Orski on Obama

Ken Orski writes some very valuable things. While predicting the future is risky, at best, I suspect there are a lot of good insights in his description of the state of play regarding transportation and the incoming Obama administration. I reposted it all here.

November 12, 2008
The Transportation Agenda of the Obama Administration

The election is behind us. A Democratic administration headed by President-elect Barack Obama and a heavily Democratic Congress will assume power next January. How will this influence the direction of federal surface transportation policy and programs? To gain some insight, we have solicited the views of a number of people, including some who are familiar with the thinking of President-elect Obama’s transition team. While the views expressed below are our own, they have been influenced by the observations and speculations expressed in these interviews. By common agreement, all conversations were held off the record and not for attribution in order to allow for the freest possible expression of views.

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The transportation agenda of the Obama Administration can be viewed as a two-stage strategy: a short-term action agenda and a longer term policy agenda. A good portion of the short-term action agenda is already known. It is tied to a job stimulus (or "economic recovery") bill, a $100 billion spending package a portion of which (perhaps as much as $25 billion) is expected to be dedicated to roads, bridges and other public infrastructure. As President-elect Obama stated, he wants to see the stimulus bill enacted "sooner rather than later," but if the bill does not get done during the lame-duck session, it will be "the first thing I get done as president," Obama said at his press conference.

A January 2008 AASHTO survey of State Departments of Transportation identified 3,071 "ready-to-go" highway and bridge projects at a total cost of $17.9 billion. A further 559 "ready-to-go" transit projects at a total cost of $8.03 billion have been identified in an October 2008 survey by the American Public Transportation Association (APTA). Obviously, only a small portion of this wish list can be funded through the stimulus bill. At an October 29 congressional hearing on infrastructure, Rep. James Oberstar (D-MN), Chairman of the Transportation and Infrastructure Committeee, was careful to emphasize the need to prioritize the selection of these "ready-to-go" projects using objective criteria of need and job creation potential. Both Congress and the new Administration want to avoid the criticism that the infrastructure projects are nothing more than "pork-barrel spending masquerading as economic stimulus," as House Minority Leader John Boechner (R-Ohio) has already charged.

Another item on the short-term action agenda might be a rescue package for some 30 public transit agencies that are at risk of defaulting on billions of dollars of loans which they entered into from the late 1980s to early 2000s. The transactions involved selling rail cars to banks, then leasing them back. The arrangement provided banks with a tax shelter and transit agencies with upfront capital. The deals were guaranteed by the American International Group (AIG). AIG’s collapse invalidated the guarantees, allowing banks to collect their money immediately. Transit authorities are asking the Treasury Department to assume the role as guarantor of these transactions, lest lenders to transit agencies across the country call in their loans (so far only one bank has done so). Allowing these defaults, wrote Rep. Oberstar to Secretary Peters, "will threaten the very existence of some of the nation’s largest transit agencies, as well as the financial stability of the state and local governments that fund them. ...We urge you to work closely with the Department of Treasury to quickly resolve this pending crisis." Like the stimulus bill, the responsibility for action on this matter may end up with the next Administration.

The Longer-term Policy Agenda

The longer-term transportation policy agenda of the Obama Administration is more difficult to predict. Individuals who have served on past presidential transitions teams (including your editor) agree that the influence of transition teams assigned to individual agencies is short-lived. Reams of position papers and issue memoranda generated by the transition teams tend to be ignored or quickly forgotten by the political appointees once they are placed in charge. The influence of the personal advisers to the President-elect also wanes once a cabinet Secretary is appointed, especially if the Secretary in question has stature, enjoys the confidence of the President, has the respect of the congressional leaders and is knowledgeable in the ways of the Washington bureaucracy. Thus, the longer-term future of the federal transportation program, including its restructuring, will be shaped not by the transition team or the current presidential advisors but by the new Secretary of Transportation and his/her team— subject of course to future legislative directives.

To be fair, the Obama transition team seems disciplined and well organized and is intent on avoiding the mistakes of past transitions by producing short, precise issue assessments and by having its key people cleared in advance for access to sensitive government information. A lean and effective transition could be decisive in how much the new Administration could accomplish in its first year in office.

Development of a Legislative Reauthorization Proposal

An early challenge facing the incoming Transportation Secretary and his team of sub-cabinet officials will be to develop a legislative reauthorization proposal. In theory, the new team will have just a few months to complete this task since the current transportation authorization (SAFETEA-LU) expires on October 1, 2009. Fortunately, they will not have to start from scratch. A solid foundation for a legislative strategy already has been laid down in several reports. Of special value will be the recommendations of the National Surface Transportation Policy and Revenue Commission, the soon-to-be-released (in January 2009) report of the National Surface Transportation Infrastructure Financing Commission and the U.S. DOT report, "Refocus. Reform. Renew." the latter containing departing Transportation Secretary Mary Peter’s recommendations for a comprehensive reform of the surface transportation program. In addition, the incoming team will have the benefit of a set of program recommendations from AASHTO and the American Road and Transportation Builders Association (ARTBA), including the latter’s proposal for "Critical Commerce Corridors." Finally, the team will have an early indication of the thinking of the House Transportation and Infrastructure Committee when the Committee releases a detailed outline of its legislative proposal in February 2009.

Collectively, these documents will offer the incoming transportation team a wealth of advice on a number of crucial issues. Among them are recommendations concerning the overall level of funding for the highway and transit programs; the approach to be taken toward a restructuring of the surface transportation program; the potential value of tolling, pricing and private investment in a future capital program; the appropriate future focus for the Highway Trust Fund; the emphasis to be given to investment in intercity passenger rail, mass transit and freight infrastructure; the fiscal impact of a potential carbon cap-and-trade legislation; and the timetable for a transition to a mileage-based funding system.

Development of a multi-year surface transportation authorization will be a "monumental task" in the opinion of one veteran DOT senior executive, given the expectation of a fundamentally restructured program. Ordinarily, the preparation of a reauthorization proposal and its clearance through the Office of Management and Budget (OMB) and the White House takes several months. This time around, the process may take even longer because of the relative newness of the DOT team and because the White House will have many other pressing legislative priorities on its agenda. While some of the work of drafting the bill can be delegated to the Department’s career staff, many fundamental policy decisions on funding levels, program structure, etc. will require close involvement of the political-level appointees: the Deputy Secretary, the Undersecretary for Policy, the General Counsel, the Assistant Secretaries, the modal Administrators and their key staff.

If past experience is any indication, the vetting and appointment process of these officials will continue well into late spring and early summer of 2009.(President- elect Obama has promised to move on presidential appointments with all deliberate speed, "but I want to emphasize deliberate as well as speed," he added. ) This does not bode well for a timely enactment of new transportation authorization, i.e. by October 1, 2009, since the congressional authorizing committees will wish to obtain the new Administration’s input before acting on a bill. More likely, the Department will seek an extension of the current legislation into 2010.

The National Infrastructure Bank

One of the few specific proposals endorsed by President-elect Obama during his campaign dealt with the creation of a National Infrastructure Bank. The proposal also enjoys the support of House Speaker Nancy Pelosi and Senate Banking Committee chairman, Christopher Dodd (D-CT). With congressional support already assured, there is a good chance that the Bank could be established in the first year of the Obama Administration.

However, precisely what form the new bank should take still needs to be determined. Its initial formulation, as proposed by Senators Christopher Dodd (D-CT) and Chuck Hagel (R-NE) in Senate Bill 1926, called for an institution that would provide financial assistance to public infrastructure projects over $75 million in value, that are "not adequately served by current financing mechanisms." In the Dodd-Hagel version, the bank would be financed with a $60 billion capital contribution over 10 years— a sum of money that appears hardly adequate to meet the vast needs for infrastructure reconstruction and renewal in the years ahead.

The infrastructure bank was resurrected in a fresh and more elaborate form by Everett Ehrlich and Felix Rohatyn in a recent article in The New York Review of Books ("A New Bank to Save Our Infrastructure," October 9, 2008). Both Ehrlich and Rohatyn had been key figures in the CSIS Commission on Public Infrastructure that had produced the original 2007 report recommending the National Infrastructure Bank. In its new version, the National Infrastructure Bank would replace the various modal programs as the source of capital for highways, mass transit, airports and other public infrastructure. The authors have proposed that the Bank’s capital would come from the funds now dedicated to existing infrastructure programs — about $60 billion annually.

Whether Congress could be persuaded to adopt an Infrastructure Bank along the lines proposed by Messrs Ehrlich-Rohatyn is an open question. Asking Congress to cede control over the federal public works programs, surrender its power to make infrastructure investment decisions, and abolish all modal distinctions seems remote. A more promising model might be the already existing Transportation Infrastructure Finance and Innovation Act (TIFIA). The TIFIA program provides federal credit assistance to transportation projects of substantial regional or national significance. TIFIA assistance can take the form of secured loans for construction and permanent financing (for a term of up to 35 years); loan guarantees to institutional lenders making loans for projects; and lines of credit that may be drawn upon to supplement project revenues. Projects must generate a dedicated stream of revenue from user fees.

Endowing the proposed National Infrastructure Bank with TIFIA-like authority while expanding and liberalizing TIFIA’s conditions, e.g., by substantially increasing its capitalization and lifting the ceiling on credit assistance (currently at 33 percent of project costs), is likely to be among the models seriously considered by the new Administration.

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Like the economy at large, the nation's transportation system presents the Obama Administration with daunting challenges: growing metropolitan congestion, aging infrastructure requiring billions of dollars in reconstruction and modernization, and inadequate freight system capacity requiring more billions of dollars in upgrades and new facilities. At the same time, the Highway Trust Fund is faced with dwindling gas tax revenues, while new taxes and deficit spending are expected to encounter both popular and congressional opposition. Coupled with these challenges is a widely-shared sense that traditional solutions no longer are working and that the federal transportation program will require a fundamental reform. Along with the rest of the transportation community we wish the Obama Administration well in its efforts to come to grips with these issues. We sincerely hope that the new transportation team will rise to the challenge.

Please feel free to forward or reprint this item with appropriate citation. All correspondence, including requests to subscribe and unsubscribe, should be addressed to: C. Kenneth Orski, Editor/Publisher; email: korski@verizon.net; tel: 301.299.1996; fax: 301.299.4425.