Transportation experts gathered at ULI’s 2011 Fall Meeting in Los Angeles in late October looked into the country’s transportation future and predicted continued uncertainty at the federal level, along with a need for increased innovation at the state level, and increased private sector involvement in transportation infrastructure provision at the local level.

David Winstead, an attorney at Ballard Spahr LLP in Washington, D.C., and cochair of ULI’s Public Development and Infrastructure Council, moderated a session titled “Transportation Directions: Where Are We Heading?” that featured four transportation experts from across the country.

Jack Basso, director of finance for the American Association of State Highway Officials, kicked things off by saying that “America is at a crossroads in transportation,” a place we haven’t been since 1966. Federal transportation-authorizing legislation is currently operating off of a series of short-term extensions—with the next one expiring at the end of March 2012. In addition, a consensus on how to fund the nation’s critical transportation is eluding Congress, with two key funding questions remaining: what the federal government’s role will be going forward, and how the federal government will generate the revenue required for investment.

Basso reviewed the current legislative state of play—including the administration’s ambitious $550 billion proposal from February 2011 that did not address the revenue question, as well as outlines of bills in the House and in the Senate. Basso laid out three possible scenarios: a “doomsday” option that would fund the program for six years but limit funding to current revenues (resulting in cuts of about 35 percent); a two-year fix at current funding levels (which would require $12 billion in new revenue from sources yet unidentified); and what he termed “the big deal”—a full-blown six-year bill, with $75 billion in new revenue.

One key unresolved issue is the discrepancy between Highway Trust Fund receipts and outlays. Since 2004, receipts have lagged outlays in every year but one, necessitating general fund bailouts of the Highway Trust Fund of about $34 billion. Most trust fund revenue comes from the federal gas tax. Decreasing driving means that the distance between receipts and outlays is projected to grow significantly over the next few years. Increased tax revenues (including a possible shift to a vehicle-miles-traveled-based tax), user fees, bonding and credit programs, and public/private partnerships will be needed to bridge the gap.
Emil Frankel, director of transportation policy for the Bipartisan Policy Center, also provided a big-picture view, noting that it is “important to reach beyond the traditional transportation community” and engage a broader range of business and civic leaders such as those assembled at the ULI meeting. Frankel also stressed the importance of the link between urban development and transportation investment.

At a larger level, though, Frankel said that he was “cautiously pessimistic” about potential transportation outcomes, at least in the short run. In the short run, he said, he was particularly pessimistic about prospects for ensuring adequate transportation funding and for undertaking the important programmatic reforms that are needed. In the longer run, he said he had hope that as Americans we would do the right thing.

To the question posed by the session title, “Where are we heading?” Frankel said he didn’t know. The nation faces tremendous uncertainty about the future of the transportation program. The country’s growing and well-documented infrastructure challenges—and the need to address and invest in aging, deteriorating, and congested systems—are arising at a time when we have stagnant or declining resources to deal with them. As a fiscal conservative, Frankel called the general revenue bailouts of the Highway Trust Fund “outrageous public policy,” one that added to the national debt and deficit, which at any rate is unlikely to be repeated. And yet, there is little appetite to increase the gas tax.

Stepping back further, Frankel called the recent period of deleveraging the “Great Contraction,” where Americans—individuals and governments alike—lived beyond their means. Now that the party is over and the bills are coming due, it is hard to make the investments for the future that are needed. And yet, it is necessary. “We need to invest if we are going to get out of the hole in which we find ourselves,” Frankel said. But this investment, he noted, needs to be undertaken against a backdrop of fundamental reforms so that we can make better choices and invest scarce resources only in projects that have strong returns.

The Bipartisan Policy Center’s transportation work has helped flesh out what a “performance-driven” system would look like. Whatever the size and whatever the duration of a given project, Frankel said, the investment should be tied to goals and outcomes, performance, and accountability.

Martin Tuttle, deputy director for the California Department of Transportation, talked about how uncertainty at the federal level is playing out in California. His agency, CALTRANS, has suffered in the budget crisis and undertaken austerity policies including restricting travel for employees. Still, as a result of ballot measures including Proposition 1B, the agency has $1 billion in projects under contract, an all-time record. However, in two years the pipeline of projects will decrease significantly.

Tuttle also reviewed specific initiatives of the agency, including a collaboration with Google Earth to map the state and upgrade environmental data.

Francine Waters, senior director of transportation planning for Lerner Enterprises, provided a specific example of how property developers in Montgomery County, Maryland, are stepping up to the plate to help fund the transportation investments needed to support new development. The White Flint Partnership is a collaboration of six major real estate players, including Federal Realty, JBG Companies, and others, within a sprawling, auto-dominated 430-acre (174-ha) segment of Rockville Pike, a major county arterial. Together with public partners, the companies have helped formulate a plan to transform the area into a transit-oriented corridor with a dense street grid, dedicated bike lanes, street trees, and other amenities, including a new bus rapid transit connector.

The Vision for a Transformed Rockville Pike

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To help fund these infrastructure investments—estimated to total $601 million—in a time of limited public resources, and in recognition of the property value they will create, the White Flint Partnership companies have supported the creation of a taxing district, and are also paying for the construction of new roads and upgrades to existing roads within their property boundaries. The White Flint Development District Tax, an ad valorem property tax billed at a rate of ten cents per $100 of assessed value, will generate $169 million for infrastructure improvements. Collections began in July 2011.

In total, as shown in the chart below, the private sector will pay for about 75 percent of the total infrastructure improvement costs in the White Flint project area.

Distribution of Infrastructure Cost Payments

White Flint, Maryland
$601 Million Total 

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What does it all add up to? Key takeaways from this session include the following:

  • The uncertainty surrounding the reauthorization of the federal surface transportation bill is likely to continue for some time.
  • A major unresolved issue at the federal level is how to raise revenues for the transportation program, and how to utilize innovative funding and financing tools.
  • Reform of the federal transportation program is overdue—moving forward, to have the support of Congress and the public, it must be made more performance oriented, goal driven, and accountable for outcomes.
  • In the absence of federal action and in the face of diminishing public resources, the private sector is stepping in to help pay for infrastructure investments.