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Another Reason Why We Have Doubts About a Trump Infrastructure Plan
In a letter to New York and New Jersey officials, K. Jane Williams, the deputy administrator of the Federal Transit Administration (FTA), wrote that a recent funding proposal by the states for the first phase of the Gateway Tunnel project, estimated at $11 billion, seeks a 50% federal investment that is "considerably higher than much existing precedent for past 'mega projects' " and would deplete the existing grant program. The letter took the extra step of going on to criticize the states' reliance on a 50-50 funding agreement with the federal government dating back to the Obama Administration. "We consider it unhelpful to reference a non-existent 'agreement' rather than directly address the responsibility for funding a local project where 9 out of 10 passengers are local transit riders," Williams wrote.
Many economists have cited the project's importance to both the national and regional economy. The states have made major funding commitments with identified sources of repayment for any proposed non-grant federal funding sources. The best example is the Gateway Tunnel where New York and New Jersey have committed resources of the Port Authority of NY/NJ and fare revenues from NJ Transit. This is exactly in line with what the Trump Administration has enunciated (to the extent any real plan can be described in 280 characters) as its goals for its alleged infrastructure plan. Outgoing Gov. Chris Christie, whose earlier decision delayed the project into the unsupportive Trump Administration's reign, recently said, "We are confident that, as the White House advances an infrastructure proposal this year, federal funding for the most important transportation project in the United States will be addressed."
We are hard pressed to share his confidence.
The letter, to the extent it reflects policy, has serious negative implications for the finance of local infrastructure going forward. Federal participation through grants or loans has been a key component of infrastructure finance especially in the area of mass transit. A reduction of the federal role would be detrimental by increasing the existing pressure on local resources. It would also exacerbate the current mismatch between the amount that states receive from the federal government through programs like mass transit funding versus the amounts their typically larger and more vibrant economies generate in the form of revenues to the federal government.
The need for a plan is borne out by recent federal statistics. The U.S. Census Bureau reports that public construction spending has increased by 1.8% since November 2016. Spending on highways and streets has actually declined by 6.8% over the period while spending on water supply has declined 9.6%. Sewage and waste disposal spending has increased a mere 0.6%.
As we have consistently said in the past year, as much as some in the majority in Congress and the Administration have claimed, there is no real support for infrastructure and states and localities will have to take more ownership -- and find the money -- for funding projects.
New Hampshire Considers Electric Car Fees
The ever-evolving transportation funding dilemma is leading states to explore a variety of options to generate funds for road maintenance and construction in an era of technological change. New Hampshire is the latest to consider a new option to deal with the lack of use of gasoline by electric cars. New Hampshire sets annual vehicle registration fees based on weight -- $30 or $40 for a small car, into the hundreds for a big truck. Then there's the fuel tax to cover road maintenance. But electric cars don't use gas, so they don't pay the tax.
Two bills are expected to be introduced in the 2018 legislative session. The first would establish a $100 annual fee for hybrids, or $200 for electric vehicles, with increases if the gas tax goes up. The state reports it has more than 8,000 hybrids and 1,200 electric vehicles registered right now. The second bill would be based on mileage -- vehicles that get less than 20 miles to the gallon would pay nothing extra. After that, drivers would pay an annual fee based on how fuel efficient their car is -- up to more than $100 a year for electric vehicles.
Arizona, California, Colorado, Connecticut, DC, Georgia, Idaho, Illinois, Indiana, Iowa, Michigan, Missouri, Nebraska, North Carolina, Oregon, South Carolina, Tennessee, Virginia, Washington, and Wyoming all levy some form of electric or alternative fuel-related fee.
The transition toward increased use of electric-powered cars may generate challenges for certain bonds secured by taxes on gasoline. As a likely transition to electric cars occurs, the revenues provided by gas taxes will decline over time. While we are confident that a number of states will institute mileage taxes to supplement any potential decline in gasoline taxes there are numerous issues for this transition. The Federal Highway Trust Fund is not designed to substitute in new revenue sources, such as mileage fees, should gasoline tax revenues decline. In many cases of debt secured by gasoline taxes, any new revenues derived from mileage taxes would not be part of the indenture securing the gasoline tax bonds, and it is not clear that states could pledge such mileage taxes to existing gas tax indentures. Mileage tax structures are not necessarily easy to design. For example, a mileage tax that is measured largely on a stretch of highway might not easily capture mileage generated on local roads and streets.
Seattle Considers Policy to Reduce Parking to Favor Mass Transit
A Seattle City Council committee is proposing reducing parking city-wide. It would limit the number of parking spaces required for residential buildings; reduce parking in areas well-served by mass transit; prohibit parking on some streets and in certain neighborhoods; and limit parking in city parks. The committee chair said that by curtailing parking people might be more inclined to take mass transit. “If we put transit on the streets people are going to use it, conversely if we build big parking garages people are going to drive there.”
The city's the departments of transportation and construction and inspections said that “transit, walking, biking and rideshare now represent about 70% of the person trips taken by commuters to/from Downtown and nearby “City Center” vicinities.” At the same time a typical reaction from a car user was "I think if you’re going to try and encourage people to take the bus you need to focus on encouraging Metro to really step their game up.”
The City currently generates some 3.8% of its general revenues ($41 million approximately) from paid parking in the City. It is the City's seventh largest source of general revenues.
The uncertainty of policy solutions at the federal level in Washington, D.C., with the Administration and Congress, makes it clear that states and localities will need to take on more a role in finding innovative ways to fund infrastructure of all sorts. The likelihood of an infrastructure law -- let alone a bill -- coming out of Congress in 2018 is highly uncertain.
The credit picture here is also uncertain -- as states and localities digest the new world under tax reform in which they now have to operate, there will be surprises -- good and bad -- for the credit implications of these changes.
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Joseph Krist is a Partner at Court Street Group Research who has spent his career researching, analyzing and writing about municipal credits for both buy and sell side clients.View author