Monthly Archives: May 2011

Can a National Infrastructure Bank Save the Northeast Corridor?

Traditionally, the large-scale transit projects of the New York Area have relied predominantly on public funding. Usually some combination of federal grants and state revnue, including sales taxes and publicly financed bonds, get cobbled together in a multi-year funding agreement.

For example, for the ARC Tunnel, both the Port Authority of NY & NJ (PANYNJ) and the State of NJ pledged revenue from bonds backed by tolls (in addition to the then-largest grant from the Federal New Starts program).  With ARC canceled, the state funding is now going elsewhere. NJ’s recently announced Five-Year Capital plan relies on toll revenue originall authorized by the NJ State legislature specifically to fund the ARC tunnel, as well as $1.5B of the PANYNJ’s originally planned contribution to the project. To the dismay of rail advocates, the capital plan re-directs the ARC money to shore up the states’s depleted Transportation Trust Fund and to support road projects (though projects like the Pulaski Skyway rehabilitation are badly needed).

There are signs, however, that the days of 100% public financing are coming to an end.  During April’s Fiscal Year 2011 budget showdown, Republicans made it clear that America’s infrastructure spending would need to change. In fact, HSR lost $2.9B in Fiscal Year 2011. In a recent hearing of the Senate Finance Committee, top Republican Orrin Hatch described President Obama’s proposed infrastructure spending as a “Carter-era message of tax-and-spend.”

Exploring an Infrastructure Bank

Slowly, however, a new picture is emerging, in which both public spending leverages private financing to complete large-scale projects.  In September 2010, President Obama embraced the idea of a national infrastructure bank. Under the President’s proposal, the government would manage a $50B bank comprised of federal dollars and private investment dollars. The bank would have a long-term strategy for regional projects, reforming the ad-hoc process of transportation investment.

Since then, the idea of a national infrastructure bank has not died. In February 2011, Obama’s six-year transportation plan proposed to transform the Highway Transportation Fund into a national infrastructure bank.

Recently, the call for a national infrastructure bank received support from Robert Puentes (a senior fellow at the Brookings Instutition),  writing for the Wall Street Journal. Back in April, the Economist delivered a harsh assessment of American infrastructure, but pointed to Europe’s own infrastructure bank as a model of successful public and private investment.

Taking up the challenge to make the bank a reality, members of the US Senate have offered two major proposals. In March 2011, Sen. John Kerry (D-MA) partnered with Senators Kay Bailey Hutchison (R-TX) and Sen. Mark Warner (D-VA) to introduce the BUILD Act, which proposes the creation of an American Infrastructure Financing Authority (AIFA) to oversee and perform major transportation investments and other infrastructure projects.  Under the proposal, the AIFA would provide large-scale projects with loans, not grants like the current New Starts program administered by the US Department of Transportation. The government would provide an initial seed of $10B (with the possibility of future expansion) that would then grow through private investment and returns from earlier loans. The AIFA would not finance more than 50% of the total cost of a project, to ensure private market participation. Finally, the AIFA would be independent of the government and led by an appointed CEO, who would be tasked with ensuring that the AIFA remained financially self-sufficient.

Earlier in May, Senators Jay Rockefeller (D-WV) and Sen. Frank Lautenberg (D-NJ) offered their own alternative. Instead of a true bank, the Senators proposed a fund, which would provide loans as well as the grants traditionally provided by the US DOT. Unlike Kerry’s independent authority, the proposed bank would reside with in the DOT itself. The plan would allow the government to provide up to 70% of project financing and would authorize a total of $5B in government spending in the fund’s first two years (with grants capped at $600M each year).

At Streetsblog, Tany Snyder weighs the pro’s and con’s of the Rockefeller/Lautenberg proposal. On the upside, the grant-making process smartly recognizes that many meritorious projects cannot be expected to yield positive returns. On the downside, this busines-as-usual approach is unlikely to garner suport from fiscally minded Republicans. In addition, the fund’s investments would be subject to the same political pressure that currently shapes infrastructure investment (as noted by Scott Thomasson at the Progressive Policy Institute).

An infrastructure bank could play well into the strategies of both the Republican and Democratic parties. For Democrats, such a bank could support a strong role for the government in ongoing transportation investments, a key part of Obama’s six-year transportation plan. For Republicans, the bank could address a growing perception that America has lost its will to complete big projects, while embracing a private-market approach to investment.

Amtrak Embraces Private Investment

A private infrastructure bank could play an important role in addressing infrastructure needs in the Northeast.  Regional scope and strong potential for profitable operations make HSR on the Northeast Corridor a likely candidate for financing from a national infrastructure bank.

Since an infrastructure bank remains only a proposal, Amtrak is already taking steps to take advantage of private investment.  Currently, Amtrak’s vision for HSR in the Northeast calls for a total of $117B in investments, a number that seems impossibly high for the U.S. government to provide alone. In fact, Amtrak’s recent $450M grant to implement 160mph operations on track between Pennsylvania and NJ represents less than 1% of the total expected costs.

Last week, Amtrak announced that in April the national corporation released a Request For Proposals for a business plan to implement HSR on the northeast corridor. The business plan would keep Amtrak as the developer and operator of the service, while inviting private investors to supplement government financing. According to Amtrak, multiple investment firms have expressed interest in working with the corporation to develop their business plan, with final proposals due on June 10.

With the certainty that government spending will not return to its previous levels, it is critical for Amtrak to pursue private investment. Since state governors like Chris Christie have proven to be fickle partners on projects with regional significance, it will be important for the Federal government or an independent infrastructure bank to steward these large-scale investments.

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Lautenberg Continues Push for Gateway

The office of Senator Frank Lautenberg (D-NJ) issued a press release this morning, detailing the Senator’s continued push for the Gateway Tunnel Project.

The Gateway project would add two new train tunnels across the Hudson River, to support commuter rail traffic and true High-Speed Rail service on the Northeast Corridor.  For New Jersey Transit commuters, the project’s new capacity would add up to 13 trains per hour in each direction during the morning and evening commutes.

Last week, Amtrak and the NEC was awarded $450M to institute HSR on a stretch of track in Pennsylvania and NJ.  Left out of the funding, however, was the reconstruction of the Portal Bridge, a key component of the $13B Gateway project.

Lautenberg argued for the project at a Senate hearing with Amtrak CEO, Joe Boardman, who has detailed his support for Gateway in the past.  You can view Lautenber’s remarks in the video below.

Antagonism from the Right

Lautenberg’s comments are yet another round in a fight that has dragged on in NJ since the cancellation of the ARC tunnel last October.  Just last Friday, the Wall Street Journal Metropolis Blog reported that Christie accused NJ Senators Lautenberg and Menendez of failure in the last funding round. According to Lisa Flesher, Christie remarked:

“I feel badly about it,” the Republican governor said Thursday, reflecting on the lack of federal funding to replace the aging Portal Bridge, ”because I wish they would have been more powerful and more successful in being able to get more resources for New Jersey, but obviously they failed in that regard.”

Christie’s criticism rings hollow, unfortunately, particularly light of the ARC cancellation. This weekend, the NY Times published a harsh report on Christie’s transportation record as governor. If NJ is going to secure funds, state leadership needs to present a united front, to avoid the kind of debacle that crippled the ARC Tunnel.

Northeast Wins, Gateway Loses Florida HSR Money

The US Department of Transportation has announced that the Northeast Corridor has won $795M in HSR grants. Despite the region’s success, Amtrak was awarded only $450M and received no assistance to begin the trans-Hudson Gateway project.

Amtrak’s has received the biggest share of the NEC’s funding: $450M for the design and construction of a 24-mile segment of track that can support 160mph operations between NYC and Philadelphia.  Amtrak’s other major request, $570M to support the re-construction of the century-old Portal Bridge project, which is essential to relieving the trans-Hudson bottleneck, went unfunded. The Feds also chose to deny funding for design and preliminary engineering for the Gateway Project.

Within the Gateway region, New York State’s Harold Interlocking replacement project received $295M. This project will indirectly benefit trans-Hudson rail capacity, by removing the bottleneck that current exists in Queens, as Amtrak and LIRR trains move toward the East River Tunnels.

Outside of the Northeast, midwestern states won $404M and California won $300M, in addition to a number of smaller grants (less than $15M) to several states in the west and in the south. Later today, Secretary Ray LaHood will make a live announcement of the grants at NY Penn Station and at Detroit’s Amtrak station.

LaHood Plans Major HSR Announcement at NY Penn

Secretary of Transportation Ray LaHood is planning a major announcement on Monday at New York Penn Station. The fate of Florida’s rejected High-Speed Rail funding will finally be revealed, since LaHood told Transportation Nation that he planned to announce the grants’ re-distribution next week.

The location of the announcement can only mean good news for applications from Amtrak and/or New York State.  Amtrak has requested $1.3B for beginning the construction and design of HSR in the Northeast Corridor. NYS has requested $517M for numerous projects in the state, including the Moynihan Station Phase 2 Design and plans to fully separate Amtrak and LIRR operations in Queens.

Later that day, LaHood will be stopping at Detroit’s Amtrak station. According to The Detroit News, LaHood is expected to announce major funding for improved rail service in Michigan, supporting the lines between Detroit and Chicago and Detroit and Ann Arbor.  Michigan will join Illinois as two states from the midwest reaping the benefits of the demise of Florida’s HSR plans. After Ohio and Wisconsin returned their funding earlier this year, LaHood’s announcements return a piece of the federal investment to the midwest.

With strong federal support established in California and renewed investment in the Midwest increasingly apparent, it makes sense for the US DOT to make a major investment in the Northeast. Monday’s announcement from Penn Station makes the Gateway project a likely winner.

Decision Next Week: The Re-Distribution of Florida HSR Grants

Transportation Nation has reported that the US DOT’s decision regarding the Florida HSR money is expected to come next week.

According to Kate Hinds, during a Conference Call this afternoon with Secretary of Transportation Ray LaHood:

[Transportation Nation] also asked the secretary when an announcement would be made about awarding the $2.4 billion in high-speed rail money that Florida rejected earlier this year. LaHood would only say “next week.”

There is strong competition for the $2.4B, which were made available after Florida’s Governor Rick Scott returned his state’s grants in February, arguing that the costs of the project outweighed potential benefits. In total, Twenty-six applicants (including 24 states, DC and Amtrak) requested just under $10B from the returned moneys – over four times the amount available.

Despite the wide support that the program is receiving at the state level, the $2.4B took a hit in the April budget compromise for the remainder of FY2011. According to Todd Zwilich for Transportation Nation, Congress took $400M out of the Florida pool (plus $2.5B in unspent grants), leaving only $2B to distribute to hungry state DOTs.

After weeks of waiting, the US DOT has already begun to award the funding.  The Chicago Tribune reported that Illinois received $186M in HSR funding to support faster operations (110mph) on a 21-mile section of track in Illinois, to support eventual 110mph service on the line from Chicago to St. Louis. According to reporter Jon Hilkevitch, the DOT notified congress this week that it has released $400M of the Florida money to new states. Beyond Illinois, it’s not clear which other states have won won funding.

The DOT’s decision could have an enormous impact on the future of the Gateway project. Amtrak has applied for $1.3B to begin the construction and design of HSR on the Northeast Corridor:

Amtrak’s large request is surpassed by that of California, which requested $2.4B to construct high-speed service on the line from Bakersfield to San Francisco. But large success in California seems unlikely, since it would dramatically tip the funding scales toward the west coast and California in particular. Already, California received $624M in grant money returned to the DOT by Wisconsin and Ohio. And in 2010, the state received approximately $3.3B for the statewide HSR initiative. Unless more states receive such high levels of investment, Obama will be unable to promote HSR as a national vision, a key component of his proposed surface transportation legislation.

Instead of California, a large commitment to  the northeast could encourage HSR’s longterm and national success by signaling that the Obama Administration is interested in placing HSR funds where are they are most wanted, most economically promising, and most critical for the US’s long term economic success.

Despite Fed Demands, NJ Should be Spared ARC Tunnel Bill

Numerous sites reported last Friday, that the Federal Transit Administration has ruled that the state of NJ must repay $271M in grant money. This morning,  Bloomberg reports that Christie has pledged once again that the state will not repay the sum. In the mean time, the bill is now increasing by up to $52,000 a week in interest.

Where did this money go?

The $271M went to final design for ARC and for early construction items, most notably the construction of a new overpass on Tonnelle Ave, the planned site for the entrance of the now-defunct ARC Tunnels.

Christie vs. La Hood

Chris Christie has argued that NJ should not repay the money, since the tunnel work can go to support other transportation projects, most notably the proposed Gateway Tunnel. From a legal perspective, it would seem that Christie’s argument has little standing.  In a letter to NJ Senator Frank Lautenber, US DOT Secretary Ray LaHood explains:

“The taxpayers, acting through FTA, committed more than a billion to NJT in exchange for which NJT was committed to build a defined transit improvement for the benefit of the American people … New Jersey broke the terms of the contract.”

In other words, the funds were promised on the grounds that the state would complete ARC. Without ARC, the state has no claim to the money.

The Failure of Federal Investments

Although Christie’s logic isn’t right, NJ is arguably being forced to pay for the failures of Federal government’s ineffective transit investments. The feds’ pledge of $3.5B for ARC represented less than 50% of the original cost estimates. That percentage sinks even lower with projected cost overruns that pushed the total to $9-10B.  Even if Christie had other intentions intentions when pulling the plug on ARC, he was right in arguing that NJ should not be the only state left on the hook for cost overruns.  The entire Northeast Corridor would have benefited from the project, particularly New York and Pennsylvania.

Furthermore, the fact that the $271M must be repaid is a testament to the ad-hoc nature taken by the federal government in addressing regional infrastructure, where it should be take the lead early and often. The $271M remains tied to ARC because, officially speaking, there is no other project to apply the money toward.  The proposed Gateway Project has not undergone any kind of Environmental Review process, and thus is ineligible for any federal funding.

The problem is that there is no long-term coordination or investment plan for the Northeast Corridor. In May 2010, Amtrak released a Master Plan for the NEC and in September, the company offered its proposal for HSR in the Northeast Corridor. Although these projects provide a longer-term vision, without an accompanying, long-term investment strategy from the Federal government, improvements on the NEC remain piecemeal. For example, while century-old bridges in Connecticut are currently being replaced along the Corridor, tunnels under Baltimore remain inadequate. Every state along the corridor has a stake in seeing these projects completed.

Without regional coordination, states along the corridor also continue to compete for federal dollars, instead of identifying investments that would be optimal for the entire corridor. This issue is particularly acute for the Trans-Hudson rail issue, since NY State was unwilling to support ARC financially beyond the Port Authority’s contribution. Instead, NY State focused on its own investments: East Side Access for the LIRR and the 2nd Avenue Subway. The tri-state region, in particular, would benefit from a comprehensive, long-term plan that could guide ongoing investments.

Potential Improvements

There is a possibility that some of these shortcomings could be fixed in this year’s Surface Transportation Legislation.  As reported by Streetsblog last Thursday, President Obama is providing the Legislature with a written form of its proposed legislation.  According to Tanya Snyder, this  is uncommon, since the President usually proposes the terms of proposed legislation, but rarely articulates it fully in draft legislation. The move signals that the Obama administration is serious about pushing its transportation agenda — which includes $53B in HSR investment over six years — in the face of strong opposition to spending by the GOP.

Funding for HSR in the northeast would also demand an improvement in regional coordination. After years of piecemeal investment, a long-range investment strategy would dictate plans and require states to work together.  A recent study by graduate students at the University of Pennsylvania, for example, proposed a new regional entity to manage the construction of HSR in the Northeast. Such a body would represent the interests of the states along the corridor and provide an interface between state governments and the operator of HSR service.

LaHood’s demands for the ARC money could be delivered better if they were paired with a pledge to address the Trans-Hudson Capacity question. According to LaHood’s letter to Lautenberg, the purpose of his fight to save ARC last fall, “was to avoid the very circumstances in which we now find ourselves: no jobs, no congestion relief, and an enduring debt whereby New Jersey must return $271 million to the Nation’s taxpayers.” Although LaHood failed to save the project, his involvement at the time was the kind of active involvement that is necessary for these complex projects. The US DOT should be a leader in helping NY, NJ and Amtrak effectively work together.