Don’t cut transportation innovation funding

Congress has recently begun taking steps to address the nation’s significant infrastructure challenges by advancing long-term transportation legislation.  It’s an important step, but the approach may have the unintended consequence of constraining innovation in financing.

The six-year reauthorization of transportation funding before Congress would mark the first such funding measure in a decade. However, it threatens to cut funding for the Transportation Infrastructure Finance and Innovation Act (TIFIA) program by as much as 80 percent, stifling the development of inventive financing solutions for rebuilding our country’s infrastructure.

{mosads}Loans from TIFIA have been used in the majority of recent public-private partnerships, or P3s, in the United States for two reasons.  In addition to the leveling effect and credit benefit provided by TIFIA’s lower overall financing costs, TIFIA loans also allow for a deferred principal payment.  This feature is an added benefit to P3 projects with volume risk, for example, where there can be uncertainty over how fast the traffic and hence revenues will build up to service the debt.

As a result, TIFIA has helped spur early-stage private investment in infrastructure – something our country needs to overcome a funding gap that Standard & Poor’s Ratings Services estimates to be $200 billion annually.

TIFIA has also paved the way for several key first-of-type transportation investments in the U.S.  In New York City, TIFIA is supporting replacement of the Goethals Bridge, which is badly needed for the 28 million commuter and commercial vehicles that use it annually. As a design-build-finance-maintain P3, it is the first surface transportation project in the Northeast to build a public asset by shifting the risks of construction and long-term maintenance to private capital. 

This project and others like it are part of a broader trend of innovation in infrastructure finance. Pennsylvania recently struck a deal to bundle the replacement and maintenance of 558 geographically dispersed, structurally deficient bridges into one P3 project with the expected benefits of faster replacement and cost savings.

A recent study of community perceptions by JD Power of eight infrastructure projects under varying stages of development, construction and operation found that private financing of infrastructure is strongly supported by the community. On average, those polled were nine times more likely to have a positive than negative view of projects in their community and a healthy majority supported this involvement from the private sector. The community also clearly appreciated the benefits infrastructure investments bring such as jobs, economic development and convenience.

Public-private partnerships offer a promising path forward because they help leverage private-sector capital to get critical infrastructure built.  And for the private sector, the benefits are clear: infrastructure projects often provide the type of stable and predictable long-term investment that are attractive to pension funds and the insurance industry.

Infrastructure funding is in a dire place and TIFIA is an important catalyst in jump starting the new approaches to financing that will be required to put all sources of available capital to use.  It is surprising therefore that Congress may limit this program so significantly.

To support the innovation that will be needed, at minimum, Congress should commit to maintaining TIFIA’s authorization at the level the Congressional Budget Office has adopted as its baseline, which would avoid adding to the cost of enacting the highway bill while also ensuring continued private sector involvement in solving the significant infrastructure needs of our country.  

Peterson is the chief executive officer of McGraw Hill Financial, Inc. and is chairman of the Bipartisan Policy Center Executive Council on Infrastructure.


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