Infrastructure financing and the federal government
There is a general consensus that America needs both new infrastructure and more jobs. Where there’s disagreement is over what role the federal government should play in providing the necessary funding to jump-start new projects. In a recent webinar, Standard & Poor’s laid out the current types of financing available for surface transporation projects (page 3):
• General Obligation Bonds (Appropriation debt)
• Sales Tax Revenue Bonds
• Gas Tax Revenue Bonds
• Toll Revenue Bonds
• Federal Grant-Secured Obligations (GANs/GARVEEs)
• Transportation Infrastructure Finance and Innovation Act (TIFIA) loans
• Public Private Partnerships (P3)
The top five categories in the list above are types of municipal bonds, meaning that they require a local or state government to take on debt to fund infrastructure. At the level of federal financing, the U.S. Department of Transportation’s Federal Highway Administration gives out TIFIA loans to public-and-private infrastructure projects. For example, the Macquarie-owned public-private partnerships that are building the Midtown Tunnel in the Norfolk and Hampton Bays area of Virginia and the FasTracks rail project in Denver are using federal TIFIA loans in the funding pool.
I don’t really understand why the FHA’s TIFIA program favors private investment. Here’s what the FHA website says (emphasis mine):
The program’s fundamental goal is to leverage Federal funds by attracting substantial private and other non-Federal co-investment in critical improvements to the nation’s surface transportation system. TIFIA was created because state and local governments that sought to finance large-scale transportation projects with tolls and other forms of user-backed revenue often had difficulty obtaining financing at reasonable rates due to the uncertainties associated with these revenue streams.
I’m sure the FHA folks know about the $230 billion of transportation bonds outstanding (page 13). Many of these securities are repaid with tolls. In fact, the FHA’s own website lists public projects that are owned by municipal and state governments and repaid with toll fees. It’s no surprise that public toll roads charge users lower fees than do those involving private investors, but that is not an explicit program goal of the FHA, unfortunately.
The webinar highlighted a study S&P conducted about cash flows on publicly and privately owned toll roads (emphasis mine, page 13):
We compared pairs of similar publicly and privately operated toll roads in Denver, CO, Southern CA, Dulles VA, and Chicago, IL
• Roads were privatized over the last 15 years
• Roads compared were higher cost in terms of toll rate per mile than large, well-established statewide systems
• All had high usage of electronic toll collection, most above 75%
• Toll rate increases were greater than inflation, but the private roads were slightly higher
TIFIA could be an enormous engine for expanding American infrastructure and creating jobs if it shifted its focus from enabling the privatization of public assets to backstopping municipal governments that issue debt to fund transportation projects. The TIFIA program could reshape itself into a bond guarantor and stand between bond investors and municipal governments. There is certainly demand – as FHA has said, the program was oversubscribed for 2012 projects. For example the New York State Thruway Authority applied for $2 billion in TIFIA funds for the new Tappan Zee Bridge it hopes to build.
The United States is still a very rich country. We have the resources to improve our national assets. But it’s deeply disappointing that a federal program uses scarce resources to privatize public assets. Governments must retain as many of their revenues and assets as possible to fund future needs.