious of the $15-per-container fee
that you added on, it sounded like, to help pay for this
project and wondering how the shippers are feeling about
getting doubly taxed.
I think the Port of Baltimore gets about $40 million--or
collects $40 million annually in the Harbor Maintenance Tax,
and yet it comes back to Washington, DC, and sits in a fund
that we now have about a $9 billion surplus. So I have been
advocating that we use the Harbor Maintenance Tax to fund our
infrastructures at our ports so that all of our ports can be
dredged and ready to accept the big ships that come in, or just
to keep their main channels open and running. Many ports suffer
from a constant need for dredging.
So it is one thing to talk about new taxes and new fees. It
is another thing to talk about how we should use the tax that
we are already collecting for the purpose for which it was
collected. So I would like hear from some of you, I know my
time is out, on how important you think it is that we actually
use the money that you are collecting for the purpose at your
ports for which it was collected. That was a loaded question.
Mr. Dormsjo. Sure. Let me just try to unpack that a little
bit. I totally agree that the needs in the harbor dredging
space are being unmet, and that there is a deficit in terms of
what we need to do across the country to keep the channels
open. I do think that once those needs are met, there is a
logic to making sure that there is flexibility for sponsors and
port authorities to make land-side investments. I think that
that is a good idea.
With this particular case, there was no public investment
in the project, it was completely privately funded and
financed, so we didn't put in State dollars or Federal dollars
or local dollars. It was an investment from the private sector
because there was a revenue-generation component.
The $15 per container is not a fee. It is actually a
revenue share back from the private equity firm to the State of
Maryland. There will be no additional costs on the shipping
side of things. We thought that the benefit of that $15 revenue
share was that over the long term, that would keep the private
sector and the public sector aligned, focused on trying to grow
volume, and that $15 per container revenue share is only
triggered if we get to a certain level. So that was an
incentive for us to stay working closely with the private
sector at the terminal itself.
Ms. Hahn. But you would be in favor of getting more of your
Harbor Maintenance Tax dollars back.
Mr. Dormsjo. Oh, yes.
Mr. Duncan. Thank you very much.
Mr. Mullin.
Mr. Mullin. I was just glad she was done. Sorry.
Ms. Hahn, you know we get along great.
I tell you, thank you for being here today. Obviously we
want to continue our economic growth, and the only way we do
that is being able to move our products from A to B. And we
have an infrastructure that we have abused, and we have to find
a revenue source for it.
One thing we can all agree on this panel, regardless of
what letter is in front of our name, we know the need of this
country and the responsibilities of this country falls upon the
Transportation and Infrastructure Committee, and we have to
find revenue for it. And even though it is uncomfortable
sometimes to talk about in a situation like this, in order to
move forward on any business, you have to invest in it. In this
country we have to invest, and not just abuse. And I appreciate
the States that have took the initiative to do it.
In Oklahoma we are doing the same, but we still have a
larger network of waterways, of rail, and of roads that it
takes for the States to be able to get the products there.
I think, Mr. Atkinson, did you bring up the sales tax--tax
on diesel?
Mr. Atkinson. Yes, sir.
Mr. Mullin. I have a question about that. I drive a diesel.
I also have a farm that we use a lot of diesel on. At the same
time I also have diesel trucks, semis on the road. And I
understand the idea of maybe adding 10 cents for diesel tax,
but ultimately when I am hauling a product from A to B, I get
actually to pass that cost on. But there is a whole other area
of individuals that drive diesels, like myself, that there is
no way for us to add that cost on.
Is there any way to separate those two, or would everybody
that drives a diesel vehicle just have to be paying that price?
Mr. Atkinson. So we looked at that on the Commission. I am
going to forget----
Mr. Mullin. Pull that mic to you, I am sorry.
Mr. Atkinson. We looked at this on our commission, and Jack
may know the answers, but there is a provision, I believe, in
the current system where farmers, for example, who are buying
diesel----
Mr. Mullin. No, the farmers are different. I had that, red
diesel and green diesel.
Mr. Atkinson. They don't have to pay.
Mr. Mullin. There is two separate. But when I pull up to a
diesel pump, which I do literally just about every other day, I
am pulling up to the same pumps the semis are filling up at.
Mr. Atkinson. Got it.
So as I said in my written testimony, if we are going to
raise taxes on trucks, heavy trucks, and we don't dedicate all
of it to truck projects, then we should also increase taxes at
a commensurate level for passenger vehicles, whether they are
light-duty trucks like you might drive or just a regular gas-
using passenger vehicle.
So I agree with your point. If we were to raise the diesel
tax, I would argue we should also raise the gasoline tax so
that it is equal.
Mr. Mullin. But at the same time it doesn't--Ms. Hahn, what
she said in her opening statement about her driving an electric
vehicle or the natural gas vehicles. So what I am afraid of is
we just put a diesel tax out there, we are just putting a Band-
Aid on a larger issue, and what this panel needs to do, and
that is what we are discussing, is an idea of how to fix it,
not just patch it.
Go ahead, sir.
Mr. Connaughton. Yes, sir. We in Virginia, when we changed
our gas tax, we actually for the first time split out gas and
diesel. So we lowered the gas tax, but we actually went to a
percentage, 6 percent on the diesel, which is about 21, 22
cents per gallon. So it went up. The thing is that for those
passengers, people who are driving diesel vehicles, like
yourself, all you have to do is actually declare it on your
income tax returns, and we will pay you back as if you were
paying----
Mr. Mullin. Did you see a drop in your State of sales of
diesel vehicles? I mean, I would imagine there are a lot of
manufacturers out there--let us just talk about fuel
efficiency. Diesel, small diesel motors, your little four
cylinders, they have done so much with these that they can
actually get better gas mileage than you have in gas vehicles.
So over in Europe there is a lot of diesel vehicles, and in
a lot of other countries there are a lot of diesel vehicles,
but are we going to shoot ourselves in the foot, because if the
idea is to get efficiency levels up, which this administration
is trying to do, if we add so much tax to just the diesel, the
manufacturers will be--there won't be a big incentive to buy
those.
Mr. Connaughton. We worked with some of the manufacturers
about this issue. Because this mechanism already exists in our
State revenue collections--you mentioned before about the
different types of diesel and the farm use, nonfarm use. We
already had a mechanism in place if a farmer purchased nonfarm
diesel out in the street, they could go in and actually get a
tax return. They would get paid back.
We are using that same mechanism for passenger vehicles.
The manufacturers seem to be OK with that. So we right now have
not seen a change in diesel purchases out there, because there
is a mechanism. For every year, they can actually just come in,
put it on their tax return, show the receipts, and we will pay
them back.
Mr. Mullin. Right. And I won't ask the question, I just
want to lay it out there for Mr. Schenendorf. This toll that we
are talking about, I would be curious to know the
infrastructure, how much cost that we are going to have to
invest in a toll system for each State for the interstates, and
who is going to pick up that tab, where it is going to come,
and then how long it is going to take to get the funding back
for our investment. I know that is a big question that you
probably don't have the answer to, but if you could, if you
have it, could you get it to my office?
Mr. Schenendorf. Surely. I will do that.
Mr. Mullin. Thank you.
I yield back.
Mr. Duncan. Thank you very much.
Mr. Sires.
Mr. Sires. Thank you, Mr. Chairman. I represent--I am from
New Jersey, which is one big transportation hub, and the
pressure on the infrastructure is constant. I mean, whether it
is getting merchandise from the port--you know, the merchandise
that comes through the ports goes through about 80 percent of
the region. Only 20 percent goes to the interior of the
country. So you can see the constant pressure.
Toll is out of the question, raising the New Jersey
Turnpike tolls. It is just too high now. Going to the city now
is about $15.
Raising the sales tax, we are already, I think, at 7
percent. I don't know what it is in Virginia. Much lower. I
figured that. We don't want to get to be as high as New York.
That is the problem with New Jersey. Sorry, Jerry.
But, you know, we certainly have to come up with something.
I don't know exactly what. We have some good ideas, and some of
the ideas, you know, raising the gas tax and some of the other
things. But what do you think happens to our economy if we
can't find a solution to this? And I am not talking about the
next 6 months or a year, because I know the pressure on the
roads in New Jersey is just constant. I know they are investing
a lot of money currently in the turnpike, and that was because
the tunnel that was going to New York was canceled, and they
are using some of that money. The transportation trust in New
Jersey is just about bankrupt. There is no appetite to raise
the gas tax.
So, you know, where do we go from here if we don't have
this appetite to do some of the difficult things that need to
be done in order to keep our infrastructure going?
Mr. Schenendorf. I can take a crack at that based on the
Commission's work. Again, we projected out population growth
and economic growth, and basically our national infrastructure
is going to come to gridlock. In the past we have been living
off of the fact that the Greatest Generation provided a new
interstate system. We really haven't had to pay on the
interstate the costs of rehabilitation and reconstruction that
are coming due. In addition, the interstate had excess capacity
in it, so our economy and population grew, and it was able to
absorb that.
Well, we have reached the point where that is no longer the
case. And so as we move forward, and we hopefully grow our
economy, and we are definitely going to have more population,
the road system and the rail systems aren't going to be able to
handle it without a significant increase in investment to keep
what we have in good shape and to provide the take additional
capacity where it is needed. And it is going to cost money.
People are going to have to pay for that.
But people are going to have to see the vision that this is
what they need, because otherwise they are sitting in traffic,
it is getting more and more expensive and less and less
reliable for businesses to move things. And that is why the
shippers are up here asking you to increase these fees, because
we have reached that point where they can see what is right
down--it is not a long tunnel, it is right there. And that is
why they are coming forward. And they are the ones that have to
pay the bills, and they are saying, this is a justified
investment. We are prepared to pay more to get this investment.
Mr. Sires. Anybody else want to take a----
Mr. Connaughton. Most of our gas tax actually went into our
maintenance fund, and over the last 10 years, because we are a
maintenance-first State by law, we have had to take over $3
billion from our construction account and move it over to
maintenance. Actually this year we were going to go up to $500
million. So we can actually put a price tag on some of this
inactivity, particularly on the gas tax.
But the thing is that our legislature, it took them 12
years of fighting about this issue and everything, and finally
we had done everything that we have been asked to do looking
for P3s, infrastructure banks. We laid off 1,000 people. We did
all the things, squeezed everything out the system we could
squeeze, and we still showed them at the end of the day we had
to act, and that was the only way that we finally got everyone
to agree on the changes we brought in Virginia this year.
Mr. Sires. Fortunately New Jersey has, I think, one of the
lowest State taxes on gasoline, but yet there is no will to
even put a nickel or a dime on the gas tax to deal with the
Transportation Trust Fund.
Mr. Connaughton. Sir, one thing we were able to show was a
real shock was the new CAFE Standards at 54 miles per gallon
coming in, and we could show them that just to catch up for
inflation, we would have to move our current--what was the 17.5
cent gas tax up to 36 cents, and then to catch up due to the
new standards coming in, we would have to then move the gas tax
up to about $1.80 or so. And that is when people finally
started understanding what was--some of the troubles with the
gas tax and what we are facing out in the future.
Mr. Sires. You know, I know people talk about the private
sector, and I have been involved with combinations of the
private-public sector, but one of the things that I find is
that the private sector, they don't really have the time to
wait 25 years to get their money back.
I mean, if you are a municipality, you built a parking
garage, and somehow you work with the private sector, they want
their money pretty soon. But if you built it with a
municipality, it will take 20, 25 years, but it is all right,
you get the money back in 20, 25 years.
But the private sector seems to be wanting almost instant
gratification or instant profit, and I am concerned that in
some of the areas where you are going to be able to work with
the private sector, it is fine. New Jersey, I mean, it is very
congested, but some of the other areas in the country where you
don't have the kind of congestion, I don't think you are going
to get too many people involved in a public-private sector
venture. I mean, am I wrong?
Mr. Schenendorf. No. I think what we found is that the
innovative financing is an important part of the solution, but
it is a niche part of the solution. The overall investment that
is needed in the overall network on a systemwide basis involves
finding funding sources far beyond the public-private
partnerships and other kinds of innovative financing
techniques.
There is no question they shouldn't be thrown out. There
are certain projects that they work for, and that is part of
the solution. But that isn't the solution to investing in the
national infrastructure.
Mr. Sires. That is not a total solution.
Mr. Connaughton. Sir, I should point out, in Virginia last
year we closed more P3 deals than anyplace in the country. In
fact, we were number two in the world, right after the United
Kingdom. The concession out here on the Beltway and 95 are 75
years. The tunnel deal we have down in Hampton Roads is
actually a 58-year deal. But there is only--as you mentioned,
there is only certain places that you can actually do these
types of deals where there is investors interested in taking
that sort of long view and building and actually running the
concession for a long time.
Mr. Sires. It seems it is something good for the East and
maybe some parts of the West, but I think some of the places in
between it may not make a lot of sense for some of these
private ventures.
Mr. Atkinson. Our commission probably was a little more
optimistic than Jack's. If we had the same level of tolling as
Florida and Texas do, which is not a lot--they have a fair
amount, but not certainly a lot--we could be raising an
additional $25 to $30 billion a year nationally.
The way we looked at it on our commission was that the
needs are so dramatic that we have to put everything on the
table. I think if we had a national tolling system, we could
raise a lot of money, and we could raise a lot of money in the
middle-of-the-country States. But certainly we have to raise
the gas tax.
Americans pay half to travel on a mile of road today than
they paid 20 years ago in inflation-adjusted dollars. So we
have had a national policy of saying every year we are going to
cut the cost you pay, and it should be no surprise what the
result is.
Mr. Sires. You are talking about a national toll system
which will be added on to the State system. Is that what are
talking about?
Mr. Atkinson. I think two things. I do think we need to
toll the interstate to pay for it. But ultimately, as I said
before, I think we have to move to a VMT system.
One of the advantages, by the way, of a VMT system is it
puts private-sector projects on a much more competitive basis.
The reason--for example, there is a road out here in Virginia,
the Dulles Greenway. I think that is a 100-percent privately
funded road. It is very hard to do those because you are
competing with free. I can drive out to Leesburg on Route 7 and
not pay anything other than my gas tax, or I can drive on the
greenway.
One of the advantages of doing a VMT system is that
basically every road you have to pay for, and you enable a much
more robust set of projects to be developed. So, again, I think
this is such a serious problem, we have to put everything on
the table.
Mr. Sires. Thank you very much for being here today. It is
not easy.
Mr. Duncan. All right. Thank you very much.
Secretary Connaughton, did I remember this correctly that
you said you are receiving approximately $900 million from
Federal sources a year; is that correct?
Mr. Connaughton. Yes, sir, $930 million or so.
Mr. Duncan. And that that now is about one-fifth of your
total budget.
Mr. Connaughton. Yes, sir.
Mr. Duncan. So your budget is $4.5 billion, roughly.
Mr. Connaughton. $4.5 to $5 billion.
Mr. Duncan. And then the $1.5 billion that the new taxes
add on, that will move your budget up to roughly $6 billion a
year for transportation?
Mr. Connaughton. Yes, sir.
Mr. Duncan. But you said that the Federal sources, you
estimate in a short time, but you didn't really say an exact
time, are going to go down to maybe one-seventh.
Mr. Connaughton. Yes, sir. When we start looking at the
Highway Trust Fund, right now if you just looked at purely
revenues coming into the Highway Trust Fund, we should be, I
guess, receiving about $650 million. We start running out those
numbers on the Highway Trust Fund and how much we are
receiving, and at some point when you deal with this issue,
either you increase revenues, or we are going to see a decease
in our expenditures or the money coming to the State.
And then we also see with the increased revenues coming
into the State system that we will be up--in about 6 or 7
years, we will be up to almost $7 billion in our program.
Mr. Duncan. Knowing that it is not possible to satisfy any
Government agency's wish for money, what kind of job are you
able to do with the budget that you have? Now, I am not saying
in a dream world you wish you had five times, three times as
much money as you have now. But are you meeting the needs of
the State of Virginia at that level, or are you just doing half
of what you need to be doing, or what can you say about that?
Mr. Connaughton. We are catching up. Mr. Chairman, I think
there is never enough money for transportation. It is one of
these things. And I think in some ways we are our own worst
enemies when we talk about this from our side of the table in
that we always throw up these trillions and trillions of
dollars of needs. The thing is that if you look at the revenues
coming in, you figure out ways to make it stretch. We are now
doing design builds. We are doing public-private partnerships.
We are figuring out ways to, say, looking at more IT. We are
investing heavily. In fact, we have privatized our traffic
operations areas, centers, and trying to make it a statewide
system so that we can actually get more IT, better IT to
control traffic.
Out here on 66 you will see next year the new system we are
putting in, which will control individually the lanes and the
speeds in the lanes and will open and close lanes based on
conditions.
So there is never enough money. The issue is is certainty
in the system, how much money you have coming in, focusing on
those projects that have a bigger effect on transportation and
congestion and mobility.
Mr. Duncan. I have read in the Washington Post that there
is NOVA and RVA.
Mr. Connaughton. Yes, sir.
Mr. Duncan. And I get the impression that you are having to
spend a pretty big portion of your transportation budget in
northern Virginia. How are you figuring that out?
Mr. Connaughton. Yes, sir. Well, first off, I have a
special fund, meaning that all the taxes and fees are dedicated
to transportation, and then we control where they go, the
allocations, by a statewide board that I chair. We have
different formulas, you know, that go to different types of
systems, interstate, primary, secondary, things like that. We
have transit allocations. We have our port fund. We have all
these different things.
Up to recently, actually the rest of the State was actually
subsidizing the growth and the activity, economic activity, up
here in northern Virginia, particularly if you saw all the
money we are putting into transit. But we try to equalize it
out. The rest of--Virginia is one of the few States where we
control the entire road system. So we have actually the third
largest State-controlled road system in the country. And the
rest of the system has really been seriously degrading because
of all the money we have had to be putting up here in northern
Virginia. But we are actually now trying to catch up and do
more maintenance out there.
Mr. Duncan. What is the population of Virginia now?
Mr. Connaughton. It is $8.2 million.
Mr. Duncan. $8.2 million?
Mr. Connaughton. Yes, sir.
Mr. Duncan. And, Mr. Dormsjo, what is the population of
Maryland now?
Mr. Dormsjo. It is about $5.5 million.
Mr. Duncan. And what is your budget for transportation?
Mr. Dormsjo. On an annual basis it is a little bit north of
$4 billion.
Mr. Duncan. $4 billion.
Secretary Connaughton, how does your infrastructure bank
work? You said that you got $400 million.
Mr. Connaughton. Yes, sir.
Mr. Duncan. Was that just a one-time movement of $400
million into that? I mean, we have this rail infrastructure
loan program that is not being used much at all. Are you having
quite a bit of demand for loans from your infrastructure bank?
Tell me a little bit about that.
Mr. Connaughton. Yes, sir. We set up a--we had a Federal
infrastructure bank where you put Federal money in and
potentially help loan to Federal projects. But there is lots
of--I am going to say lots of strings attached to that.
We decided to set up our own infrastructure bank with
purely State revenues. Most of the money has come from--we get
a piece of the State surplus every year. It ranges from $25 to
$80 million. We take it and put it into this essentially
revolving account.
We make loans. We actually have a bridge project down in
the Hampton Roads area that we are lending to this locality to
build a bridge that will have a toll on it, and they have
essentially 30 years to pay that back at a low interest rate.
They were able then to use that low-interest loan to get much
better rates on their bonds and improve their overall rating on
the city.
I have this project out in Loudoun County where we are
lending to build this road, and they are paying back on their
mandated proffers that the developer is paying into. We have
another one where we use the loan, some money, as a credit
enhancement to make another project's bond rating stronger and
more appealing.
Mr. Duncan. Are you making these loans to private
companies, or are you making them to cities or counties, or a
combination?
Mr. Connaughton. A combination. We want a local sponsor. We
want a locality to sponsor a project, but actually we can also
give loans to private entities as well.
Mr. Duncan. And what has been the reaction so far?
Mr. Connaughton. It is extremely positive. Because what we
are looking for are ways for us to essentially take $300 or
$400 million that we put into this and to actually maximize the
investment in getting as many different projects going as
possible, projects that would not normally get to move forward,
and then we are going to take the revenues in there and
actually put it back into additional projects as the money
comes in.
Mr. Duncan. Right now do you have several projects that are
on the drawing board or that have been requested, and do you
have a waiting list?
Mr. Connaughton. We have quite a few projects who have
asked to be considered for this, but right now we have
essentially hit that $400 million, so we are going to have to
wait for the next tranche of money to come in before we can go
out.
We have two more projects, smaller projects. Since we put a
lot of money into this bridge project, a lot of money into this
road project, quite a bit of money into this bond essentially
and revenue--this bond enhancement fund. We only had a small
amount of money. We have got a couple of small projects that we
are going to support. One is a rail project, and another one is
related to my port. And then we will wait to see where the
revenues are next year, put money into that bank, and then go
back out again.
Mr. Duncan. Mr. Dormsjo, I understand that Virginia has
trust funds that are mode-specific, but Maryland is mostly
mode-neutral. Is there an advantage or disadvantage to either
system, or what do you see as to the advantages or
disadvantages?
Mr. Dormsjo. I will let Sean comment after I make my
assessment, but I think the integrated structure is
advantageous, and I think there is a tremendous benefit to the
State of Maryland to have a common pool of revenues from our
airport, our port, the Motor Vehicle Administration fees and
charges that can be flexibly deployed as we try to deliver the
most worthy capital projects.
We have periods of time in our State's history when we have
had to get large highway projects done, so we have overweighted
our capital program towards those critical projects in the
highway space, and then there have been other times when we
needed to make expansions at BWI Airport, and we have had the
resources to make those investments. Now we are emphasizing
transit investments more so than we have in the past. So we
like the structure of a trust fund that is not broken up into
different accounts.
Mr. Duncan. All right. Secretary Connaughton, you can
comment about the question to Mr. Dormsjo if you like, but also
I am curious about your inland port. How is it going?
Mr. Connaughton. It is doing excellent.
One of the things first to address this issue about these
individual funds, we have this broad fund, special fund called
Commonwealth Trust Fund, and then we have subaccounts with
dedicated fees towards it. So I have one for aviation, one for
my port, and several for my rail, and then the highway
maintenance, and then the highway construction accounts.
We like it for a few things. First is it gives us the
ability to plan out and work with the private sector on the use
of these funds. And so like the rail accounts, we require some
sort of participation. We put in some, they put in some. It
gets more buy-in and more, I am going to say, focus on dealing
with some--particularly in the freight issues, because it is no
way. When you look from a place like Virginia where you have
northern Virginia, a freight rail project is going to have to
compete with a Metrorail project. And one handles 700,000
people a day; the other one handles several thousand cars. So
it is railcars a day. It is very difficult for the rail
projects to compete in that sort of climate.
So we have these accounts. We are putting $40 million per
year into freight rail. We are putting $40 million a year into
port infrastructure. We are putting about $20 million a year in
our air. It is not big in the context of all the other funds,
but we are able to deal with our problems.
Also, when we came to this political issue of passing
legislation this year, we had all the modes; we had almost 80
or 90 different groups from every mode working together to get
the bill through because they all saw some benefit from it.
Our inland port is actually--some of the things we are
trying to do in our freight rail, in our freight plan, in
trying to cause modal shifts, we move about 35,000 to 40,000
containers a year at the inland port, and so we are
intercepting trucks from off of 81 and off of 66 that would
normally drive all the way down to our port and back. So if you
drop it at our inland port, it is as if you drove it down to
Norfolk.
We are building a similar facility at the southern end of
81 down in Montgomery County that is going to have the same
arrangement, and then now we have started up the same sort of
activity at the Port of Richmond, which is a small port. It is
right on 95. We are building rail enhancements to it, and we
are taking a barge service and we are loading containers at the
port and taking them up the James River. And there we have only
started service a couple years ago. We have taken about 8,000
containers, meaning about 16,000 trucks, off of 64 every year.
And that is what we are trying to do is cause a modal shift. We
are not trying to make money on it, we are just trying to get
those trucks off the road and intercept them.
Mr. Duncan. I remember years ago there was a study about
having a freight-rail corridor up and down I-81, from
Harrisburg down through Virginia and so forth. That has been
sort of a dream, I guess, for a long time.
Mr. Connaughton. We are actually supporting the Crescent
Corridor project of Norfolk Southern. We obviously put State
money into the Heartland Corridor to make them--I mean, the
Commonwealth of Virginia put money into a project that actually
made rail improvements in West Virginia and Ohio because we
viewed it as helping our competitiveness. We have just
committed over $30 million for this tunnel right over here, the
Virginia Avenue tunnel, to allow double-stack trains to run on
the CSX line there.
So we are doing everything we can, even putting our money
in States outside of, obviously, Virginia to improve our----
Mr. Duncan. Well, I will tell you, many, many years ago I
requested the first money for the first study of that Crescent
Corridor at the request of Norfolk Southern and because it made
so much sense to me. In fact, I saw benefit, great benefits,
even to Tennessee.
Mr. Atkinson, did I understand you to say that your study
or your report showed that trucks pay 85 to 90 percent of the
costs of the damage they do; is that correct?
Mr. Atkinson. We referred to a study, a cost allocation
study, that was done by the U.S. Department of Transportation
in 1997 and then updated in 2000 that indicated on the whole
that that was about what trucks paid relative to the costs.
Some trucks--if a truck were traveling with a very light load,
it would actually pay more than--it would pay less than what
its overall costs were. A truck with a heavy load would
actually pay a lot less than its overall costs. But on net it
appeared from that study that trucks are subsidized relative to
rail.
Mr. Duncan. I know I have gone way over.
Mr. Nadler. Could you yield just for a question on that
point?
Mr. Duncan. Go right ahead.
Mr. Nadler. Thank you.
Just on that point, there was a study a number of years ago
which you may be familiar with that said that the--I don't
remember if it was a 70,000- or 80,000-pound truck did the same
damage, wear and tear, and vibration damage to a highway as
9,600 automobiles. Are you familiar with that study? And if so,
if that is accurate, how can you reconcile it, because they
don't obviously pay 9,600 times what a car pays?
Mr. Atkinson. I am not familiar with that particular study.
I am familiar with studies that suggest that very heavy
trucks--passenger vehicles do very little damage to most roads.
Damage is caused principally by heavy trucks, which is why I
argued in my testimony that you could--the technology does
exist to move to a VMT system that has axle weight sensors on
them, and you could charge a truck commensurate with the actual
damage they are doing on particular roads.
For example, some roads are not designed even for heavy
trucks, and when a heavy truck goes on that road, they do a lot
of damage. Other roads are designed for heavy trucks, and they
will do less damage. But there is no incentive now for trucks
to go on the right road, if you will, and there is no incentive
for trucks to be more efficient in that sense. So that is why I
do think charging trucks commensurate with their actual costs
that they impose on the system, particularly pavement damage,
is an efficient thing for our country to do.
Mr. Nadler. But agreeing on the concept and the goal of
doing exactly that, it was a USDOT study from many years ago,
the 9,600, because I used to quote it when I was in the State
assembly, so I don't know if it has been updated, but if a very
heavy truck does that kind of damage, and yet trucks overall do
pay 85 to 90 percent, it would sort of lead to the implication
that maybe heavier trucks ought to pay much higher taxes.
Mr. Atkinson. Yes, it would. I agree with that.
Mr. Nadler. Thank you. I am finished.
Mr. Duncan. Mr. Schenendorf, you used the word
``extraordinary'' in referring to the fact that most of the
trucking industry seems to be united, and a lot of the inland
waterway users are at with paying more, and it is pretty
extraordinary to have industries that are willing to pay more.
In the report you did, what has been the reaction to other
parts of your report, like, for instance, from aviation and
rail and so forth? And I will ask you and Mr. Atkinson both,
are you satisfied with the reactions to your reports, or the
action or lack of action since those reports came out?
Mr. Schenendorf. Well, ours, like Rob's, it all focused on
surface transportation since we didn't look at aviation, and
basically both studies came to very, very similar conclusions.
You know, I will be honest with you: Everybody agrees and
can recognize what is happening, but nobody wants to raise
money. Nobody wants to have more investment and to pay for
that, even though that is what is called for.
I said it in my testimony, the studies, you know, could
fill this room that have been done and come to the same
conclusion, and that is we need to invest more. But then when
you start talking about, well, how are we going to pay for it,
nobody wants to raise taxes, nobody wants to put tolls or user
charges on. And so consequently the investment hasn't been
made, and because the investment hasn't been made, the system
functionality is deteriorating.
That is what business sees. That is why shippers are coming
to you and saying, we want to pay more if you will help fix
this system. And that is why it is not just the trucking
industry and the barge owners, it is the shippers, it is the
people who are actually using that system. And, of course, they
ultimately are going to be paying for it because it is their
goods that are on these trucks or water or barges, and they are
saying, we are willing to pay more because we are seeing what
is happening. And they are becoming less competitive, the
system is less reliable, it is becoming more costly. Inaction
is becoming more costly to them than actually raising the money
to do the investment that is needed to provide the capacity and
the reliability.
So I am disappointed. And it is not going to change, I
don't think. I don't think what needs to be done can be done by
one political party. It is not going to change, in my judgment,
until the two parties can come together. And I think a lot of
people think maybe the grand bargain is the way to do that.
And just because of the economic growth potential, Simpson-
Bowles put in a significant increase in the motor fuels taxes
and spent it all, because of the linkage to the economic
growth.
And so I think that, you know, maybe it will take something
like that in order to allow this to happen. But it has to be a
situation where the two parties come together and say, this is
what is right for America. And today's----
Mr. Duncan. Well, traditionally, this committee has done
better at coming together than almost any committee in the
entire Congress.
Mr. Seltzer, you know, one of the problems on all these
transportation-related projects is that they, over the past
many years, have taken three or four times as long as they
should have or needed to or compared to other countries. Do you
think we could do more to speed things up?
I know, for instance, that you are familiar with the Tappan
Zee project. I understand the NEPA process was speeded up on
that project.
Mr. Seltzer. Correct, sir. But it is not just the
environmental and regulatory approval. It is the actual design-
build construction that expedites the completion of the
projects if the funding/financing is there.
So we are seeing more and more projects, not just toll-
backed projects that are generating their own revenue stream,
but even projects supported by State highway funds being done
through public-private partnerships--P3s--with so-called
availability payments, which are general State or local
government resources paid to a private team responsible for
designing, building, delivering, operating, and financing the
system.
So it is not just a toll-road concept; it could be applied
and is being applied more generally.
Mr. Duncan. Of course, when we are forced to, we can move
pretty fast, like on the Interstate 35 bridge in Minnesota.
Mr. Seltzer. Right you are, sir.
Mr. Duncan. All right.
Mr. Sires, anything else you want to ask about or add?
Mr. Sires. No. I was just curious about the last--build,
design, and operate. In my district, we did a light rail that
has been very successful, you know, design-build, that moves
about 50,000 people now in a very congested area. And it has
worked out very, very well. There was a lot of skepticism when
we first started with this project. So I have the experience
where it worked and it saved a lot of money.
Mr. Duncan. Mr. Nadler, any----
Mr. Nadler. No.
Mr. Duncan. Well, we have kept you far too long, but you
have been very helpful.
And I will tell you this. We are getting ready to write
this report and these recommendations here in the next few
days, so if you have anything you wish to add that we didn't
get to here today or if you have any specifics you want to have
us take a look at, get them to us right now. And we need all
the help we can get.
Thank you very much. That will conclude this hearing.
[Whereupon, at 3:27 p.m., the panel was adjourned.]