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.