The US Congress is considering multiple infrastructure funding bills. Will these bills facilitate broader use of public-private partnerships in the United States? Some of the bills under consideration include new or expanded infrastructure financing programs and would
encourage greater private-sector involvement in public projects. Congress is still debating the specifics. It appears somewhat more willing to set aside partisan wrangling in this area,
but infrastructure spending bills remain challenging even in the
best of times and will be particularly so in advance of the midterm elections this November.
President Obama asked Congress to pass two infrastructure
bills in his State of the Union message to Congress in late
January. He asked Congress to reauthorize the federal government’s surface transportation programs, which most recently
passed Congress in 2012 as the Moving Ahead for Progress in
the 21st Century Act or “MAP-21.” He also asked Congress to
reauthorize the federal government’s water resources programs under the Water Resources Development Act. The
President followed up the State of the Union with a budget proposal in early March to authorize up to $302 billion in spending
on MAP-21 over the next four years, although specific legislative language was not provided.
Congress is still talking about whether to create a new
“national infrastructure fund.” A Partnership to Build America
Act has been introduced in the House and Senate. There are
several more proposals that various members of Congress have
introduced that focus on specific issues related to infrastructure investment.
The House Transportation and Infrastructure Committee
recently created a special panel to focus on public-private partnerships across various types of infrastructure, including all
modes of transportation, water and public buildings. The
panel’s recommendations may lead Congress to encourage
project financing, private-sector investment and PPPs as part of
the reauthorization of the surface transportation and water
resources programs. Surface Transportation
Congress has until September 30, 2014 to reauthorize the
federal surface transportation programs under MAP-21 before
the programs expire. A key concern for this bill is the level of
funding that the federal government can provide from the
increasingly strapped Highway Trust Fund. The US Department
of Transportation is maintaining a Highway Trust Fund ticker at
http://www.dot.gov/highway-trust-fund-ticker to show that
the surface transportation programs continue to spend money
faster than receipts are coming into the trust fund that funds
these programs. Congress has not raised excise taxes on motor
fuels, the primary source of revenue for transportation funding,
since 1993 and few alternatives have been seriously considered.
The funding issue was the topic of the first MAP-21 reauthorization hearing by the Senate Environment and Public Works
Committee in February this year. The President’s budget proposal includes $302 billion over
four years for reauthorization of MAP-21, which is more spending than the Highway Trust Fund can support and an increase
from the annual spending levels under the current MAP-21.
The Obama administration is proposing to make up the
funding gap through corporate tax reform. A Republican discussion draft of a corporate tax reform bill that Congressman
Dave Camp (R-Michigan), the House tax-writing committee
chairman, released in March would also dedicate some
revenue raised through corporate tax reform to support the
Highway Trust Fund. However, no action on corporate tax
reform is expected this year.
The reality of federal shortfalls over the last several years has
helped push state and local governments to consider new
approaches for funding infrastructure. Several bills in Congress
propose programs to encourage broader project financing and
private investment through PPPs as an alternative to traditional
funding mechanisms. Two of these financing programs that are
relevant for PPPs in the context of the MAP-21 reauthorization
are private activity bonds and the Transportation Infrastructure
Finance and Innovation Act or “TIFIA” for short.
Private activity bonds allow tax-exempt borrowing to
finance projects that serve a public purpose but that are
owned, leased or in some cases operated by private companies.
Expanding the capacity of the private activity bond program for
surface transportation projects would facilitate the use of PPPs
by ensuring that tax-exempt debt remains available for PPPs.
Congress authorized the use of private activity bonds for
surface transportation projects
in 2005. The US Department of
Transportation can allocate up
to $15 billion in total in such
tax-exempt financing authority
for eligible projects. Private
activity bonds are seeing more
use for transportation PPPs. In
2013, such bonds were issued
for the $763 million East End
Crossing PPP between Indiana
and Kentucky, the $1.35 billion
North Tarrant Express PPP in
Texas and the $1.5 billion
Goethals Bridge PPP connecting
New York and New Jersey.
Recognizing that the $15
billion cap could soon be exhausted, President Obama called for
the cap to be increased to $19 billion in March last year. The use
of private activity bonds and the pace of PPP activity has accelerated since then. Approximately $9.3 billion of the $15 billion
cap had been allocated by the end of February 2014. Industry
estimates are that the cap will be fully allocated as early as
2015. Accordingly, PPP proponents are hoping Congress will
authorize a substantially higher cap or remove the cap altogether. Senator Mark Kirk (R-Illinois) introduced a bill in late
February to increase the cap to $19 billion. However, these efforts may be swimming upstream as the
tax-writing committees that have jurisdiction over tax-exempt
bonds are no fans of such bonds. The Camp tax reform bill
would eliminate all uses of private activity bonds.
TIFIA provides low-cost, flexible loans for part of the cost of
major transportation projects. A multi-year commitment in a
reauthorization bill to maintain TIFIA’s current lending capacity
would be important for PPPs, as a number of PPPs are working
through competitive procurement processes and may not be
ready for financing until 2015 or beyond. The President’s
budget proposal includes an extension of TIFIA at current
funding levels through fiscal year 2018.
Under MAP-21, TIFIA was expanded significantly from a
program that could make approximately $1 billion of loans each
year to a program with approximately $17 billion to lend over
two years. While TIFIA has not used these funds as quickly as
some may have hoped or expected, the pace of TIFIA lending
has accelerated significantly. In fiscal 2013, TIFIA made two
loans using MAP-21 funds for a total of $388 million. So far in
fiscal 2014 TIFIA has made six loans using MAP-21 funds for
more than $4 billion (and two loans for $534 million using preMAP-21 funds). More TIFIA loans using MAP-21 funds are
expected before the end of fiscal 2014, and the expanded
program is managing a growing pipeline of future projects.
Renewing existing financing options is one thing, but
Congress could also consider programmatic reforms and other
initiatives as part of a surface transportation reauthorization
bill to make it easier for public officials to consider other ways
to deliver basic infrastructure. Reforms could build on efforts
initiated in MAP-21 to loosen restrictions, cut red tape, focus
on performance and develop best practices. For example,
Congress could consider further loosening restrictions on
tolling and pricing that would facilitate broader use of project
financing mechanisms.
Senator Kirk and Senator Mark Warner (D-Virginia) introduced a bill in late February to expand the number of states
that can participate in federal programs that allow broader use
of tolling and pricing on highways. The bill, called the “Highway
Innovative Financing Act of 2014,” would eliminate an existing
cap on the number of states that could participate in a “value
pricing pilot program” that encourages testing of congestion
pricing strategies. The bill would also increase from three to 10
the number of states that could participate in an “interstate
system reconstruction and rehabilitation pilot program” that
allows tolling on certain existing interstate highways that require repair. All three of the current
slots are reserved.
The Obama administration could also continue to streamline
federal review and approval processes. The latest budget
request to Congress builds on previous efforts in this area by
establishing a new Interagency Infrastructure Permitting
Improvement Center that will be administratively housed
within the US Department of Transportation along with a new
“permitting dashboard” on the department’s website. Congress
and the administration could also try to coordinate PPP efforts
across federal agencies and provide higher-level support and
visibility for PPPs. Water Resources
Congress is in position to pass a water resources bill this spring
for the first time since 2007, but progress has slowed in recent
months. The existing Water Resources Development Act provides federal support for ports and waterways and targeted
flood protection and environmental restoration. The Act does
not currently facilitate project financing or PPPs, but new programs under consideration could encourage private investment. The Senate and House passed different versions of the
bill — the House added an extra “R” to the title of its bill for
“Reform” — and a conference committee was appointed in late
2013 to reconcile differences.
The Senate version includes a new Water Infrastructure
Finance and Innovation Act program called “WIFIA” that would
be modeled after TIFIA. This program would provide $50 million
annually to each of the US Army Corps of Engineers and the US
Environmental Protection Agency to make low-interest loans
for water infrastructure projects, including PPPs. Water and
wastewater projects would be eligible, as would projects for
flood control, hurricane and storm damage reduction,
enhanced energy efficiency, improvements to treatment works,
community water systems, aging water distribution and waste
collection facilities, desalination, managed aquifer recharge and
water recycling.
Like TIFIA, WIFIA would be able to provide loans for no more
than 49% of project costs to encourage co-investment. The
financing would be flexible, with a repayment schedule based
on projected project cash flows,
final maturity up to 35 years
after substantial completion,
and repayment of principal or
interest commencing up to five
years after substantial completion. Project costs from development through construction,
including certain refinancing
costs, would be eligible for assistance. The threshold for
minimum project costs would
be $20 million (or $5 million for
rural projects).
The House version of the
water bill does not include
WIFIA, but it includes a pilot program authorizing PPPs for
water projects. Under this program, the US Army Corps of
Engineers would be authorized to allocate $25 million each year
from 2014 through 2018 for projects to be managed by private
entities. Fifteen total projects would be chosen, covering the
areas of flood risk management, hurricane and storm damage
reduction, coastal harbor and channel improvements, inland
navigation and aquatic ecosystem restoration. A National Infrastructure Fund
The idea of a national infrastructure bank or fund has been proposed multiple times over the last several years in Congress and
by the Obama administration. It has not had much traction and
suffered from, among other things, House Republican efforts
to shine a spotlight on the US Department of Energy loan guarantees given to companies like Solyndra that went bankrupt
after receiving federal support.
Nevertheless, the Obama administration reiterated its
support for “establishing an independent National
Infrastructure Bank to leverage private and public capital to
support infrastructure projects” in its latest budget proposal
to Congress. The budget message did not provide any details
for how the National Infrastructure Bank would be structured
or operate.
A “Partnership to Build America Act” introduced by
Congressman John Delaney (D-Maryland) in May last year
would capitalize a new American Infrastructure Fund through
the sale of $50 billion of infrastructure bonds. The corporations
that purchase the bonds would be allowed to repatriate overseas earnings tax free in an amount to be determined. While
the bill is supported by a bipartisan group in Congress, it has
not been referred to a committee, which is the first step in the
legislative process. Meanwhile, the tax-writing committees are
not keen to write earmarks like this into the tax code.
Delaney would require the infrastructure fund to put a
minimum of 25% of its funding into infrastructure projects that
use PPPs with at least 20% of the financing for such projects
consisting of private capital. The fund would be designed to be
self-sustaining and would not be backed by the full faith and
credit of the federal government. No federal appropriations
would be required.
To ensure accountability, the bill proposes an 11-member
board to manage investment decisions. Seven spots on the
board would be appointed by the seven entities purchasing the
most bonds, and the other four spots would be appointed by
the President and would require Senate confirmation. The
mission of the board would be to operate the fund as “a lowcost provider of bond guarantees, loans, and equity investments to State and local governments and non-profit
infrastructure providers for both urban and rural non-profit
infrastructure projects that provide a positive economic impact
and to meet such other standards as the [b]oard may develop.”
The fund would only assist with state and local projects.
The independence of the fund may alleviate some concerns
about federal accountability for investment decisions, but
giving control of the board to the bondholders could raise questions about the criteria that will be used for making investment
decisions and the alignment of investment decisions with
public policy considerations.