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[Senate Hearing 112-208]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-208
 
                    BUILDING AMERICAN TRANSPORTATION
                         INFRASTRUCTURE THROUGH
                           INNOVATIVE FUNDING

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 20, 2011

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                  U.S. GOVERNMENT PRINTING OFFICE
72-409                    WASHINGTON : 2012
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                   Bruce H. Andrews, General Counsel
                Todd Bertoson, Republican Staff Director
           Jarrod Thompson, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 20, 2011....................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Hutchison...................................     2
Statement of Senator Boxer.......................................     3
    Prepared statement...........................................     4
Statement of Senator Kerry.......................................     5
Statement of Senator Begich......................................     6
Statement of Senator Ayotte......................................     6
    Prepared statement...........................................     6
Statement of Senator Lautenberg..................................    40
Statement of Senator Blunt.......................................    42
Statement of Senator Thune.......................................    47
Statement of Senator McCaskill...................................    49
Statement of Senator Klobuchar...................................    51

                               Witnesses

Hon. Polly Trottenberg, Assistant Secretary for Transportation 
  Policy, U.S. Department of Transportation......................     7
    Prepared statement...........................................     9
Robert Dove, Managing Director, The Carlyle Group................    14
    Prepared statement...........................................    16
J. Perry Offutt, Managing Director, Investment Banking Division, 
  Morgan Stanley & Co. LLC.......................................    19
    Prepared statement...........................................    20
Stephen J. Bruno, Vice President, Brotherhood of Locomotive 
  Engineers and Trainmen.........................................    23
    Prepared statement...........................................    24
T. Peter Ruane, President and CEO, American Road & Transportation 
  Builders Association...........................................    27
    Prepared statement...........................................    29

                                Appendix

Response to written questions submitted to Hon. Polly Trottenberg 
  by:
    Hon. Kay Bailey Hutchinson...................................    59
    Hon. John Thune..............................................    59
Response to written questions submitted to Robert Dove by:
    Hon. Mark Pryor..............................................    62
    Hon. John Thune..............................................    63
Response to written questions submitted by Hon. John Thune to J. 
  Perry Offutt...................................................    64
Letter dated July 21, 2011 to Hon. Jay Rockefeller IV and Hon. 
  Kay Bailey Hutchison from Franklin L. Davis, Director of 
  Government Relations, American Subcontractors Association, Inc.    65

                    BUILDING AMERICAN TRANSPORTATION
                         INFRASTRUCTURE THROUGH
                           INNOVATIVE FUNDING

                              ----------                              

                        WEDNESDAY, JULY 20, 2011

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m. in 
room SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. Good morning. This is one of those hearings 
which can have a lot to do with the future of the country. And 
I'm very pleased to see there are a lot of people here because, 
often, on infrastructure, people hear the word and they sort of 
chill, and yet it's probably about the most important word 
other than war and peace that we can be discussing right now. 
And I guess the debt ceiling would fit in that category, too.
    Anyway, Americans rely on railways, they rely on highways, 
on airways, on waterways, and they do that so they can move 
goods efficiently and people can continue what they've been 
doing in even better ways. States like my home state of West 
Virginia need sound infrastructure desperately to boost 
economic development in rural communities and, in fact, 
throughout the state. That's true of any state. I think it's 
true of any state--Massachusetts, too, I suspect, particularly 
western Massachusetts, but all of Massachusetts--got a lot of 
crumbling bridges?
    Senator Kerry. Yes.
    The Chairman. Yes. Yet our transportation is showing signs 
of wear and tear, and, frankly, much of it is in disrepair. 
People don't notice that necessarily, or they think, ``Well, it 
won't be me.'' But we're getting past the point.
    Across the nation, we're driving on more than 90,000 miles 
of crumbling highways. Crumbling is like if you have a crumbled 
cookie, you can't eat it. So, if you have a crumbled highway, 
it's pretty hard to drive on it--and America has more than 
70,000 structurally deficient bridges.
    Traffic and congestion keep getting worse. Overall, our 
country's infrastructure receives a D-minus grade from a 
national rating group, even though mileage traveled by cars has 
increased by 94 percent in the last 25 years. Maybe we're 
making too many cars.
    In 2009 alone, congestion cost consumers and businesses 
well over $115 billion in wasted time and fuel. So it's clear 
that we have to rebuild and invest in the infrastructure that 
so many American people depend on.
    You're experts. Some in the House actually are adamant 
about the need to slash funding for transportation projects. 
That is a problem--hiding under the veil, I would say, of 
fiscal responsibility. Or maybe I wouldn't even say that. This 
is not an acceptable solution to a very real problem for every 
American. As I've said before, we need smart, targeted spending 
cuts with smart, targeted revenue increases. They both have to 
go.
    Given the harsh realities we're facing, it's essential that 
we look at new ways, therefore, to stretch the federal dollars 
that do exist, which is what this hearing is about. That is why 
I introduced legislation to create--along with Senator 
Lautenberg, who's not here yet--a transportation infrastructure 
investment fund for some very interesting reasons, which I had 
not been fully aware of but which I now am and which we're 
going to discuss this morning, because they would leverage 
federal dollars and encourage private investment into our 
transportation network.
    Private sector investors--and this is what struck me--have 
billions of dollars, billions of dollars ready to be put to 
work on infrastructure projects, and we should tap into this 
vast amount of capital. Now, PPP means, you know, we all do it 
together--partners. This will expand the level of funds 
dedicated to repairing, rebuilding, and expanding our 
transportation infrastructure. It's an investment that can 
create much needed construction jobs, manufacturing jobs, 
engineering and design jobs for out-of-work Americans and at 
the same time support American competitiveness.
    I look forward to hearing from our witnesses today. You're 
a group of phenomenal experts, and I'm very proud that you're 
here.
    The Chairman. And I would ask if the Ranking Member has 
comments.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you, Mr. Chairman, I do. And I 
appreciate that you are having this hearing and also that we 
share a common interest in addressing the challenges facing our 
nation's aging transportation infrastructure.
    We certainly need a new approach. The American Society of 
Civil Engineers' most recent estimate says that the U.S. needs 
to invest $2.2 trillion in order to keep pace with the national 
infrastructure needs. The Federal Highway Trust Fund is broke. 
It has been bailed out now three times at a cost of $34 
billion. So, clearly, we need to be looking for other more 
innovative answers. More of the same is not going to work. 
Raising the gas tax is off the table, from my standpoint, and 
instituting a vehicle miles traveled tax is also a nonstarter, 
from my standpoint.
    I think it is time to look for new solutions that don't 
involve higher taxes, and I am supporting an infrastructure 
bank that would foster private sector investment in the 
nation's large-scale infrastructure projects and ensure that 
the most cost-effective projects will generate the most growth. 
I am going to leave the synopsis of that to its major sponsor, 
Senator Kerry, who has done an incredible job of pushing this 
and gaining the support. And I certainly worked with Senator 
Kerry to assure that it was something that would be a major 
down payment but a revolving fund that would leverage the 
federal government money with private sector money and make it 
go farther.
    I think our bill is the answer, and I really want to 
commend Senator Kerry for not only starting the ball rolling 
but also working with people who had concerns, as I did, to get 
a bill that I could support and do wholeheartedly support. And 
with that, I will let the senator who is the main co-sponsor of 
our bill give more of the detail.
    And, Mr. Chairman, I would love for this committee to pass 
our bill, and I'll bet you probably want your bill to be 
passed. And so maybe we can work together or maybe we could 
report both of them.
    The Chairman. Well, we usually work together.
    Senator Hutchison. We do. We do.
    The Chairman. Yes.
    Senator Hutchison. And so Senator Kerry has really worked 
hard on it, and I know you're working hard with Senator 
Lautenberg. So maybe we can do something together, because if 
it's a revolving fund, I think it could really make a 
difference.
    Thank you.
    The Chairman. I know we've got a lot of witnesses--Barbara, 
do you want to say something?

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Well, because I can't stay, I'd like to give 
you just a 2-minute report on what's happening in our 
committee, Environment and Public Works, with the 
transportation bill. I think it would be instructive. If I 
could have 2 minutes, that's all. And I appreciate it.
    First of all, isn't it wonderful to see the bipartisanship 
behind the infrastructure bank? Count me in. I think it's a 
wonderful thing.
    Also count me in on an enhanced TIFIA program, which we're 
going to do on a bipartisan basis. Even Chairman Mica supports 
it at a billion dollars. This is huge. It leverages a billion 
dollars--$30 billion--amazing--a billion dollars of federal 
funds, $30 billion of other funds matching it. So this is all 
terrific.
    The one caution I want to throw out--and I want to say to 
Senators Rockefeller and Hutchison in a second--I want to throw 
out one caution in terms of the Highway Trust Fund. Full 
support for the ways to leverage our dollars--we have to do it, 
because we're so behind. And if I could have my full statement 
put in the record, it dictates how far behind we are.
    But the Highway Trust Fund is the bread and butter of what 
we do here in America, and the states count on it. And to just 
walk away when it is short is short-sighted. That's what 
Chairman Mica, unfortunately, did. He's not thrilled about 
doing it, but he did it. It's a 36 percent cut in our basic 
program. That's a loss of 630,000 jobs.
    So what we're trying to do in the Committee--and we have 
bipartisan support on a bipartisan bill, which actually freezes 
the current spending and says we need to find $6 billion a year 
for 2 years to keep it whole plus infrastructure bank plus 
TIFIA to get this country moving again and working again. It's 
very key.
    And how do you do it? The Finance Committee is going to 
determine how we make that up. But just to put it into 
perspective and note, without any prejudice, whether we support 
it or not, we're spending $12 billion a month in Iraq and 
Afghanistan. That's what it's costing us. We're asking for $12 
billion over 2 years. It's a small amount. We can figure this 
out one way or other. I don't support a gas tax increase, 
either. But there are other ways to do this and get this done.
    So, Mr. Chairman, my full support goes to you and these 
wonderful members of this committee to get our country moving 
again. We've got to do it. We're the greatest nation on earth, 
but if we can't move people, we can't move goods, we're simply 
not going to be there in the future.
    Thank you.
    [The prepared statement of Senator Boxer follows:]

 Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California

    I am pleased that the Committee is holding this hearing to discuss 
the importance of investing in transportation infrastructure and 
innovative financing tools that can leverage resources in ways that are 
complementary to our transportation programs.
    We are at a critical moment when it comes to our aging 
infrastructure, and the nation's long-term prosperity requires that we 
invest in our transportation systems now.
    The unacceptable state of the nation's infrastructure is hurting 
our ability to be a world leader. Our transportation systems used to be 
the best in the world, but investments have not kept up with needs, and 
we are now falling behind.
    According to the World Economic Forum, the United States ranks 23rd 
out of 139 countries on the overall quality of its infrastructure, 
putting the United States between Spain and Chile. In 1999, the United 
States ranked 7th.
    As Chairman of the Environment and Public Works Committee, I have 
been working with my colleagues on a bipartisan transportation bill 
that will maintain current funding levels for critical transportation 
programs.
    Our approach is a clear rejection of the House proposal to cut 
transportation funding by one third, which would result in 630,000 jobs 
being lost next year.
    The current surface transportation bill expires on September 30, 
and we must choose which path to follow: protect jobs and our nation's 
long-term economic health, or damage our country's ability to remain 
competitive in the global marketplace while also throwing thousands of 
people out of work in a sector that has suffered enormously during the 
recession.
    Our top priority must be to reauthorize the surface transportation 
programs at current funding levels or face massive lay-offs in every 
state in the country. We must also be creative with our limited 
resources and expand innovative financing options to leverage federal 
funds, and so I applaud the efforts of this Committee to examine 
methods to expand innovative financing tools.
    Once the base transportation programs have been secured, new 
innovative financing tools should be considered as we look at ways to 
fund our nation's infrastructure needs.
    The Transportation Infrastructure Finance and Innovation Act 
(TIFIA) program, which is under the jurisdiction of the EPW Committee, 
has been proven to deliver extraordinary leveraging of federal funds 
for large-scale projects.
    Our Senate transportation bill creates a new section called America 
Fast Forward, which strengthens the TIFIA program to stretch federal 
dollars further than they have been stretched before.
    Along with America Fast Forward, we must consider new innovative 
financing programs to encourage even greater private sector investment 
in transportation infrastructure.
    I look forward to this discussion on ways to do just that.

    The Chairman. That's a pleasant thought.
    Senator Kerry?

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Mr. Chairman, thank you. I wasn't planning 
to, but I want to incorporate some of what Senator Boxer has 
said, and I want to respond also to Senator Hutchison.
    Let me begin by thanking you for having this hearing, for 
focusing on infrastructure, and also for your personal efforts 
with Senator Lautenberg to introduce a transportation-oriented 
infrastructure initiative. It's important. I'm confident we can 
find a way to work together. We need to. The most important 
thing is we need to get this done.
    I want to thank Senator Hutchison, who stepped up early, 
worked diligently with us to fine-tune our proposal so that we 
could build the bipartisan support we now have. We have Senator 
Graham from South Carolina and Senator Warner on our side as 
original sponsors, and we have a lot more sponsors of this 
legislation and others on the Republican side who are very 
supportive and hopeful for it.
    The bottom line is this--and this is why we have to get 
together. Every expert in the country will tell us that we have 
a $2.2 trillion infrastructure deficit in America. We would 
have to spend $250 billion a year for 40 years, which we're not 
about to do, just to bring our roads up to par. Up to par. 
China, meanwhile, is putting 9 percent of GDP into 
infrastructure. Europe puts 5 percent of GDP into 
infrastructure and has an infrastructure bank. The good old 
United States of America that we all love and have enjoyed the 
preeminence of puts less than 2 percent of GDP into 
infrastructure, and we are living off the infrastructure that 
our parents and grandparents invested in for us.
    There are no great, enormous, challenging infrastructure 
projects. There are some small ones. There are a couple--the 
high-speed rail efforts out in California that are sort of 
starving and a couple of others. But the fact is we're just 
falling behind. We have a train that goes from Washington to 
New York that can go 150 miles an hour. It goes 150 miles an 
hour for 18 miles of the trip, because you can't go under the 
Baltimore Tunnel too fast because the vibrations--it may cave 
in; can't go over the bridges of the Chesapeake too fast 
because you may have a lot of passengers in the Chesapeake as a 
result. I mean, this is crazy. This is lunacy.
    We can do better than this, you know. And particularly 
those of us who have had the privilege of traveling a little 
bit and going to China and riding on a 200-mile-an-hour train 
from Beijing to Tianjin or the Shanghai Maglev that goes 300 
miles an hour from the airport to downtown or the TGV in Europe 
or the bullet train--I mean, just run around the world. And 
they're all making investments that we're not. This is the one 
way we are going to leverage private dollars to do what, 
unfortunately, too many people in Washington don't want to do, 
which is invest in the future of our country.
    And so, by putting up a small amount of money, we can 
leverage money that will fund and create deals that will be 
attractive, that will bring sovereign funds, pension funds, 
private investment funds to the table for revenue-producing 
projects. And what Senator Hutchison and I have done here is 
try to focus on how we minimize the governmental component of 
this.
    Therefore, we chose not to put it into a department. We'd 
keep it independent, completely outside, not for profit, no 
stock issued, unlike Fannie Mae, Freddie Mac, all these things. 
We learned the lessons of all of those things and put together 
what we think is a proposal that could fly. And we want to 
marry it with yours. We want to try to find a way to get 
everybody on the same page here, because this is too important 
for our country.
    So that's enough said, Mr. Chairman. I want to thank you 
for focusing on this and for your own proposal. And I hope this 
is the one way we're going to get America building. I might 
just comment for a billion dollars of investment in 
infrastructure, you get 20,000 to 30,000 jobs. When you have 12 
percent unemployment in Nevada and 10 percent in California and 
Rhode Island and other states, Florida, and people are 
screaming about wanting jobs, here are the jobs with minimal 
public tax expenditure. We'd be crazy not to do this. And I 
hope, Mr. Chairman, you and others will help create the 
critical energy here to get it done.
    The Chairman. That was a superb statement, Senator Kerry. 
And I guarantee you that I will.
    Senator Begich, if you want to put your statement in the 
record, you'll get a standing ovation. If you want to speak----

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Mr. Chairman, I want to hear from these 
five. But also I'm going to be leaving in a few minutes, but 
I'm going to be back. But I'm looking forward to this--I like 
building stuff. So I like this committee.
    Senator Kerry. Where's the standing O?
    Senator Begich. That's it.
    The Chairman. All right. Again, we're very privileged to 
have an incredible panel.
    Oh, Senator Ayotte?

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. I will wait for the witnesses. How is that? 
And I look forward to hearing from them.
    The Chairman. Can I put your statement in the record?
    Senator Ayotte. I would be happy to put my statement in the 
record. Thank you.
    [The prepared statement of Senator Ayotte follows:]

               Prepared Statement of Hon. Kelly Ayotte, 
                    U.S. Senator from New Hampshire

    Thank you for being here. There is no question that we must address 
our nation's infrastructure needs. I am deeply concerned that over the 
past several years Congress has been unwilling to make tough choices 
about transportation funding, delaying full reauthorization of our 
nation's transportation programs at the taxpayer's expense. It is 
important that we reform our nation's critical infrastructure needs.
    As we are looking at how to reform transportation policies, I am 
concerned that establishing a national infrastructure bank would 
increase federal involvement and decision-making when what we need to 
be doing is giving more control of spending decisions to the states. 
Especially given our fiscal limitations, states shouldn't be subjected 
to more federal red tape for local infrastructure projects.
    States know how to best prioritize transportation funding. My state 
of New Hampshire is concerned about retaining transportation jobs while 
improving our infrastructure. Having the flexibility to make decisions 
at the state level based on local priorities is vital when faced with 
limited dollars.
    I look forward to hearing your testimony today and discussing ways 
to improve transportation infrastructure, being mindful of our current 
fiscal reality, and focusing on each state's ability to prioritize 
funds according to their unique needs.

    The Chairman. Thank you. Thank you very much. I apologize 
for not seeing you.
    Ms. Polly Trottenberg, the Assistant Secretary of 
Transportation for Policy, which is sort of what we're talking 
about here--let's start out with you.

              STATEMENT OF HON. POLLY TROTTENBERG,

         ASSISTANT SECRETARY FOR TRANSPORTATION POLICY,

               U.S. DEPARTMENT OF TRANSPORTATION

    Ms. Trottenberg. Thank you, Chairman Rockefeller, Ranking 
Member Hutchison, members of the Committee. Thank you for 
inviting me to testify before you today at this very important 
hearing.
    President Obama believes that to compete globally, the U.S. 
must innovate and invest in building and maintaining a world-
class transportation system. Innovative finance is a key part 
of that effort and an important complement to a robust, long-
term surface transportation program. Today I'll focus on what 
we're doing at DOT under the leadership of Secretary Ray LaHood 
to encourage that investment through our credit assistance and 
discretionary grant programs, and I'll discuss our 
infrastructure bank proposal.
    DOT's credit assistance programs are now an essential 
ingredient in many of the innovative transportation public- 
private partnerships currently underway in the U.S. And given 
the country's current fiscal situation, our role in supporting 
these projects is likely to grow. The infrastructure bank is 
one of the most promising ideas for leveraging more private 
sector dollars into infrastructure.
    President Obama has been a long-time supporter of the 
concept, as have many of the leaders here on this committee and 
throughout Congress. And the administration's Fiscal Year 2012 
budget requests $30 billion over 6 years for a new national 
infrastructure bank. Under the president's proposal, the 
infrastructure bank will use a competitive, merit-based 
selection process to provide grants and loans to a range of 
passenger and freight transportation projects in urban, 
suburban, and rural areas.
    The infrastructure bank will use rigorous benefit-cost 
analysis and performance metrics to select projects that will 
produce the greatest long-term public benefits and project 
outcomes at the lowest cost to the taxpayer. The infrastructure 
bank will seek projects that create good-paying jobs and 
support national economic goals, such as boosting U.S. 
manufacturing, facilitating goods movement, and doubling U.S. 
exports.
    We propose to house the infrastructure bank within DOT so 
that it can build upon the expertise and experience that we've 
already developed through our existing programs, including 
TIFIA, TIGER, RRIF, private activity bonds. One of the 
Department's most successful programs has been TIFIA, as 
Senator Boxer mentioned. Since 1999, we've used $604 million of 
budget authority to provide $8.3 billion in credit assistance, 
and that, in turn, has leveraged a total of $31 billion in 
investment for transportation projects throughout the U.S.
    In the last 2 years, demand for TIFIA has far outpaced 
existing budget authority, and the program has become 
increasingly competitive and has required us at DOT to get 
creative in combining TIFIA funding with other programs. At the 
moment, DOT is using TIGER and TIFIA to help fund a $1.7 
billion rail line in Los Angeles, linking the transit system to 
the airport. Approximately $20 million in TIGER funds will 
support a $546 million TIFIA loan for that project.
    TIFIA is leveraging $21.5 million into a $341 million loan 
for the $1.1 billion Port of Miami tunnel project. And through 
a P3, a private concessionaire is also providing $80 million of 
equity and $342 million of private bank debt.
    To make the innovative Denver Union Station project 
possible, DOT got really creative and combined a TIFIA loan 
with federal highways and federal transit grant funding as well 
as a loan from our RRIF program, which provides credit 
assistance for rail projects. The $516 million project will 
create a regional transportation hub in downtown Denver, 
connecting commuter rail, light rail, bus rapid transit, and 
regular bus service.
    While the Denver Union Station project had to work with 
each of these federal programs independently, and comply with 
each program's specific requirements and deadlines, they, 
nonetheless succeeded in assembling a viable financial plan. An 
infrastructure bank would allow USDOT to coordinate all this 
assistance through one program, which could save project 
sponsors substantial time and money and could be the difference 
in a project's feasibility.
    Projects like those in L.A. and Miami and Denver do require 
significant capacity and sophistication on the part of the 
public entities involved. There is value for the public sector 
in innovative P3s, but there is also complexity and risk. As we 
consider increasing the role innovative finance and private 
investment play in our transportation system, we must ensure 
that applicants of all sizes and in all parts of the country 
have the guidance and technical assistance they need to 
succeed, and ensure that the public interest is protected. We 
already provide some of that guidance through our program 
experts at DOT, and in the future we do hope to better 
collaborate and tap into the expertise represented here today 
from the private sector, labor, and other transportation 
stakeholders.
    I want to conclude by thanking the Committee for the 
opportunity to testify today. At DOT, we look forward to 
working with you, and I'll be happy to take any questions.
    [The prepared statement of Ms. Trottenberg follows:]

 Prepared Statement of Hon. Polly Trottenberg, Assistant Secretary For 
        Transportation Policy, U.S. Department of Transportation

    Chairman Rockefeller, Ranking Member Hutchison and members of the 
Committee: thank you for the opportunity to appear before you today to 
discuss U.S. Department of Transportation (DOT) efforts to facilitate 
greater private sector investment in our nation's transportation 
systems.
    President Obama believes that the federal government should 
encourage more private sector investment in transportation projects to 
complement the federal government's commitment to robust public 
investment in our nation's infrastructure. Visiting the Chamber of 
Commerce earlier this year, the President encouraged the private sector 
to ``get in the game'' and invest the $2 trillion sitting on its 
balance sheet in America's economic competitiveness; and the President 
has consistently made clear that infrastructure is a top priority area 
for investment of private capital.
    Today I will focus on what we are doing at DOT, under the 
leadership of Secretary Ray LaHood, to utilize DOT's many innovative 
approaches to transportation investment, including some of DOT's credit 
assistance and discretionary grant programs, which are an important 
complement to a robust, long-term surface transportation program. I 
will also discuss the Administration's proposal for a National 
Infrastructure Bank, which will provide a needed proactive tool to 
bring private investors to the table.

Private Sector Investment in Transportation
    According to Infrastructure Investor, the 30 largest infrastructure 
equity funds raised $180 billion of private capital for infrastructure 
investment over the last 5 years. These infrastructure equity funds 
include pension plans, private investment funds and infrastructure 
developers.
    Private investment in transportation projects can take many forms. 
Much of the private capital that gets invested in transportation 
projects is supported by federal credit assistance programs like TIFIA 
and RRIF, which make it easier for the public sector to access capital 
markets financing. The federal government also provides for traditional 
tax-exempt debt issued by State and local governments and the Build 
America Bonds program that expired at the end of last year.
    Private capital can be invested in transportation through public-
private partnerships, which allow the private sector to take a much 
more robust role in the delivery, financing and management of 
transportation infrastructure. PPPs allow the private sector to 
incorporate innovations and efficiencies and to put capital at risk for 
a project in a way that traditional procurement structures do not.
    PPPs can offer an innovative new delivery approach for some of our 
country's most complex and challenging projects when they are 
appropriately structured, when they provide better value as compared to 
traditional public sector delivery approaches, and when the underlying 
projects are well-aligned with public policy objectives. DOT's recent 
experience demonstrates that, when creatively utilized, the flexibility 
afforded by federal credit assistance can be a powerful catalyst for 
PPPs--including complex projects involving multiple public and private 
sector stakeholders.
    In the last 5 years eight major PPPs have been completed in 
Florida, Texas, Virginia and Colorado with a total value representing 
approximately $13.5 billion of new investment in the transportation 
system. The pace has been accelerating lately with several new projects 
in active procurement or financing, including the replacement of the 
Goethals Bridge in New York and New Jersey and the Presidio Parkway in 
California.
    Over the last few years, federal programs have proven to be a key 
component of most of the major new PPPs that have been entered into in 
the U.S. DOT believes that federal programs will continue to facilitate 
the majority of successful transportation PPPs in the U.S. It is 
therefore important to ensure that we maximize the value of the public 
investment and achieve national goals, such as economic competitiveness 
and environmental sustainability, through these projects.

TIFIA Program
    One of the Department's most important and successful programs for 
facilitating private investment has been the Transportation 
Infrastructure Finance and Innovation Act of 1998 (TIFIA) program, 
which provides credit assistance for major surface transportation 
projects. The program offers direct loans, loan guarantees or lines of 
credit for up to 33 percent of a project's eligible costs. TIFIA offers 
flexible and favorable repayment terms, which help fill market gaps in 
financing plans and encourage broader co-investment by the public and 
private sectors. These include interest rates that are equivalent to 
Treasury rates--on Monday the interest rate was 4.23 percent, 
opportunities to defer interest and principal payments in the early 
years of the loan, and final maturity dates as much as 35 years from 
completion of construction.
    Eligibility is open to large-scale surface transportation 
projects--highway, transit, rail, intermodal freight, and port access--
with eligible costs exceeding $50 million. TIFIA credit assistance is 
available for State and local governments, transit agencies, railroad 
companies, special authorities, special districts, and private 
entities.
    Since its inception the TIFIA program has used $603.6 million of 
budget authority to support 22 direct loans and one loan guarantee 
totaling $8.3 billion in credit assistance (i.e., the face value of the 
loans). This credit assistance facilitates transportation projects 
totaling $31 billion in public and private infrastructure investment.
    The $1.1 billion Port of Miami Tunnel Project provides a good 
example of how TIFIA supports private investment through PPPs. The 
project, which is currently under construction, will improve access to 
and from the Port of Miami by providing a dedicated roadway connector 
linking the Port, located on an island in Biscayne Bay, with the 
MacArthur Causeway and I-395 on the mainland. A private company is 
responsible for design, construction, financing, operation and 
maintenance of the project for 30 years. A relatively small amount of 
budget authority, $21.5 million, supported a $341 million TIFIA loan 
and facilitated a $1.1 billion investment in a nationally-significant 
transportation project.
    TIFIA is also increasingly used for transit projects, for which 
local taxes and/or other revenue streams related to transit-oriented 
development can be leveraged to repay project financing sources. For 
example, TIFIA provided a $171 million loan for the Transbay Transit 
Center, a major passenger transportation hub connecting San Francisco 
with other Bay Area communities. The loan will be repaid with the tax 
increment collected from State-owned parcels and passenger facility 
charges from AC Transit, the Center's initial primary tenant.
    In the last 2 years, demand for TIFIA credit assistance has far 
outpaced the program's limited budget authority. The Administration's 
Fiscal Year 2012 budget proposed increases to TIFIA's annual funding by 
almost four times to $450 million. Senator Barbara Boxer, Chairman of 
the Senate Committee on Environment and Public Works, and 
Representative John Mica, Chairman of the House Transportation and 
Infrastructure Committee, support increasing TIFIA's annual budget 
authority to $1 billion.

TIGER Program
    The Transportation Investments Generating Economic Recovery (TIGER) 
program represents a more proactive approach than TIFIA, being one of 
the Department's most ambitious efforts to date to leverage federal 
investments. The program catalyzes local, regional and national 
planning and facilitates substantial co-investment by the public and 
private sectors--the average dollar invested by the TIGER program is 
matched by more than three dollars of State, local or private funding. 
This far outperforms the leveraging we see in the formula programs.
    Among the factors that make this program a success are its ability 
to fund a full range of surface transportation projects, not just 
particular modes, and its ability to provide funding to any government 
project sponsor, not just State DOTs and transit agencies. The 
program's flexibility has allowed it to fund an unprecedented number of 
innovative and creative projects that the federal government would 
otherwise find difficult if not impossible to fund.
    The competitive nature of the TIGER program helps spur cooperation 
among a variety of project sponsors and brings new sponsors and their 
ideas to the table. Applicants understand that whether or not they 
secure grants depends, at least in part, on their ability to leverage 
as many sources of funding as they can and demonstrate that they can 
make federal dollars go further.
    As an example, the TIGER program is investing in the Crescent 
Corridor freight rail project, a multi-billion dollar program centered 
on the continued development of Norfolk Southern's rail intermodal 
route from the Gulf Coast to the Mid-Atlantic. DOT provided a $105 
million TIGER grant to support construction of two new intermodal 
facilities in Memphis and Birmingham, and this investment is being 
matched with $72 million of the railroad's private funds. Connecting 
the 2,500-mile Crescent Corridor network of rail lines and regional 
intermodal freight distribution centers will strengthen domestic and 
international freight distribution in the Southeast, Gulf Coast and 
Mid-Atlantic markets. This will help the railroad and also achieve key 
public objectives--increased freight rail capacity and efficiency, 
reduced emissions and fuel consumption, and has the potential to reduce 
highway congestion for drivers on neighboring roads, as well as 
reducing highway maintenance costs.
    The TIGER program also provided $98 million for the National 
Gateway Freight Rail Corridor Project, which will allow CSX to increase 
freight rail capacity and carry double stacked containers in Ohio, West 
Virginia, Pennsylvania and Maryland, from East Coast ports to the 
Midwest. Similarly, the CREATE Program, a multi-billion dollar package 
of 78 projects that address nationally-significant freight rail 
congestion in the Chicago area, received a $100 million TIGER grant to 
help complete a handful of its highest priority projects, which will be 
matched by $62 million of other private and public funds.
    DOT also uses TIGER funds to support TIFIA financing. In one case, 
DOT is funding an intermodal project linking the transit system to the 
aviation system. Up to $20 million in TIGER funds will support a $546 
million TIFIA loan for the Crenshaw/LAX Transit Corridor Project in Los 
Angeles, a new 8.5-mile light rail line connecting the Exposition Line 
at Exposition/Crenshaw Station and the Metro Green Line. The project 
will include six to eight new stations and will directly connect to Los 
Angeles Airport. The TIFIA loan will cover approximately one-third of 
the total project cost of $1.7 billion. The project is a key piece of 
the City's 30/10 initiative, an effort to accelerate 12 major transit 
projects in just 10 years, rather than 30 years, using innovative 
financing backed by the voter approved Measure R sales tax.
    TIGER can also support a more entrepreneurial and experimental 
approach to credit assistance. DOT provided four TIGER applicants with 
``TIFIA Challenge Grants,'' a $10 million grant, or the opportunity to 
use the $10 million as budget authority to support a larger investment 
in the form of a TIFIA loan. This gave the project sponsors a unique 
opportunity to catalyze an innovative financing strategy that had not 
previously been considered, or thought feasible, and enabled DOT to 
work proactively with project sponsors to get the best possible return 
out of its federal investments.
    The first project to successfully leverage a TIFIA Challenge Grant 
is the U.S. 36 Managed Lanes/Bus Rapid Transit Project in Colorado. The 
project will accommodate bus rapid transit, bikeways and congestion-
reducing managed lanes northwest of Denver. Colorado plans to use the 
$10 million TIFIA Challenge Grant to support a $55 million TIFIA loan 
which helped galvanize a $300 million financing package that includes a 
robust mix of State, local and federal funds. Not only did the TIFIA 
Challenge Grant help facilitate a more robust TIGER project than could 
have been achieved with a $10 million grant, but it may also create 
momentum for Colorado's procurement of the next phase of the project, 
extending the lanes an additional eight miles to Boulder. The TIGER-
funded portion of the project is being procured as a design-build 
project and the next phase may be structured as a PPP with more private 
sector investment.
    However, not all of the recipients of the TIGER program's TIFIA 
Challenge Grants were successful in catalyzing a more robust financing 
package. DOT worked with the South Carolina DOT to turn a $10 million 
grant for a portion of the overall I-73 construction project west of 
Myrtle Beach into a TIFIA loan, but the SCDOT determined that this 
portion of the project in a fairly rural area would not generate 
sufficient toll revenue to support financing without the completion of 
the much larger link from I-95 to Myrtle Beach.

RRIF Program
    The Railroad Rehabilitation and Improvement Financing (RRIF) 
program provides direct loans and loan guarantees to acquire, improve, 
or rehabilitate intermodal or rail equipment or facilities, including 
track, components of track, bridges, yards, buildings and shops and 
develop or establish new intermodal or railroad facilities. Under this 
program the Federal Railroad Administrator is authorized to provide 
direct loans and loan guarantees up to $35 billion. Up to $7 billion is 
reserved for projects benefiting freight railroads other than Class I 
carriers. The Federal Railroad Administration has made 30 loans 
totaling $1.6 billion.
    Eligible borrowers include railroads, State and local governments, 
government-sponsored authorities and corporations, joint ventures that 
include at least one railroad, and limited option freight shippers who 
intend to construct a new rail connection. The loans can fund up to 100 
percent of a railroad project, with repayment periods of up to 35 years 
and interest rates equal to the rate on Treasury securities of a 
similar term.
    At the end of June, the Department announced a $562.9 million loan 
to Amtrak under the RRIF program that will finance the purchase of 70 
high-performance, electric locomotives from Siemens Industry USA. The 
locomotives will be built by American workers in Norwood, OH, and 
Alpharetta, GA, with final assembly in Sacramento, CA, helping create 
hundreds of manufacturing jobs and spurring the domestic manufacturing 
sector. These locomotives are more energy-efficient and will enable 
Amtrak to improve frequency, performance and reliability for regional 
and intercity routes along the Northeast and Keystone Corridors. While 
the Amtrak loan is the largest loan issued through the RRIF program to 
date, recent interest in the program suggests that RRIF could 
increasingly be used for major railroad investments, including freight 
rail investments that leverage substantial investments by private 
freight railroads, among others. At the same time, we recognize DOT's 
responsibility to ensure that these loans serve meaningful public 
policy ends and are not unduly risky--as well as to consider whether 
these investments would be made without federal support.
    Significantly, RRIF assistance was also recently combined with 
TIFIA assistance to make a unique and innovative financial plan 
feasible. The $516 million Denver Union Station Project is a public-
private development venture located on approximately 50 acres in lower 
downtown Denver, which includes the historic Denver Union Station 
building, rail lines, vacant parcels, street rights-of-way, and offsite 
trackage rights. The Project comprises the redevelopment of the site as 
an intermodal transit district surrounded by transit-oriented 
development, including a mix of residential, retail, and office space. 
The transit district will serve as a regional multimodal hub connecting 
commuter rail, light rail and bus rapid transit, regularly scheduled 
bus service, and other related transportation services. The federal 
government is providing a TIFIA loan of $145.6 million, a RRIF loan of 
$155.0 million, an FHWA grant of $45.3 million, an FTA grant of $9.5 
million, and a Recovery Act grant of $28.4 million.
    While the Denver Union Station Project had to approach each of 
these federal programs independently, and comply with each program's 
specific requirements and timelines, they were ultimately able to 
assemble a viable financial plan. A national infrastructure bank would 
allow DOT to coordinate most or all of this assistance--senior debt, 
subordinated debt and grants--through one institution, which would save 
substantial time and money for all of the relevant parties, and could 
be the difference in a project's feasibility.

Private Activity Bonds
    The Private Activity Bond (PAB) program allows for the issuance of 
tax-exempt debt to support private development and financing of public 
infrastructure. One active project estimates that PABs could save close 
to 9 percent of the total project cost. The bonds are issued by a 
public sector conduit and purchased by private investors, but the 
private entity developing the project is solely responsible for 
repayment of the bonds. SAFETEA-LU amended the Internal Revenue Code to 
add highway and freight transfer facilities to the types of private 
projects for which PABs may be issued, and PABs are now being 
incorporated in the financing plans of several major PPPs.
    PABs can be used for surface transportation projects which receive 
federal assistance through certain programs, including highways, 
transit, passenger rail, and freight transfer facilities. The law 
limits the total amount of such bonds that may be issued to $15 billion 
and directs the Secretary of Transportation to allocate this amount 
among qualified facilities. Providing private developers and operators 
with access to tax-exempt interest rates lowers the cost of capital, 
enhancing investment prospects. To date, the DOT has approved almost $6 
billion of PAB allocations for eight projects, of which over $2 billion 
of PABs have been issued for five projects. Increasingly, PABs and 
TIFIA credit assistance are being used together to support multi-
billion dollar projects.
    One recent example is the I-635 Managed Lanes Project, which will 
relieve congestion north of Dallas on 13 miles of Interstate highway. 
The total project cost is $2.6 billion, and the project is being 
developed as a PPP. The private concessionaire will be responsible for 
design, construction, financing, operation and maintenance of the 
project for 52 years and is committing $672 million in equity, which 
includes an equity commitment from the Dallas Police and Fire Pension 
System. DOT played a key role in the financing and helped facilitate 
the PPP structure by providing an $850 million TIFIA loan and 
authorizing $606 million in PABs.
    The I-635 Managed Lanes Project highlights a new element in 
financing PPPs, which is the successful incorporation of a direct 
pension fund investment in the financial plan. While the involvement of 
pension funds as direct investors in public transportation projects is 
still rare, this project demonstrates that pension funds are interested 
in infrastructure investments through PPPs. Sharing PPP revenue with 
public pension systems presents additional potential for the public 
sector to realize value from transportation PPPs.
    The TIFIA program and PABs demonstrate the extent to which tolling 
and pricing can facilitate partnerships with the private sector to 
supplement current transportation funding and increase overall 
investment in transportation infrastructure. Tolls present a dedicated 
source of revenue which can be forecasted and used to repay long-term 
debt and equity investments. However, just because tolls make a project 
commercially viable does not necessarily mean the project is well-
aligned with national, regional or local public policy considerations.
    As with any PPP, a toll road needs to be examined through the lens 
of public policy considerations. For example, there are important 
ongoing discussions about whether existing Interstate highways should 
be tolled or only new capacity; what should be done with excess revenue 
generated by tolling; what type of pricing mechanisms are appropriate 
for managing demand and changing driver behavior; and whether congested 
urban areas might need greater tolling flexibility to address their 
needs.
    Where a tolling structure makes sense there are increasing 
opportunities to implement variable or congestion pricing mechanisms 
that not only generate revenue to pay for the facility, but also help 
manage demand for the facility by encouraging more use of off- peak 
capacity, shared rides and transit use. In addition to generating 
funds, pricing can reduce the overall need for investment in new 
transportation facilities.
    The Capital Beltway High Occupancy Toll (HOT) Lanes project is a 
partnership between the Virginia DOT and a private concessionaire to 
deliver new lanes and over 50 bridges and overpasses on one of the 
busiest stretches of Interstate in the country. The $1.9 billion 
project is deploying innovative managed lanes to provide real-time 
congestion mitigation options for transit vehicles and drivers paying 
tolls from the Springfield Interchange to the Dulles Toll Road. The 
private concessionaire will be responsible for design, construction, 
financing, operation and maintenance of the project for 85 years. In 
addition to public funds, the private partner is committing $350 
million in equity. DOT played a key role in the financing by providing 
a $589 million TIFIA loan and authorizing $589 million in PABs.

Infrastructure Bank
    The infrastructure bank is one of the most promising ideas for 
leveraging more private sector dollars into infrastructure and has 
generated support from leaders here in Congress, including the Chair 
and Ranking Member of this Committee, Senators Lautenberg, Warner and 
Kerry and Representatives DeLauro and Ellison. President Obama has been 
a long-time supporter and the Administration's budget for Fiscal Year 
2012 requests $5 billion for a new national infrastructure bank. This 
is the first year of a six-year plan to capitalize the bank with $30 
billion.
    The infrastructure bank, which would provide grants, loans, loan 
guarantees or a combination thereof to the full range of passenger and 
freight transportation projects in urban, suburban and rural areas, 
marks an important departure from the federal government's traditional 
way of spending on infrastructure through mode-specific grants and 
loans. By using a competitive, merit-based selection process, and 
coordinating or consolidating many of DOT's existing infrastructure 
finance programs, the infrastructure bank would have the ability to 
spur economic growth and job creation for years to come.
    Rigorous benefit-cost analysis would focus funding on those 
projects that produce the greatest long-term public benefits at the 
lowest cost to the taxpayer. This is achieved, in part, by encouraging 
private sector participation in projects in order for them to be 
competitive. Other important selection criteria would encourage 
accelerated project delivery and risk mitigation.
    The increased capacity and coordination of federal infrastructure 
finance programs in the infrastructure bank will allow for greater 
investment in those projects that have the largest and most immediate 
impact on the economy. Many of these projects of national and regional 
significance are currently underfunded due to the dispersed nature of 
federal investment and lending. The national infrastructure bank would 
be able to address this issue in a systemic fashion, partnering with 
the private sector as well as State and local governments to address 
the most pressing challenges facing our transportation networks. We 
expect that an infrastructure bank would be well-positioned to better 
align investment decisions with important national economic goals, such 
as increasing exports. This would amplify job creation and economic 
growth.
    The emphasis placed at the federal level on competitive, merit-
based selection will also serve as a model to State and local 
governments who will continue to make the bulk of infrastructure 
decisions. In Chairman Mica's recent transportation reauthorization 
proposal, he focuses on providing incentives for States to create and 
capitalize State infrastructure banks. A national infrastructure bank 
could leverage State investments through their own infrastructure 
banks.
    The national infrastructure bank would build on the best practices 
developed through DOT's existing credit assistance and discretionary 
programs to provide a more robust and effective mechanism for investing 
federal funds and attracting substantial private sector co-investment 
to our most challenging and complex transportation projects.

Conclusion
    The federal government has many programs that facilitate and 
encourage private investment in transportation projects. Of particular 
note are the TIFIA, TIGER and RRIF programs, PAB and the proposed 
national infrastructure bank. These programs reflect an acknowledgement 
that the federal government needs to take a more active role in 
supporting major transportation projects with targeted grants and 
credit assistance. The Department's experience is that competitive 
national programs facilitate creative and innovative approaches at the 
State and local level to leverage substantial revenue for major 
transportation investments.
    I think it is also important for the federal government, in close 
collaboration with the private companies engaged in PPPs, to do a 
better job of educating and supporting all of the relevant public 
entities that are considering PPPs. There is value for the public 
sector in innovative P3s, but there is also complexity and risk.
    As we consider increasing the role innovative finance and private 
investment play in our transportation system, we must insure that 
applicants of all sizes and in all parts of the country have the 
guidance and technical assistance they need to succeed.
    We already provide that through our program experts at DOT and in 
the future we hope to better tap into the expertise represented here 
today from the private sector, labor and other transportation 
stakeholders.
    Thank you again for the opportunity to discuss these important 
programs and DOT's efforts to increase private sector investment in 
transportation infrastructure. On behalf of the Administration and the 
Secretary, I can underscore that we look forward to working with this 
Committee and other Members of Congress to consider innovative ways to 
utilize private sector capital and expertise to improve our nation's 
transportation infrastructure. I would be pleased to answer any 
questions you may have.

    The Chairman. Thank you.
    Mr. Robert Dove is the Managing Director of Carlyle 
Infrastructure Partners, the Carlyle Group. That's a hefty 
position.
    And you nodded your head when I said all those billions are 
available. So I want to hear what you have to say.

         STATEMENT OF ROBERT DOVE, MANAGING DIRECTOR, 
                       THE CARLYLE GROUP

    Mr. Dove. Thank you. Mr. Chairman, Senator Hutchison, and 
members of the Committee, thank you very much for the 
opportunity to testify. And I commend you and the Committee for 
holding today's hearing on such an important issue.
    The Carlyle Group is a global alternative asset manager 
with approximately $150 billion in assets under management. I 
am the co-head of the Carlyle Infrastructure Fund, Carlyle 
Infrastructure Partners, a $1.2 billion fund that was raised 
specifically to invest in infrastructure projects here in the 
United States.
    I would like to highlight for the Committee a recent 
investment by our fund that involved a partnership with the 
state of Connecticut. In this case, we formed a 35-year public-
private partnership with the state of Connecticut to finance 
the redevelopment and operations of 23 highway service areas. 
We created a project that all sides of the political landscape, 
including labor, supported. Carlyle and our partners will 
invest approximately $180 million in improvements and upgrades 
over the next 5 years, investments that we estimate will create 
375 additional jobs. In total, the state is expected to receive 
nearly $500 million in economic benefit from the redevelopment 
effort.
    Our partnership with the state of Connecticut is a good 
example of the benefits of innovative financing and project 
delivery. The completion risks, cost-overrun risks, have all 
been shifted to Carlyle and its partners, while there is an 
ongoing revenue-sharing agreement with the state of 
Connecticut. In that context, I would recommend to the 
Committee three general points.
    First, innovative financing, particularly direct private 
investment, is essential to reforming our nation's 
infrastructure funding policy. This shift from how much to fund 
to how to create more funding is an important opportunity for 
this Congress. By making programmatic and regulatory changes in 
the federal law, Congress can encourage state and local 
governments to develop innovative financing models. It is 
important to note that advocating for this kind of financing 
does not mean wanting to sell off America's public 
infrastructure to private investors. The assumption that 
critical infrastructure projects must either be publicly 
financed or privatized is a false assumption.
    Second, the establishment of a national infrastructure bank 
is a means to develop innovative financing and to aid the 
delivery of infrastructure project improvements. A national 
infrastructure bank can accelerate large capital projects by 
leveraging direct private investment into projects that are 
critical to the nation's infrastructure.
    Mr. Chairman, although I have lived in the United States 
for 30 years, as you can tell from my accent, I was not born in 
the United States. Being from the United Kingdom, I have the 
opportunity to directly observe and work with an infrastructure 
bank in Europe, and I believe we can all learn from their 
experience.
    The European Investment Bank, which Senator Kerry referred 
to, provides loans and guarantees. These loans and guarantees 
are expected to be repaid. The EIB lends money for long periods 
of time, sometimes as much as 40 years, at a very low interest 
rate and in doing so provides capital that allows for 
participants, both commercial banks and private sector equity 
investors like myself, to participate in a project that would 
otherwise struggle to obtain financing.
    Importantly, the lending policy of the EIB is driven by 
government. But the actual credit decisions on specific loans 
and guarantee proposals presented to the bank are determined by 
a professional staff operating independently within the bank.
    Like the EIB, in a U.S. infrastructure bank, the policy 
should be determined by Congress and other federal officials. 
You, Senators, decide what infrastructure is to be built--
roads, bridges, high-speed rail, alternative energy, water 
treatment facilities, or whatever. The bank's function is only 
to determine which projects that are submitted for a loan or a 
guarantee are creditworthy. Its function is to make sure the 
projects are a consequence of the policies you have set and are 
financially strong.
    The last point I wish to make is for the national 
infrastructure bank to be successful, Congress must provide 
additional reforms to our transportation public policy. The 
creation of a national infrastructure bank should be a 
manifestation of a deeper, more profound change to our national 
transportation policy. Specifically, outcome-based performance 
standards should be established by Congress.
    For example, life-cycle costs should be an established 
criterion when evaluating a major capital project. Without it, 
a true comparison of the benefits of private investment versus 
public debt financing is not possible, and a flawed cost of 
capital analysis of the private investment option is likely.
    Mr. Chairman and members of the Committee, the need for 
investment in our infrastructure is significantly larger than 
any one revenue source. There is a need to design policies to 
access different funding sources while being a good steward of 
the nation's infrastructure. A national infrastructure bank is 
one method by which private investment can serve as one of 
those sources of capital.
    Thank you once again for the opportunity to testify, and I 
would welcome your questions.
    [The prepared statement of Mr. Dove follows:]

Prepared Statement of Robert Dove, Managing Director, The Carlyle Group

    Mr. Chairman, Senator Hutchison, and members of the Committee:
    Thank you very much for the opportunity to testify on the need for 
innovative financing--such as a national infrastructure bank--as we 
work to improve America's transportation infrastructure. This subject 
is important to our nation's future, and I commend the Committee for 
holding today's hearing.
    The Carlyle Group is a global alternative asset manager with 
approximately $150 billion in assets under management. Carlyle invests 
in small, medium and large companies, real estate, infrastructure 
projects and financial services firms. Whether an investment is in a 
small, growing company, a large infrastructure project, or a real 
estate asset, our strategy is the same: we seek to build long-term 
value in a company or asset through investments, improvements in 
management, and efficiency enhancements. Today, we have investments in 
approximately 80 companies based in the United States, 77 percent of 
which are small or medium-size businesses (fewer than 2,500 employees), 
as well as about 125 real estate projects, which include commercial, 
residential, and health care or data centers. Combined, these companies 
employ more than 216,000 people in the United States in all 50 states.
    I am the co-head of Carlyle's infrastructure group, which has 
raised $1.2 billion specifically to invest in infrastructure projects 
with its primary focus on the United States. And we are quite proud 
that public and private pension funds contributed over forty percent of 
the fund that we manage and invest on their behalf.\1\
---------------------------------------------------------------------------
    \1\ The actual amount that fund investors contribute to a 
particular transaction frequently varies from the level of commitment 
those fund investors have made to a particular fund. This differential 
stems from a number of factors, including the investments made by a 
management team or co-investors.
---------------------------------------------------------------------------
    Carlyle Infrastructure Partners invests in companies that contract 
with state and local governments throughout the United States to 
provide services, such as treatment of biosolids at the end of the 
wastewater treatment process, school bus transportation, and other 
infrastructure-based services. I would like to highlight our recent 
innovative partnership with the State of Connecticut to redevelop, 
operate, and maintain Connecticut's 23 highway service areas across the 
state.
    In this case, our fund formed a 35-year public-private partnership 
with the State of Connecticut to finance the redevelopment and 
operations of highway service areas at a time when the Connecticut 
state budget was under great stress. We were able to create a project 
that garnered support from all sides of the political landscape, as 
well as important stakeholders in the business community, organized 
labor, local communities, law enforcement, and environmental groups. 
Carlyle and our partners plan to invest approximately $180 million in 
improvements and upgrades to the service areas over the next 5 years, 
investments that we estimate will create approximately 375 additional 
permanent and construction-related jobs--a 50 percent increase above 
the 750 jobs that supported the service areas before we started our 
project. In total, the state is expected to receive nearly $500 million 
in economic benefit from the redevelopment effort.
    Our partnership with the state of Connecticut is a good example of 
the benefits of innovative financing and project delivery. State and 
federal entities benefit when the best attributes of publicly-owned 
infrastructure are combined with private sector capital and expertise 
to create genuine partnerships. Creating innovative funding models--
including a national infrastructure bank--would help develop projects 
along the lines of Connecticut.
    In that context, I will focus on three general points this morning:

        1.The need for innovative financing in critical infrastructure, 
        and the opportunity it presents for genuine partnerships 
        between the public and private sectors;

        2.The establishment of an infrastructure bank as a means to 
        develop innovative financing and to aid the delivery of 
        infrastructure improvements;

        3.The need for transportation policy reforms that must 
        accompany innovative financial practices in order to maximize 
        private investment.

1. Innovative financing--particularly direct private investment--is 
        essential to reforming our nation's transportation funding 
        public policy.
    The condition of our national infrastructure and the reliance of 
our nation's economic security on increasing the capacity of our 
national transportation system are well-documented.\2\ Furthermore, 
this Committee is keenly aware of the shrinking Federal, state, and 
local resources available to address these needs.
---------------------------------------------------------------------------
    \2\ See studies, 2009 Report Card for American Infrastructure, 
American Society of Civil Engineers, March 25, 2009; Well Within Reach: 
America's New Transportation Agenda, the Miller Center of Public 
Affairs at the University of Virginia, October 4, 2010.
---------------------------------------------------------------------------
    As former Secretary of Transportation Norman Y. Mineta said in a 
speech last April:

        ``What traditionally has been a quantitative funding issue for 
        our nation's infrastructure has now become a qualitative policy 
        issue. In other words, fighting the perennial battle of getting 
        more money from traditional sources won't suffice. The needs 
        are great--and getting greater--and more money isn't coming.'' 
        \3\
---------------------------------------------------------------------------
    \3\ ``Should there be a National Infrastructure Bank?'' Norman Y. 
Mineta, Speech before the U.S. Chamber of Commerce, April 12, 2010.

    This shift from ``how much to fund'' to ``how to create more 
funding'' as described by Secretary Mineta is an important opportunity 
for this Congress. Financial experts estimate that the amount of 
available private sector equity capital raised to invest in global 
infrastructure assets is $38 billion.\4\ Several major financial 
institutions and a growing number of private equity firms have formed 
infrastructure funds to invest in various infrastructure assets. In 
addition, several pension funds representing public and private sector 
employees have identified the benefits of infrastructure investments: 
the potential to receive increased returns over government-issued 
securities, at lower risk than traditional equity investments. 
Recently, Richard Trumpka, the president of the AFL-CIO announced that 
organized labor would invest more than $10 billion in U.S. 
infrastructure.\5\
---------------------------------------------------------------------------
    \4\ ``Road Map to an American Partnership,'' The Combined 
Infrastructure Working Group, June 2009.
    \5\ ``AFL-CIO Announces Major Commitment to Action on 
Infrastructure Investment and Training,'' AFL-CIO press release, June 
29, 2010
---------------------------------------------------------------------------
    By making programmatic and regulatory changes in federal law, 
Congress can encourage state and local governments to develop 
innovative financing models that access this available private capital. 
It is important to note that advocating well-crafted funding models 
that access direct private investment does not mean selling off 
America's public infrastructure to private interests as some have 
asserted.
    The assumption that critical infrastructure projects must be either 
publicly-financed or privatized is a false choice. State and local 
officials responsible for infrastructure project delivery do not have 
to be limited to a set of binary decisions if they want to consider 
leveraging private investment: organized labor vs. a non-union work 
force; existing permitting procedures vs. relaxed environmental 
standards; or using public debt vs. surrendering public control to 
private interests. Innovative funding models can provide a third way 
for designing, building, operating, maintaining, and financing our 
capital projects.
    At Carlyle, we believe these goals can be accomplished by 
developing genuine partnerships with public officials and other key 
stakeholders. As I outlined in describing the characteristics of our 
Connecticut project, innovative planning, stakeholder involvement, and 
a commitment to taking the best elements from the public and the 
private sides can create a project that accesses new sources of capital 
in a way that supports new infrastructure development.

2. The establishment of an infrastructure bank as a means to develop 
        innovative financing and to aid the delivery of infrastructure 
        improvements.
    A national infrastructure bank can accelerate large capital 
projects by leveraging direct private investment into projects that are 
critical to the nation's infrastructure.
    Several international entities have implemented infrastructure 
banks, and we can learn from their experiences. The European Investment 
Bank (EIB) is one and there are others. Giving states and regions the 
opportunity to access this funding with U.S. Government backing would 
be critical and should not threaten Congressional prerogatives. The EIB 
provides loans and makes guarantees. The loans and guarantees are 
expected to be repaid or extinguished.
    The EIB lends money for very long terms (e.g., 40 years) at a low 
interest rate and, in doing so, provides for a level of subordinated 
capital that allows other participants, both banks and private sector 
investors, to participate in a project that would otherwise struggle to 
obtain financing. The lending policy of the EIB is driven by the 
government, but the actual credit decisions on specific loans and 
guarantee proposals presented to the bank are determined by a 
professional staff operating independently within the bank.
    This process achieves an important policy goal. Congress and other 
federal decisionmakers would still determine the appropriate policy 
goals: identifying the targets for infrastructure investment; 
prioritizing modes of transportation; deciding where to increase 
capacity; testing new infrastructure technologies; and determining 
other critical policy questions. The bank's expertise can help assess 
the creditworthiness of a certain class of projects and determine 
whether these projects can gain investment funding, or if they should 
be viewed in a different category of projects that merit funding from 
the federal government and other state and local sources.
    Congress should look at the infrastructure bank as a true bank that 
must make difficult credit decisions. The institution's primary purpose 
is to lend to large projects with long-term maturities at a small 
margin over its borrowing cost. The bank would provide a project with a 
base of capital that could then attract, either at the same time or 
later, outside private investment that we need to support our nation's 
infrastructure. The bank should cover its costs, but not operate as a 
profit-making venture. The purpose of the bank should be to utilize its 
expertise to attract additional investment from the private sector for 
public infrastructure priorities, rather than replacing existing 
funding from government institutions.

3. For innovative financing practices like the infrastructure bank to 
        be successful, Congress must provide additional reforms to our 
        current transportation public policy.
    The creation of an infrastructure bank should be a manifestation of 
deeper, more profound changes to our national transportation policy; 
otherwise the bank and other innovative practices risk contributing to 
existing shortcomings in our transportation financing policies. 
Specifically, outcome-based performance standards should be encouraged 
at the baseline policy level. Clear, transparent, and concrete 
performance metrics are needed to measure the success and benefits of 
major transportation projects.
    Life-cycle costs should be an established criterion when evaluating 
a major capital project. Without it, an ``apples-to-apples'' comparison 
of the benefits of private investment vs. public debt financing is not 
possible and a flawed ``cost of capital'' analysis of the private 
investment option is likely. Additionally, requiring rigorous standards 
for analysis of expected users of a project, such as traffic studies, 
should be implemented so that accurate projections that affect costs 
and benefits are possible.
    Congress should establish measurable performance metrics on the 
economic benefits of a major project, or the environmental benefits a 
infrastructure project will provide.\6\ Such standards will provide 
financing entities like the infrastructure bank with the ability to 
provide more extensive and more accurate data to better assess the 
impact and worth of an infrastructure project.
---------------------------------------------------------------------------
    \6\ ``Transitioning to a Performance-Based Federal Surface 
Transportation Policy,'' The Bipartisan Policy Center, June 23, 2010.
---------------------------------------------------------------------------
    Having innovative financing models--including an infrastructure 
bank--that attract private capital directly to critical infrastructure 
projects will bring other benefits with respect to how projects are 
completed. These benefits include increased accountability and a 
shifting of financial risk from taxpayers to investors; unlike funding 
received from public debt financing, the private investment partner 
assumes the risk of success or failure. The private partner works with 
the public partner throughout the entire spectrum of the project--the 
design, construction, operation, and the maintenance. Therefore, the 
private partner has a different role, and risk equation, than a 
bondholder because the private partner is accountable for the project 
being completed on time and on budget.
    Mr. Chairman and members of the Committee, the need for investment 
in our nation's infrastructure is significantly larger than any one 
revenue source, and there is a need to design policies to access 
different revenue sources while being good stewards of the nation's 
infrastructure and meeting the challenges its current condition 
presents. A national infrastructure bank is one method by which private 
investment can serve as one of those revenue sources. Coupled with 
genuine reform, the bank could provide needed funding for our national 
infrastructure.
    Thank you once again for the opportunity to testify.

    The Chairman. Mr. Dove, that was an excellent statement, 
and I thank you very, very much.
    Mr. Dove. Thank you.
    The Chairman. Mr. Perry Offutt, who is the Managing 
Director, Head of Infrastructure Investment Banking for the 
Americas, from a company called Morgan Stanley.

        STATEMENT OF J. PERRY OFFUTT, MANAGING DIRECTOR,

                  INVESTMENT BANKING DIVISION,

                    MORGAN STANLEY & CO. LLC

    Mr. Offutt. Good morning.
    The Chairman. Good morning.
    Mr. Offutt. Good morning, Mr. Chairman, Senator Hutchison, 
and members of the Committee. It's my pleasure to be here this 
morning.
    My group at Morgan Stanley focuses on innovative 
transaction structures to utilize private capital to invest in 
infrastructure projects. As a financial advisor focused on 
public-private partnerships, or P3s, I appreciate the 
opportunity to share my perspective on how federal funds can be 
used to leverage and partner with private investment.
    Morgan Stanley estimates that over $300 billion of private 
capital has been raised to invest in infrastructure projects. 
This capital is attracted to these investment opportunities, 
given the potential to achieve long-term, stable cash-flows and 
attractive risk-adjusted returns. Many of these funds, 
typically pension or infrastructure funds, have the ability to 
invest in various geographies around the world. However, they 
tend to focus on jurisdictions with stable economic and 
regulatory environments such as OECD countries and can invest 
in various infrastructure verticals such as transportation, 
regulated utilities, and energy.
    Attracting the private sector as a partner can leverage 
public funds and deliver a superior outcome for the project. 
For example, the private sector can often build a project more 
quickly and at a lower cost as well as drive efficiencies over 
time by introducing technology solutions. Given that private 
capital can focus on a variety of areas outside U.S. 
transportation infrastructure, it is important to demonstrate 
that a project is commercially and financially viable and has 
political support.
    Because of certain return expectations and the desire for 
stable cash-flows, some projects might not typically lend 
themselves to P3s, such as many transit projects. However, they 
could be strong P3 candidates if the project is secured by some 
form of availability payment to protect against the risk of 
recurring operating losses.
    Another challenge facing U.S. P3s is convincing the private 
sector that there is political will to complete the P3. Given 
the high due diligence costs to reach a binding bid, private 
capital focuses early on regulatory and political approval 
processes. Leadership from the federal government, as has been 
done in Canada, Australia, and the U.K., can help attract 
significantly more private capital to a greater number of key 
infrastructure projects.
    While many states and local governments are focusing on 
these matters, top-down leadership is also needed to supply a 
vision for the country and common P3 principles. Currently, no 
standard or government entity exists to share best practices 
across states and localities. The creation of a nonpartisan 
infrastructure commission could help address that.
    In addition, states and municipalities are in the need of 
capital to support critical projects. A national infrastructure 
bank could supplement the existing TIFIA, RRIF, TIGER, and 
private activity bond programs. In order for the nation to 
finance a wide variety of projects, sponsors need to have 
access to a large variety of public and private financing 
alternatives. That could include grants, loans, and loan 
guarantees, all of which I think are very important.
    In summary, the P3 programs developed in Canada, Australia, 
and the U.K. have been very successful. They've helped 
demystify and depoliticize the use of P3s as a financing 
alternative. If the U.S. institutes similar programs at the 
federal level, I believe P3s can be more widely accepted as a 
viable financing alternative relative to traditional financing 
sources such as tax-exempt financing.
    Thank you very much for the opportunity to testify here 
this morning on this very important topic, and I'll be glad to 
answer any questions you may have as well.
    [The prepared statement of Mr. Offutt follows:]

       Prepared Statement of J. Perry Offutt, Managing Director, 
         Investment Banking Division, Morgan Stanley & Co. LLC

    Good morning, Mr. Chairman, Senator Hutchison and members of the 
Committee. It is my pleasure to be here this morning.
    My name is Perry Offutt. I am a Managing Director in the Investment 
Banking Division of Morgan Stanley and am the Head of Infrastructure 
Investment Banking for the Americas. My group focuses on innovative 
transaction structures to utilize private capital to invest in 
infrastructure projects. Many of the transportation projects on which I 
work are structured as public-private partnerships (defined below). I 
work with both public and private sector clients. For example, I 
recently advised on the following transactions:

        1. OHL Concesiones/Morgan Stanley Infrastructure Partners on 
        their bid for the concession of Puerto Rico's PR-22 and PR-5 
        toll roads (public-private partnership bid submitted in May 
        2011)

        2. City of Indianapolis on concession of City metered parking 
        system (public-private partnership closed in 2010)

        3. City of Pittsburgh on $452 million proposal for concession 
        of City parking system (public-private partnership suspended 
        after a city council vote in 2010)

        4. Citizens Energy Group on $1.9 billion acquisition of 
        Indianapolis water and wastewater system (approved by 
        regulators and scheduled to close in Q3 2011)

        5. Morgan Stanley Infrastructure Partners on its acquisition of 
        NStar's district energy operations (closed in 2010)

    As a financial advisor focused on public-private partnerships, I 
appreciate the opportunity to share my perspective on how federal funds 
can be used to leverage and partner with private investment to 
supplement current transportation funding and increase overall 
investment into transportation infrastructure projects.
Public-Private Partnerships
    A Public-Private Partnership (``P3'') involves a long-term lease 
(not a sale) of municipal assets (the ``Concession''). The specific 
terms regarding how the asset is operated and maintained are included 
in a contract between the public agency/government and a private sector 
entity (the ``Concession Agreement''). The government retains ownership 
with a right to reclaim the assets if the private operator does not 
meet certain standards. Under such an arrangement, some degree of risk 
and responsibility is transferred from the public to the private 
entity.
    Due to the many safety and security concerns associated with 
transportation assets, it is essential that all potential private 
partners undergo an extensive evaluation of their qualifications. Such 
an evaluation is typical in P3 processes. Traditionally, the procuring 
government entity will issue a Request for Qualifications (``RFQ'') 
that requires private operators to submit a response listing their 
qualifications in the areas of design, construction, operations and 
maintenance, as well as describing their ability to finance 
construction and improvements as necessary. In order to be considered 
as a bidder for a P3, a private party needs to pass all criteria in 
this qualifications phase. Consequently, the government can screen 
which private bidding groups are able to submit a final bid for a P3 
project.

Private Capital Available for P3s
    Morgan Stanley estimates that over $300 billion of private capital 
has been raised to invest in infrastructure projects. This capital is 
attracted to these investment opportunities given the potential to 
achieve long-term stable cash-flows and attractive risk-adjusted 
returns for the project. Many of these funds (typically pension or 
infrastructure funds) have the ability to invest in various geographies 
around the world and across various infrastructure verticals (e.g., 
transportation, regulated utilities and energy). In order to mitigate 
some of the macro risks, investors tend to focus on jurisdictions with 
stable economic and regulatory environments.
    Attracting the private sector as a partner can both leverage public 
funds and deliver a superior outcome for the project. For example, the 
private sector can often build a project more quickly and at a lower 
cost; drive efficiencies over time by introducing technology solutions; 
and develop incremental revenue sources by delivering additional 
services.
    Given that private capital can focus on a variety of areas outside 
U.S. transportation infrastructure, it is important to demonstrate that 
a project is commercially/financially viable and has political support. 
Because of certain return expectations and the desire for stable cash-
flows, some projects do not lend themselves to P3s. For example, a 
typical transit project is only a strong P3 candidate if it is secured 
by some form of ``availability payment.'' The following is an example 
of a P3 transaction that utilized an availability payment structure:

        In October 2009, the Florida Department of Transportation 
        (``FDOT''), in conjunction with the City of Miami and U.S. DOT, 
        reached financial close for the Port of Miami Tunnel and Access 
        Improvement Project. This P3 project involves the construction 
        of a tunnel under the Port of Miami at an estimated project 
        cost of approximately $900 million (financed with public and 
        private capital). The winning bidder (Meridiam and Bouygues) 
        proposed providing $80 million in equity upfront plus helped 
        arrange $342 million of senior financing with project finance 
        banks. Other funding was provided by a TIFIA loan. In addition, 
        FDOT pledged to make ``milestone'' payments throughout the 
        construction process, followed by availability payments 
        following completion. These payments from FDOT helped provide 
        the winning bidder with comfort that, despite uncertainty 
        around the total traffic in the tunnel, the government was 
        willing to serve as a ``buffer'' for future traffic risks. 
        Depending on the specific projected cash-flows of the project, 
        this may or may not be needed.

    Another challenge facing some U.S. P3s is convincing the private 
sector that there is political will to complete the P3. Given the high 
costs to reach a binding bid (i.e., significant due diligence costs), 
private capital focuses early on the regulatory/political approval 
process. Any additional federal support (both monetary and political) 
would be very helpful to minimize this risk.

Current Need for Significant Infrastructure Investment
    In 2009, the American Society of Civil Engineers (ASCE) reported 
that $2.2 trillion would be needed over the next 5 years to raise 
America's infrastructure from its current ``poor'' rating to a ``good'' 
rating, which is required to ensure reliable transportation, energy and 
water/wastewater systems. For example, approximately $930 billion would 
need to be spent on bridges and roads alone, and the ASCE estimates 
that only 40 percent of this amount will be deployed. Such projected 
shortfalls are quite troubling. No one wants another bridge to 
collapse, as did the I-35W Mississippi River Bridge, so the time for 
federal leadership on this topic is now.
    When you compare the percentage of GDP that the U.S. is spending on 
infrastructure relative to emerging markets, the ASCE's conclusion is 
not surprising. For example, between 2000 and 2006, the total public 
spending on infrastructure in the U.S. was less than 2.5 percent of GDP 
versus China, which spent almost 10 percent.
    Unfortunately, the current proposed infrastructure initiatives do 
not address the magnitude or the immediate urgency of this problem. 
Leadership from the federal government (as has been done in Canada, 
Australia and the U.K.) could help attract significantly more private 
capital to a greater number of key infrastructure projects.
    While many states and local governments are focusing on these 
matters, top-down leadership is also needed that includes a vision for 
the country and common P3 principles. Currently, no standard or 
government entity exists to share best practices across states and 
localities. In addition, states and municipalities need capital to 
support critical projects. Unfortunately, given: (1) ongoing stresses 
on the global banking system; (2) large budget deficits projected for 
states and municipalities; and (3) limited additional debt capacity at 
state and local levels given current debt loads and large pension 
liabilities, the federal government's presence is critical to support 
essential projects.

Ideas to Consider
    Various types of infrastructure projects need to be funded, ranging 
from improvements of high cash generating ``brownfield'' projects 
(i.e., existing operating assets) to investments in social services 
that are not focused on profitability (e.g., public transit). In order 
for the nation to finance such a wide range of projects, sponsors need 
to have access to a large variety of public and/or private financing 
alternatives. Therefore, I personally see the benefits of providing a 
greater number of grants and low-cost loans (e.g., TIFIA and RRIF 
loans) as well as taking steps to promote competitive capital market 
alternatives (e.g., a healthy tax-exempt bond market). In many cases, 
public capital from Federal, state and/or local sources can be 
leveraged with additional capital from the private sector.
    While states and local governments are pursuing initiatives to 
address the U.S. infrastructure crisis such as implementing P3 
legislation, the federal government should develop a long-term plan for 
development and maintenance of the country's infrastructure as has been 
done successfully by other countries. A National Infrastructure Bank 
would be a key part of such a plan. However, other ways exist by which 
the federal government can facilitate project development of national 
significance and help ensure that projects do not get stalled or 
terminated due to local issues. From the private market's perspective, 
ensuring political will is just as important as ensuring access to 
capital for a project; a project will not succeed without both of these 
critical components.
    Various parties at Morgan Stanley have discussed the concept of 
creating a non-partisan infrastructure commission to serve as a 
repository of best practices and help inform and empower local 
governments to utilize all available tools, including private capital. 
While there are several non-partisan groups acting as ``think tanks'' 
on this topic, no ``national infrastructure commission'' exists. Sadek 
Wahba, Global Head and Chief Investment Officer for Morgan Stanley 
Infrastructure Partners, has written on this topic. He calls for a 
National Infrastructure Commission similar to Infrastructure Australia, 
a statutory body established in 2008 to advise governments and 
investors.

Examples in Other Countries
    Canada, Australia and the U.K. took strong steps to promote public-
private partnerships and have seen the benefits of their efforts. For 
example, the Building Canada program, which began in 2007, and the 
U.K.'s National Infrastructure Plan announced in October 2010 both 
focus on public policy and decision-making initiatives. Britain's plan 
calls for creating ``the optimum environment for investment,'' 
improving the ``quality of data to inform decision-taking,'' 
``efficient and effective funding models,'' and ``addressing regulatory 
failures.'' Most importantly, it calls for delivering 
``transformational, large-scale projects that are part of a clear, 
long-term strategy.''
    The Building Canada program is also a comprehensive plan that aims 
to assist municipalities in addressing their needs. It complements PPP 
Canada, a program created to serve as a center of excellence for P3s. 
PPP Canada has increased visibility of P3s as a procurement solution 
and is consistent with efforts done at the provincial level such as 
British Columbia's Partnerships BC. Programs such as PPP Canada help 
demystify and depoliticize the use of P3s as a financing alternative. 
The absence of this in the U.S. is a key reason that it is taking 
longer for P3s to be widely accepted as a viable financing alternative 
relative to traditional sources such as tax-exempt debt.
    Thank you very much for the opportunity to testify here this 
morning on this very important topic. I would be glad to answer any 
questions that you may have.

    The Chairman. Thank you, Mr. Offutt, very much for that 
very hopeful statement.
    Mr. Steve Bruno is the Vice President, Brotherhood of 
Locomotive Engineers and Trainmen.

 STATEMENT OF STEPHEN J. BRUNO, VICE PRESIDENT, BROTHERHOOD OF 
               LOCOMOTIVE ENGINEERS AND TRAINMEN

    Mr. Bruno. Good morning, Chairman Rockefeller, Ranking 
Member Hutchison, and members of the Committee.
    As Senator Rockefeller stated, my name is Steve Bruno. I'm 
Vice President of the Brotherhood of Locomotive Engineers and 
Trainmen, which is a division of the Rail Conference of the 
Teamsters. My comments have been submitted for the record, and 
I'll give you a brief outline of what they say here today.
    Everyone acknowledges that our nation's infrastructure is 
in dire need of repair and expansion. The safety of the 
traveling public and the jobs created by funding the expansion 
and maintenance of our infrastructure are a win-win for 
everyone affected and the nation as a whole.
    The United States, as Senator Kerry referred to earlier, is 
falling behind the rest of the world in infrastructure 
investment. And according to The Economist, total public 
spending on infrastructure in the U.S. now stands at 2.4 
percent of GDP, and by contrast, Europe invests twice as much 
at 5 percent of GDP, and China invests 9 percent or three times 
as much as the United States relative to GDP.
    America badly needs the economic boost infrastructure 
investment provides. Private investment dollars sit idle on the 
sidelines while unemployment stubbornly remains near record 
levels. Infrastructure investment is a proven economic 
stimulator and a job creator, and it's an investment in the 
future of America.
    Infrastructure investment creates jobs and grows the 
economy, but we need to finance it. And for that, some would 
overly rely on the private sector. We believe there's a role 
for private capital in infrastructure financing, but strong 
conditions must be attached and an appropriate balance must be 
achieved.
    Private funding must be used to supplement, not replace, 
current sources of funds, and certain questions must be 
answered before private funding sources are included, such as: 
Who maintains control of the infrastructure? Who is liable if 
private entities encounter financial difficulty or withdraw if 
the rate of return is lower than they expected? What are the 
long-term costs to the government? And when does the public's 
need supersede the private investor's agenda? And where will 
the resources be applied?
    The leaders of our country certainly recognize that some 
projects are never going to produce a profit. Bridges, 
highways, passenger rail, and public transportation facilities 
are intended to provide for the public good, not corporate 
profit. The people of the United States should be the primary 
beneficiaries of any infrastructure legislation, not the 
corporate shareholders.
    A prime example of a right way and a wrong way to pursue 
private funding exists in the competing Northeast Corridor 
plans put forth by Amtrak and Representatives Mica and Shuster. 
As Amtrak President, Joseph Boardman, has previously testified, 
Amtrak has issued a request for proposals for an implementable 
business and financial plan for high-speed rail on the 
Northeast Corridor as part of their long-term vision. It has 
been fully vetted, peer reviewed, and properly balances private 
capital investment with public benefits.
    Conversely, the recent proposal by Representatives Mica and 
Shuster is the wrong way to go. This plan would, in short, 
saddle Amtrak with all its debt while removing the Northeast 
Corridor, its greatest asset. This would endanger passenger and 
commuter rail throughout the country, and it would cause 
significant job losses among Amtrak employees. It places 
corporate shareholders' interest ahead of the interest of the 
general public. I liken that to locusts, corporate locusts. 
They swarm in, they acquire all the profitable asset, and leave 
nothing but the husk to rot, which is what you would find if 
the Mica-Shuster proposal were successful.
    Cost-benefit analyses cannot be the only determinant for 
infrastructure investment. Safety and other public benefits 
must carry greater weight. Frankly, we are concerned that when 
private investment is the exclusive or even a predominant 
source of financing, profitability will become the deciding 
factor.
    Inevitably, safety will be compromised with the end result 
being that important safety improvements or projects will be 
deferred due to a lack of profitability. Projects with the 
highest profitability will be pursued while other less 
profitable but nonetheless essential projects, such as those 
that service poor or rural communities, will languish.
    The public good must always outweigh profitability in any 
infrastructure project which uses taxpayer money. And you must 
ensure this for the working men and women that I represent and 
the American people.
    So thank you for your time, and I will be happy to try to 
answer any questions that you may have.
    [The prepared statement of Mr. Bruno follows:]

        Prepared Statement of Stephen J. Bruno, Vice President, 
            Brotherhood of Locomotive Engineers and Trainmen

    Good morning, Chairman Rockefeller, Ranking Member Hutchison and 
members of the Committee. My name is Stephen Bruno and I am a Vice 
President of the Brotherhood of Locomotive Engineers and Trainmen, 
which is a Division of the Teamsters Rail Conference.
    I am here today to provide you with our perspective regarding 
infrastructure financing, and particularly using federal funding to 
leverage private investment in public infrastructure.
    I would first like to take the opportunity to compliment the 
Chairman on his legislation, S. 936, which would finance large scale 
projects of state, regional or national scope. We especially applaud 
the provision that grants increased flexibility to states for the types 
of projects they may fund with their Federal Highway Administration 
Surface Transportation program funds, by adding passenger and freight 
rail projects to the list of eligible projects.
    At the same time, I would also like to encourage the Chairman to 
complete the labor protections of working men and women to include 
compliance with other laws that that Davis-Bacon does not cover. 
Projects initiated pursuant to this legislation must be deemed railroad 
projects so that upon completion the operating entity clearly 
understands their legal responsibility to comply with provisions of the 
Railway Labor Act, Railroad Retirement Act, and other statutes covering 
railroad workers.
    Everyone acknowledges that our nation's infrastructure is in dire 
need of repair and expansion. The safety of the traveling public and 
the jobs created by funding the expansion and maintenance of our 
infrastructure, and from the resulting revenue created by increasing 
employment and productivity are a win-win for every entity affected or 
involved and for the nation as a whole.
    Our rail corridors are clogged and our highways are even more 
congested. Time is money, sitting in traffic is wasteful and these 
delays unjustifiably increase the cost of moving goods throughout our 
country. This cost is an increasing burden to the shippers and carriers 
and is passed along to the consumer. Our truck drivers are more 
stressed than ever, having to make split second decisions to avoid 
collisions because of the traffic volume. Nearly half of the bridges in 
the United States are more than 40 years old, and one of every four 
bridges in the U.S. is structurally deficient or functionally obsolete, 
as we were reminded when 13 people were killed and 145 were injured in 
the tragic 2007 bridge collapse in Minnesota. (National Bridge 
Inventory 2008, Federal Highway Administration).
    We are way behind our global competitors in investing in our 
infrastructure. Our transportation network is crumbling while countries 
like China spend hundreds of billions of dollars to improve their 
infrastructure and reduce the transportation cost for their goods. 
According to the Economist, total public spending on transport and 
water infrastructure in the U.S. now stands at 2.4 percent of GDP. 
Europe, by contrast, invests 5 percent of GDP in its infrastructure, 
while China invests 9 percent (``Life in the Slow Lane,'' The 
Economist, April 28, 2011.) If we are to remain competitive in the 
global marketplace, then we have to make a commitment to invest in our 
ports, rail and highway network.
    The economic benefits of infrastructure spending are indisputable. 
Countless studies have shown that investment in infrastructure delivers 
jobs and economic growth, as many statistics amply prove. At the 
present time:

   According to the U.S. Department of Transportation, roughly 
        47,000 jobs are supported for 1 year by each billion dollars of 
        annual spending on public transportation.

   U.S. companies and individuals derive over $788 billion a 
        year in direct economic benefits from using highways and public 
        transportation to conduct business and commute to and from 
        work.

   Businesses gain $314.7 billion a year in economic benefits 
        from their use of the nation's surface transportation system, 
        mainly through lower costs and higher productivity.

   Individual Americans obtain $473.7 billion in direct 
        economic benefits from their use of highways and public 
        transportation, in the time they save commuting to work and the 
        additional income they can earn by working further from home.

    Increased investment in highways and public transportation systems 
would increase the benefits derived by both businesses and individuals 
(APTA, Healthy Returns: The Economic Impact of Public Investment in 
Surface Transportation, March 2005).
    America badly needs an economic boost, as unemployment stubbornly 
remains near record levels, while private investment dollars sit idle 
on the sidelines. Infrastructure financing and investment is a proven 
job creator and economic stimulator and it is an investment in the 
future of America. The jobs directly created through rail 
infrastructure investment--employing those who build, maintain and 
utilize the infrastructure, such as the men and women the Teamsters 
Rail Conference represents--are exactly the types of jobs this country 
desperately needs. They pay a living wage, have good health benefits 
and provide the security that comes from representation by a labor 
organization. And just as importantly, infrastructure jobs cannot be 
outsourced and the Americans who secure these jobs cannot have their 
middle class wages and benefits cut out from under them unless other 
Americans allow it to happen which is why the types of labor 
protections we urged above are vital to the long-term success of this 
nation.
    The political climate of this country has shifted the debate over 
financing such projects from the public sector to the private sector, 
while ignoring the evolution of the private sector corporations into 
multi-national entities who are responsible to their shareholders and 
not the American people. Cash-strapped states and localities can barely 
meet their current transportation needs, much less address those of the 
future. Given these challenges, we do believe there is a role for 
private capital in infrastructure financing to bridge that gap, but we 
also believe that strong conditions must be attached.
    First and foremost, private funding must be used to supplement, not 
replace, the current sources of funds. Moreover, Americans--including 
labor--must continue to have the same protections they are entitled to 
and have fought so hard to acquire.
    Certain questions must be answered before private funding sources 
are allowed, including: Who maintains control of the infrastructure? 
What are long-term costs to government? Who is liable if private 
entities encounter financial difficulty, or withdraw when the rate of 
return is lower than expected? There are numerous examples of rail 
projects around the world, in which for-profit entities often fail to 
maintain the same level of service or encounter financial difficulties, 
and leave the government and the taxpayers holding the proverbial bag 
for the costs of the project. A similar outcome here would be 
unacceptable. The leaders of our country must recognize that some 
projects are never going to produce a profit. Bridges, highways and 
public transportation facilities are intended to provide for the public 
good--not corporate profit. Now is the time to place the American 
citizens' interests as the primary purpose of legislation not corporate 
enticements. The people of the United States should be the primary 
beneficiaries of this legislation, not corporate shareholders.
    For this reason, cost-benefit analytics cannot be the only 
determinant for new starts or improvement projects; safety and other 
public benefits must also be weighed. Frankly, we are concerned that 
when private investment is the exclusive source--or even a predominant 
source--of financing, profitability will become the reason for 
decisionmaking. Inevitably, safety will be compromised, with the end 
result being that important safety improvements or projects could be 
deferred due to lack of profitability. Similarly, projects with the 
highest profitability will be pursued, while other more vital, but less 
profitable, projects--such as those that service poor or rural 
communities--languish. You cannot allow this to happen.
    Additionally, while the jobs created by infrastructure development 
and funding cannot be off-shored, the profits could be sent overseas if 
significant foreign investment is allowed. Accordingly, Buy America 
protocols, currently in use in infrastructure projects, must be 
maintained. The federal funds contributed by American taxpayers that 
leverage private investment should be used for the good of the American 
public, and circulate in the American economy; they should not be sent 
overseas.
    We believe there is a right way and a wrong way to privately 
finance infrastructure, and while examples of both abound, I am going 
to use the circumstances of one piece of infrastructure that I am very 
familiar with to illustrate this--Amtrak's Northeast Corridor. As you 
know, Amtrak was founded 40 years ago when the freight railroads won a 
15-year battle to cut and run from their common carrier obligation to 
operate unprofitable passenger service. At that time, Congress 
acknowledged the need to continue running passenger rail as a public 
service and created the private entity that is the National Passenger 
Rail Corporation.
    One of the assets this creation brought to the company was the 
Northeast Corridor, which is one of the few pieces of infrastructure 
solely owned by Amtrak. Amtrak makes an operating profit in the 
Northeast Corridor; that profit offsets operating losses on Amtrak's 
other routes and acts to reduce the federal subsidy required for off-
Corridor operations. Amtrak also uses those revenues to help finance 
and maintain its rolling stock, as well as more than 500 stations, 
mechanical and equipment shops, and other facilities it owns or 
operates in 46 states. The Northeast Corridor is also the backbone of 
several commuter agencies that provide service to millions of American 
citizens weekly. It is easily Amtrak's most valuable asset, and one of 
the most valuable pieces of real estate in the Nation. As such, it has 
attracted the attention of both Members of Congress and investors who 
are now salivating over its profit potential. Once privatized, those 
profits will never be reinvested in other less profitable routes or 
facilities to the detriment of America.
    The Northeast Corridor also represents one of the best 
opportunities for the development of true high speed rail in this 
country. To accomplish this goal, Amtrak has created an in-depth 
business plan that will maximize the opportunity for private investment 
to finance the construction of infrastructure and the acquisition of 
equipment required to provide the next generation of high speed rail 
(220 m.p.h.) in this country. And the railroad is going about this 
process in the right way--a way that will not be detrimental to the 
public or its workers by maintaining the spirit of public service that 
was the reason behind the founding of Amtrak.
    In April, Amtrak issued a request for proposals for an 
implementable business and financial plan. Amtrak will be the primary 
developer and operator of the system, and will identify and develop 
both public and private funding to reach its goals. This plan, part of 
the long term vision for high speed rail in the Northeast Corridor has 
been fully vetted, peer reviewed and properly balances private capital 
investments with public benefits.
    Conversely, the proposal for the Northeast Corridor recently 
unveiled by Representatives Mica and Shuster is severely out of 
balance--placing corporate profits ahead of the public's interest. The 
proposal would transfer Amtrak's crown jewel--the Northeast Corridor--
to the Department of Transportation and a new Northeast Corridor 
Executive Committee. After transferring Amtrak's assets to their 
corporate friends, the proposal leaves Amtrak with all its current 
debts and liabilities. Their proposal allows corporate locusts to swarm 
in, acquire and leverage the profitable assets and leave a rotting 
husk.
    Under that scenario, Amtrak would have to discontinue services to 
many Americans and could not continue operating across the United 
States. The proposal would also take the rest of Amtrak--its long-
distance and state-supported routes, which are operated on private, 
freight rail lines--and bid it out to the private sector who long ago 
determined it's not profitable--delivering a death knell to Amtrak. Let 
me be clear, the Mica/Shuster proposal is a plan designed to put 
America's national railroad out of existence.
    In addition to the impact on the public, the consequences to the 
workers from the Mica/Schuster corporate scheme are horrendous. While 
its sponsors have repeatedly claimed the proposal would protect Amtrak 
workers and maintain current labor standards, the truth is far 
different. Basic rights and protections that cover current Amtrak 
workers would be eliminated or significantly curtailed once the 
conversion to private operation of Amtrak's Northeast Corridor or off-
corridor services occurs. Additionally, because the bill dictates that 
the private entities providing rail service are considered rail 
carriers ``only for purposes of title 49, United States Code,'' other 
important laws and protections that cover rail workers would be 
inapplicable and unenforceable because they are not in Title 49 but 
elsewhere in the law. Private providers of passenger rail service, 
unlike Amtrak and freight railroads, would not be covered by the 
Railroad Retirement Act, the Railroad Unemployment Insurance Act, the 
Railway Labor Act and numerous other statutes that apply to all rail 
carriers and their employees under the Mica/Shuster proposal.
    This proposal starkly contrasts with Amtrak's plans, and is a model 
for what not to do when planning public/private partnerships. Not only 
is the traveling public jeopardized by the Mica/Shuster legislation, 
but it would cause 20,000 additional workers to go onto our nation's 
unemployment rolls at a time when infrastructure investment should 
create jobs--not eliminate them. It also would jeopardize the future 
viability of the Railroad Retirement system.
    In closing, I want to reiterate that we believe infrastructure 
investment is an invaluable means of economic development, and that 
there is a role for private investment. However, the infusion of 
private funds must be done in a way that minimizes impact on taxpayers, 
the public good and railroad workers. We must always remember that 
public transportation--whether ports, roads or railroads--is just that: 
a service to the public, whose interests must remain foremost.
    Thank you again for the opportunity to appear before you and I will 
be happy to answer any questions you may have.

    The Chairman. Thank you very much, Mr. Bruno, for that.
    And, finally, Mr. Peter Ruane, who is President and CEO of 
American Road and Transportation Builders' Association. I 
assume you have no point of view on this matter.

        STATEMENT OF T. PETER RUANE, PRESIDENT AND CEO,

      AMERICAN ROAD & TRANSPORTATION BUILDERS ASSOCIATION

    Mr. Ruane. Yes, sir. I do.
    Good morning, Chairman Rockefeller, Senator Hutchison, 
members of the Committee. Thank you for inviting me to 
participate in this important discussion about employing 
innovative methods to help meet the nation's transportation 
infrastructure needs.
    The pending surface transportation bill is commonly 
referred to as a jobs bill. While that is certainly true, this 
characterization, frankly, undersells the value of this 
critical legislation. Certainly, federal transportation 
investments create jobs in the construction sector and 
throughout our economy. But even though our industry's interest 
coincides with the public interest, it is not the federal 
government's responsibility to support my industry.
    However, it is the federal government's responsibility to 
ensure that efficient movement of commerce occurs among the 
states. In today's global economy, a country's transportation 
infrastructure capabilities are either a competitive advantage 
or a stumbling block. And it's something that our economic 
rivals, as already pointed out by several of the senators here 
this morning, already recognize.
    Furthermore, every manufacturing plant in the U.S., every 
retail store, every service worker, and nearly 80 million total 
American jobs are dependent on our highways, our airports, and 
our railroads for inputs to deliver products and services. The 
efficiency of the nation's surface transportation network 
directly, directly, impacts the health of these dependent 
industries.
    Given the nation's vast transportation needs, we must 
utilize every available potential solution, and that includes 
the private sector. For over 20 years, over 20 years, our 
organization has advocated for support for transportation 
public-private partnerships. Through our P3 division, we 
continue, we continue to push for specific reforms, as detailed 
in our written testimony, that would further incentivize 
private sector investment in transportation improvements.
    The potential contribution of the private sector is 
enormous, but it must be considered in its proper context. 
First and foremost, private sector involvement requires the 
opportunity to earn a return. Ironically, in today's Washington 
Post, front page of the Metro Section, is a story of the 
hotlane project in this region--which, unfortunately, the 
private company is going to withdraw from part of that because 
of their concern about its economic viability.
    Second, the private sector will engage in transportation 
improvements based on their business objectives and not by some 
formula or some preconceived mechanism. Finally, one of the 
biggest impediments to increasing private sector involvement in 
transportation improvements is the lack of legal authority in 
approximately half of the states to conduct actual public-
private partnership projects.
    Congress should certainly pursue innovative methods of 
delivering transportation improvements and attempt to leverage 
public sector resources with private sector resources through 
proven programs like TIFIA, Build America Bonds, and concepts 
such as an infrastructure bank. We should also be realistic 
about the potential in this area and recognize that innovative 
financing is a supplement, a supplement to core public sector 
involvement.
    As pointed out in our written testimony, the reality is 
there are not, there are not an abundance at the moment of 
viable PPP transportation projects. In fact, the national 
forecast is some two to four projects a year, 5 percent of the 
market. And I urge you to take a look at the study we 
commissioned--it's attached to our statement--that's looked at 
this sector over the last 22 years and has identified the 
scope, some 54 billion projects, 94, but only in half of our 
states.
    This should, however, not--this should, however, not deter 
establishment of an infrastructure bank. While not a panacea, 
bank projects could, in fact, be game changers. These projects 
could be the catalyst to major productivity and efficiency 
gains for our national economy.
    Mr. Chairman, it's no secret that the biggest obstacle to 
moving the current multiyear reauthorization bill on surface 
transportation is the Highway Trust Fund's financial outlook. 
The trust fund can no longer maintain current investments. In 
fact, investments in these programs has already been pointed 
out by Chairman Boxer. If the Senate or the House does nothing, 
we will see a 35 percent cut in investments.
    There is no doubt that increased involvement of the private 
sector in addressing our nation's transportation challenges can 
help when projects are viable. Make no mistake about it, that 
we believe the Congress must supplement Highway Trust Fund 
receipts or thousands of jobs will be lost in every single 
state.
    We recognize this is a difficult assignment. It is not easy 
to write this legislation. But, frankly, the nation's long-term 
economic productivity as well as our jobs are at stake. In a 
little more than a month, we'll be 2 months away from the end 
of our eighth extension. It's time to get on--it's time to get 
on with enacting a multiyear transportation reauthorization 
bill in a bipartisan way, as Chairman Boxer and Senator Inhofe 
are trying to accomplish--- a bipartisan bill. The most 
important thing that Congress can do is to pass legislation and 
move this process forward.
    Thank you for the opportunity. I look forward to answering 
your questions.
    [The prepared statement of Mr. Ruane follows:]

       Prepared Statement of T. Peter Ruane, President and CEO, 
          American Road & Transportation Builders Association

    Chairman Rockefeller, Senator Hutchison, and members of the 
Committee, my name is Pete Ruane and I am the President and CEO of the 
American Road and Transportation Builders Association (ARTBA).
    ARTBA, which celebrated its 100th anniversary in 2002, has over 
5,000 member firms and member public agencies from across the Nation. 
They belong to ARTBA because they support strong federal investment in 
transportation improvement programs to meet the needs and demands of 
the American public and business community. The industry we represent 
generates more than $380 billion annually in U.S. economic activity and 
sustains 3.4 million American jobs.\1\
---------------------------------------------------------------------------
    \1\ ARTBA, ``U.S. Transportation Construction Industry Profile,'' 
http://www.artba.org/economics_research/studies_analyses/.
---------------------------------------------------------------------------
    We commend the Committee for convening today's hearing and 
appreciate you allowing us to take part in this important discussion on 
how to help meet the nation's transportation infrastructure needs.
The Time to Act is Now
    One of the most attractive benefits of major public investments in 
transportation infrastructure is they create tangible capital assets 
that are long-lived. In addition to creating jobs and generating tax 
revenues throughout the economy during the construction cycle, these 
investments provide infrastructure improvements that foster and 
facilitate continuing economic growth over many years beyond the 
initial investment.
    The greatest long-term economic returns can often be found in 
strategic investments that facilitate business activity, especially in 
industries that depend on the transportation network. Infrastructure 
investments aimed at reducing traffic congestion or providing faster 
point-to-point travel, for example, can increase productivity by 
reducing travel time.
    Given the recent economic recession and the challenges our country 
continues to face in terms of unemployment, particularly in the 
construction sector, passing a robust federal surface transportation 
bill will help sustain and create jobs and support future economic 
growth.
    Current transportation infrastructure investments generate over 
$380 billion in annual economic activity for the nation--which is 
nearly 3 percent of U.S. Gross Domestic Product. This activity supports 
nearly 3.4 million jobs throughout the U.S. economy with a payroll of 
over $159.3 billion. This includes approximately 1.7 million direct 
jobs for transportation construction workers and supplier firms. As 
those 1.7 million people spend their wages by going out to restaurants, 
buying cars or trucks, purchasing groceries or consuming housing, their 
spending supports an additional 1.7 million jobs in other sectors of 
the U.S. economy.
    Unfortunately, the politicization of the American Recovery & 
Reinvestment Act (ARRA) has led some to question the job creation/
sustaining benefits of federal transportation investment. While there 
have been a great deal of flawed claims that the ARRA's transportation 
investments did not work, the simple fact is that transportation is 
virtually the only construction activity that did not suffer a downturn 
during the recent recession--almost solely because of the Recovery Act. 
The measure provided a critical one-time injection of federal 
investment into transportation improvements. In so doing, it preserved 
thousands of jobs that would otherwise have disappeared and the 
improvements resulting from the 14,000 Recovery Act construction 
projects will benefit communities and businesses for years to come. But 
the full potential of the Act was undermined by the collapse of private 
sector construction activity and cuts in state and local transportation 
construction investment over the last 2 years. In fact, a recent U.S. 
Government Accountability Office publication references a preliminary 
U.S. Department of Transportation report that found 21 states did not 
meet the ARRA's maintenance of effort requirement and reduced dedicated 
revenues for transportation at the same time the Recovery Act boosted 
federal transportation investment.
    But direct employment is only the tip of the iceberg. Even more 
important are the jobs and economic activity that could not exist 
without our nation's modern transportation infrastructure. Every 
manufacturing plant in the U.S., every retail store, every plumber and 
service worker, every trucker and millions of other jobs depend on 
highways, airports and railroads for inputs and to deliver products to 
customers. If we let our transportation system decay, American workers 
across the economy will be hurt. There are approximately 78.6 million 
American jobs in just tourism, manufacturing, transportation and 
warehousing, agriculture, general construction, mining, retailing and 
wholesaling alone that are dependent on the work done by the U.S. 
transportation construction industry. These dependent industries 
provide a total payroll in excess of $2.8 trillion.
    The U.S. is experiencing intense competition from emerging 
economies around the world. Our transportation infrastructure is 
critical to our competitiveness. We have started with a great 
advantage--the investment America made in the Interstate Highways. But 
we are losing that advantage as China, India and Europe are all 
investing more in new capacity than we are because they recognize the 
importance of transportation infrastructure to their economic 
competitiveness.
    In China, infrastructure spending has increased an average of 20 
percent each year over the last two decades. China, which is roughly 
the same size as the continental U.S., has built over 30,000 miles of 
new expressways in the last 10 years. Their highway system is expected 
to extend over 53,000 miles by 2020, surpassing the current 47,000 
miles of Interstate in the United States.\2\
---------------------------------------------------------------------------
    \2\ Wall Street Journal, ``China Bets Highway Will Drive Its 
Growth,'' November 11, 2008.
---------------------------------------------------------------------------
    One of the most powerful things Congress can do to support existing 
jobs, create new jobs and strengthen the foundation of U.S. economic 
competitiveness is to pass a robust multi-year reauthorization of the 
federal highway and transit programs in 2011.

Investment vs. Spending
    The financial requirements to rebuild and improve the nation's 
highway, bridge and public transportation systems are well documented. 
In 2008, the congressionally-mandated National Surface Transportation 
Policy and Revenue Study Commission estimated total unmet annual 
surface transportation needs were in the range of $225 to $340 billion. 
When compared with current revenue projections for the Highway Trust 
Fund, the gap between needs and current resources is staggering. Much 
of the current climate and debate that exists in Washington, D.C., and 
state legislatures across the country fails to differentiate the 
benefits between types of public spending.
    Mr. Chairman, firms in the transportation construction industry 
that I represent secure their work largely through a low bid 
competition. As such, they are keenly aware of the bottom line and the 
need to control costs. At the same time, they also know that without 
strategic investments in capital and personnel, their companies will 
not grow or be prepared to respond to future market conditions.
    That simple, but incredibly important, truth seems to be overlooked 
in many of the discussions about the need to cut federal spending. 
Notwithstanding the political rhetoric on both sides, there is a 
difference between investment and spending in the business world and 
this is certainly true about the federal transportation programs. 
Daunting needs and revenue assessments should not mask the reality that 
we cannot have a growing economy with a failing surface transportation 
infrastructure. Furthermore, the longer the status quo persists, the 
further performance of our highway and public transportation facilities 
will deteriorate and the more expensive they will become to fix.
    To that end, the most important thing Members of Congress can do at 
this stage is to jumpstart the surface transportation reauthorization 
debate as soon as possible with tangible legislation. As this process 
moves forward, we urge all parties to focus on achieving clearly 
defined national transportation goals and to keep an open mind about 
the investment levels necessary to meet long-term objectives.
    While increased investment from all levels of government is 
necessary to help boost the performance of the nation's surface 
transportation network, there are also substantial opportunities to 
deliver transportation improvements through greater utilization of 
public-private partnerships and federal policy reforms.

Capturing the Value of Innovation
    The federal highway and public transportation programs have been 
incredibly successful. In fact, the Brookings Institution cites the 
U.S.'s highway system as one of the top 10 accomplishments of the 
federal government. This impressive achievement notwithstanding, past 
success cannot serve as a rationalization for the status quo. As is the 
case in the business world, elected officials should constantly be 
looking for new and innovative opportunities to deliver services.
    The increasing involvement of the private sector in project 
financing and delivery over the last 20 years has been a welcome and 
much-needed addition to the overall effort to improve the nation's 
surface transportation network. Public-private partnerships (P3s) offer 
not only a source of supplementary resources for transportation 
facilities, but also the entrepreneurial power of the private sector to 
improve efficiency in managing these endeavors.
    ARTBA members have decades of experience across the broad range of 
transportation P3s. In fact, the ARTBA P3 Division has been on the 
cutting edge in promoting these types of opportunities since its 
inception more than 20 years ago. ARTBA remains an ardent supporter of 
P3s and federal policy reforms to increase their role in supplementing 
core public sector transportation investments. However, the potential 
contribution of P3s to the nation's overall surface transportation 
challenges must be considered in the proper context.
    According to a report ARTBA commissioned from ``Public Works 
Financing'' Editor William Reinhardt, 24 states have used innovative 
procurement methods and/or public-private financing mechanisms since 
1989 to build at least 96 transportation projects valued at more than 
$54 billion. Sixty-five percent of these projects have come in eight 
states: Florida, California, Texas, Colorado, Virginia, Minnesota, 
North Carolina and South Carolina.
    Unfortunately, 26 states have not yet taken advantage of a P3 
process for transportation improvements. In fact, almost half of the 
states have not yet approved P3 enabling legislation and, therefore, 
are not able to take advantage of these opportunities.
    Mr. Chairman, I would like to request Mr. Reinhardt's full paper be 
included in today's hearing record.
    P3 projects are certainly a key component of the total solution to 
the nation's transportation infrastructure challenge, but they also 
currently have limited applications which vary by state. To further 
encourage the use of transportation P3s and leverage private sector 
resources in the next surface transportation reauthorization bill, 
ARTBA recommends that Congress:

   Enhance TIFIA--The Transportation Infrastructure Finance & 
        Innovation Act (TIFIA) has leveraged $7.9 billion of federal 
        credit assistance to support $29 billion of total project 
        investment by all parties. This is a return of more than three-
        to-one and even greater progress could be made by increasing 
        the resources allocated to the TIFIA program.

   Expand PABs--Private Activity Bonds (PABs) to support 
        highway and intermodal activities have generated great interest 
        and activity since this eligibility was established in 2005. 
        The current authorization expires once the $15 billion cap is 
        reached and this authorization should be extended to allow 
        further use of PABs to support infrastructure improvements.

   Restore Build America Bonds--The successful Build America 
        Bonds (BAB) program has lapsed. The continuing state budget 
        difficulties and the record of BAB support for transportation 
        improvements make a compelling case for renewal.

   Eliminate Restrictions on Tolling--States should be given 
        maximum flexibility to impose tolls to generate revenues from 
        new and existing roadways, including the Interstate Highway 
        System, to support needed infrastructure improvements. Expanded 
        opportunities to utilize tolling, however, should include a 
        specific prohibition against using the generated revenues for 
        non-transportation activities.

   Educate Public Officials--The reauthorization bill should 
        include enhanced strategies to encourage state and local 
        officials to take advantage of opportunities to utilize P3s to 
        advance transportation projects. They could range from 
        technical assistance on individual projects to enacting state 
        P3 enabling legislation.

    Like a number of members of this Committee, ARTBA also supports the 
concept of a national infrastructure bank to help fund large, national 
or regionally significant transportation projects. Such a mechanism 
would fill a clear void in federal transportation policy as these types 
of endeavors typically fall outside the scope of existing programs.
    While an infrastructure bank can clearly be an additive tool to 
complement the core surface transportation programs, there are a number 
of issues still to be resolved. While an infrastructure bank is 
frequently discussed in the context of the surface transportation 
reauthorization bill, a number of infrastructure bank proposals are 
broad-based and would extend far beyond the areas of transportation.
    I am not suggesting the merits of this concept would not apply to 
other types of infrastructure development, but rather that the 
application of the bank to transportation should be clear. State 
departments of transportation and the industry I represent rely on the 
predictability of federal surface transportation investments. While a 
broad-based infrastructure bank may be critically important, the fact 
is that transportation may or may not benefit from such a construct and 
that should be clear up front.
    Attracting private investment is frequently cited as a reason to 
establish a national infrastructure bank. Certainly, there is a 
significant role for private investment to play in supplementing 
federal investment. However, we caution against thinking the private 
sector alone is a solution to the nation's infrastructure deficit.
    As mentioned earlier, a large number of states do not allow for 
public-private partnerships. About half of all states have P3 enabling 
legislation and within that population, there are varying levels of 
flexibility to use P3s--some allow for broad infrastructure investment 
while others are limited to consideration of P3s for a single project. 
ARTBA is working with the National Conference of State Legislatures 
(NCSL) to provide informational resources to interested state 
legislatures to advance the use of P3s nationwide. For more detail on 
various state P3 enabling laws, I would refer you to a report we 
partnered to create with the NCSL, available at http://www.ncsl.org/
default.aspx?tabid=20321.
    When considering a national infrastructure bank, there are also 
several specific organizational issues to address. For instance, how 
would an infrastructure bank be distinguished from other federal 
programs that offer loans and credit assistance to transportation 
infrastructure programs, such as the successful Transportation 
Infrastructure Finance and Innovation Act (TIFIA) program? The TIFIA 
program supports regional and nationally significant projects, most of 
which have a revenue stream to pay back the financial assistance.
    Addressing the nation's transportation challenges will not get 
easier over time and it is incumbent on all parties to explore 
traditional and innovative approaches to fulfill this core function of 
the federal government. The infrastructure bank is a creative proposal 
that may very well help advance certain types of needed transportation 
improvements. My comments about the infrastructure bank are in no way 
intended to be critical, but an attempt to ensure that all involved 
stakeholders have reasonable expectations about such a mechanism. We 
will work closely with members of this Committee as you move forward.

Surface Transportation Reauthorization
    Mr. Chairman, as important as increased federal transportation 
investment is to strengthening the nation's economy and overcoming our 
job creation challenges, we must acknowledge that investments in this 
area are at a crossroads. The failure to generate increased revenues to 
support the 2005 surface transportation reauthorization bill created a 
situation where Highway Trust Fund spending significantly exceeded 
incoming revenues. The combination of this unsustainable approach with 
the 2008 recession put the trust fund on the brink of insolvency. While 
the fund was able to meet its obligations through a series of general 
fund transfers to recoup previously foregone revenue, existing levels 
of highway, public transportation and transportation safety investment 
can no longer be maintained.
    The House of Representatives has received significant notoriety in 
recent days for plans to cut surface transportation by as much as 35 
percent. All should be clear that this approach is not the result of 
hostility toward these investments, but a reflection of the Highway 
Trust Fund's financial outlook. The hard truth is that we can no longer 
bypass the need to generate new revenues to support surface 
transportation investment without seeing adverse effects.
    In contrast, the bipartisan leaders of the Senate Environment and 
Public Works Committee are developing a two-year surface transportation 
reauthorization bill that would maintain FY 2009 levels of highway 
investment plus inflation. If all committees of jurisdiction pursue 
similar parameters, we understand the total level of investment in such 
a multi-year surface transportation bill would be $109 billion, which 
would require $12 billion in new revenues.
    I am well aware of the political environment and the challenge of 
generating new resources for any area of discretionary spending. I am 
also aware that Members of Congress on both sides of the aisle are 
claiming we must protect jobs and generate new ones. I am also aware 
that many elected officials feel like they were elected to cut 
spending, but have yet to see one proclaim they were elected to cut 
jobs.
    Certainly, increased involvement from the private sector in 
addressing the nation's transportation challenges can help in the areas 
where such projects are viable. Make no mistake about it, however, if 
Congress fails to generate or provide revenues to complement incoming 
Highway Trust Fund receipts, jobs will be lost in every state.

Conclusion
    Mr. Chairman, members of the Committee, again I commend you for 
convening today's hearing and thank you for inviting the American Road 
& Transportation Builders Association to participate.
    The nation's economic recovery is fragile and its surface 
transportation network is at a crossroads. We certainly recognize 
writing and enacting a multi-year reauthorization bill will not be 
easy, but this legislation has the potential to not only create jobs, 
but generate long-term economic productivity--two of the key challenges 
currently plaguing our nation's economy.
    The most important thing Congress can do at this stage, however, is 
to produce legislation and move forward. To that end, I urge all 
members of this panel to work to produce a bipartisan reauthorization 
bill and support generating the necessary revenues to, at minimum, 
maintain current levels of surface transportation investment. Delaying 
action will only exacerbate the problem.
    I would be happy to answer any questions.

    The Chairman. Thank you, sir, very much.
    Senator Lautenberg has joined us. And since he is the 
Chairman of the Subcommittee--Frank, we have two choices. One 
is you can say something now, or I'll give you an extra 3 
minutes in your Q&A.
    Senator Lautenberg. I'll take the extra three. Thank you.
    The Chairman. OK.
    Number one, I'm--and, frankly, I feel a little naive. But 
I'm stunned by the fact that I think--I know it's true in the 
case of the Commerce Committee--it may be that Senator Boxer 
has had hearings on this. But we have never had a hearing on 
the public-private partnership approach. We've just never had a 
hearing. And then all of a sudden I'm reading about hundreds of 
billions of dollars available, and eagerly available.
    And I'm looking at the schedule of people who are 
testifying, and you get Managing Director, Carlyle 
Infrastructure Partners--that's meant to say something, isn't 
it--and Managing Director, Head of Infrastructure Investment 
Bank for Morgan Stanley. That sort of says a lot. So I'm not 
sure where we've been, but I can't worry about the past. I have 
to worry about the future.
    It seems to me an extraordinary opportunity. There may be 
two different bills. Actually, a number of other people have 
also offered bills on this subject. But I think it's imperative 
that we come together to make common cause on this, and I think 
it'll happen. It'll happen because it has to.
    You know, bridges aren't made to last more than 50 years, 
are they, Mr. Bruno?
    Mr. Bruno. Correct.
    The Chairman. Yes.
    Mr. Ruane. Some do. But today, most of our bridges are over 
50 years and in this country.
    The Chairman. I know. Believe me, I know that.
    Mr. Ruane. The major ones on the interstate system.
    The Chairman. Believe me, I know that. OK. Let me give you 
a hypothetical. And this is not being parochial about my state. 
But it's sort of a complex problem. Would you help me 
understand how you look at what you do? You and Mr. Ruane 
indicated that you can't do everything, maybe two to four 
projects a year or more or whatever. But you can't do 
everything.
    I have been suffering for 40 years watching the building of 
something called Corridor H. Corridor H would connect to I-66, 
go right into the heart of West Virginia, and would probably 
transform the area in time--but already property values are 
increasing in neighboring counties, not just the counties where 
the road is built. There's only 50 miles left to build. And it 
would transform the future of West Virginia. I can't help but 
be interested in that.
    And so my question of you--and whoever wants to--maybe, Mr. 
Offutt, you or Mr. Dove could answer. Things have to be paid 
back. So in a sense, there's a prospective nature to this. On 
the one hand, nothing will happen if we don't have this road 
completed, and it's almost done. We've spent 40 years building 
it. It cost $25 a mile now.
    And on the other hand, if it is built, the world is going 
to open up in West Virginia. And that's not a casual statement, 
because industries are moving at a rather rapid pace from the 
congestion of the Washington, D.C., area into the eastern part 
of our state, which is where this would have the greatest 
impact.
    And so I'm interested--how would you evaluate a project 
like that, which isn't like New York to Boston. Right? But it's 
Washington to a state wide open for development when businesses 
are wishing to get out of the traffic congestion here. What are 
your thoughts?
    Mr. Offutt. I'll start, Mr. Chairman. First of all, the way 
we would define a successful infrastructure project is one 
which strikes the right balance between social benefits and 
economic benefits. And I think a project such as the one you 
just outlined clearly, over the long run, should generate a lot 
of significant economic benefits as well. Then the question is 
how does the private sector get involved, and, potentially, how 
does that turn into an opportunity maybe to get a return on the 
type of investment you've made.
    There are a host of things that can happen once you end up 
connecting, let's say, areas that are more rural to areas that 
are more densely populated. If it's real estate development or 
other kind of tangential revenue streams or investment 
opportunities that maybe don't relate directly to the actual 
road, that can develop a whole bunch of either jobs or other 
types of, again, economic benefits.
    So what's always very difficult when we see projects like 
that is always to very narrowly focus and say, ``This road can 
generate this amount of tolls and, therefore, it's a good 
project.'' I think you have to look much much broader, and if 
it can generate economic benefits for the state and create jobs 
and other things that have lots of other inherent benefits, 
then, therefore, we would define it as a very successful 
infrastructure project.
    The Chairman. And you have ways of figuring out how large 
that growth and development might be. You can't do that out of 
the top of your hat.
    Mr. Offutt. That's right. And, you know, professionals at 
Morgan Stanley can be helpful for a piece of that. But, 
inevitably, there are people who specialize, obviously, in 
terms of trying to think about--trying to quantify economic 
benefits, and I think those professionals can be really helpful 
to try to put a project like that in perspective.
    The Chairman. Mr. Dove, I've overrun my time. I'll be back.
    Senator Hutchison?
    Senator Hutchison. Thank you, Mr. Chairman.
    I would like to ask both Mr. Offutt and Mr. Dove--the 
differences in the two bills that have been introduced are 
basically that there's a grant program in one, and the other is 
a bank that would be more of a revolving loan fund, and it 
would require a revenue stream. And my question to either of 
you is if that would make a difference in the kind of projects 
that would be put forward. And also would it attract more 
private sector funding if you have the bank concept with the 
revenue stream as opposed to grants being involved? Or do you 
think that there can be cases where grants can be an 
enhancement?
    Mr. Dove. Senator, that's a good question. I think that the 
important thing to understand, as you have heard from many 
people on the panel and, indeed, some of your colleagues, there 
is a need to generate different sources of funding for 
infrastructure. And the infrastructure bank, which I propose 
around the sort of EIB model, is a bank which makes loans and 
guarantees and seeks repayments. That's not to say that grants 
can't continue--TIGER grants--there are other very good federal 
programs which my colleagues here have discussed.
    But I think the idea of an infrastructure bank, which could 
be used to supplement the chairman's particular project in West 
Virginia, is the way of providing a level of capital which will 
attract people like me, as an equity provider, and commercial 
banks to come in on top of that to fund a project which could 
not otherwise be funded. So I think that you should see the 
infrastructure bank as an additional source of capital for 
infrastructure.
    Mr. Offutt. I guess what I would just add to that, too, is 
I do see a benefit of having grants in some form, either as 
part of the infrastructure bank or separately through the TIGER 
grant program, because some projects do, I think, require a 
piece of the project to be subsidized or supported with grants. 
And then once the project is built, then the project can 
support itself. It's a matter of, in a lot of cases--and, you 
know, high-speed rail has been one area that's been discussed--
where the costs are such where you really need to have a 
portion of it supported with grants to be able to overcome the 
overall capital requirements.
    Senator Hutchison. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Hutchison.
    Senator Kerry?
    Senator Kerry. Thank you very much, Mr. Chairman. Let me 
build on that a little bit, because I think it's a key 
distinction here and a key identifier of differences. But one 
thing I want to emphasize--and I didn't do it in my opening and 
I think it's really important--is that Senator Hutchison and 
myself, Senator Graham, Senator Warner do not envision or want 
or believe that there will be any encroachment onto TIFIA or 
TIGER grants or any of it. This is a completely above and 
beyond effort. And given the infrastructure demands of the 
country--$2.2 trillion deficit--even with the infrastructure 
bank, we won't get close to doing what we need to do in 
America.
    So grants will be needed. And TIGER and TIFIA and the 
transportation--surface transportation--will all be absolutely 
necessary. And, in fact, our bank is structured so as to really 
be above and beyond that. There's a $100 million break--limit, 
if you will, for the projects--the project has to be $100 
million or more. So that's a specific kind of project. Those 
are big. Those are big projects that attract capital.
    There's also a set-aside for rural states and rural 
communities, where you go down to a $25 million level, because 
they may not have, obviously, the same kind of projects. And we 
want rural to be able to participate as much as other parts of 
the country.
    So there's a mix there. And I think it's important for that 
to be clear in people's minds. There's no competition with the 
grant program. But given the political mood and climate of 
Washington, there was a powerful feeling on both sides of the 
aisle, bipartisanly, that there was not a lot of stomach here 
to create an entity within a political department, where 
politics may conceivably govern it, or where, for example, 
there may be different administrations with different attitudes 
about how it's done.
    The theory was make it freestanding with its own set of 
rules, performing like a bank, professionally, without the 
possibility of the politics getting in the way. And that, I 
think, gives greater comfort to the investor. And I wanted to 
ask both Mr. Dove and Mr. Offutt if you would address that 
question.
    I heard you particularly put emphasis on the word, Mr. 
Dove, independent. And I'm wondering if that is something that 
is of value to you as you, as a private sector investor, think 
about where to take your capital.
    Mr. Dove. Absolutely, Senator. I think it's very important 
that the institution that's set up should first of all be seen 
as something which supplements the capital which is needed for 
infrastructure programs. So grants, TIFIA, whatever they are, 
are another form of coming into the project.
    But the basic capital structure from the national 
infrastructure bank, which, as I said, would be very long- term 
debt--so I'm talking 40-year debt or even longer--issued at a 
very low rate of interest, maybe 25 basis points over where the 
Treasury can issue money. So it's basically very long-term 
money. But that makes it very attractive for me, as a private 
sector investor, to know that I can get commercial banks in 
there on a project financing basis and other equity people to 
come in to a project which otherwise would not be feasible.
    How those projects are determined has to be done, in my 
strong belief, by an independent organization. So this is an 
organization which is set up by Congress. The appointments are 
agreed by Congress, where they then sit and look at all the 
applications which come in for the particular projects, whether 
it's a road in West Virginia or a road in California or a road 
in Texas, and they can evaluate it from an independent 
perspective and say, ``This is the project which deserves to be 
given this opportunity to take 50-year money at Treasury plus 
25 basis points.''
    Senator Kerry. And the other point I just emphasized is 
that, as currently constructed, we embrace water and energy. So 
it's energy, water, transportation, across the board.
    Mr. Dove. The infrastructure needs, if I may, are broader 
than transportation. It includes telecommunications, energy, 
water, and in water, particularly, I think, in levees. All 
these things are potential. But, again, where the bank puts its 
money has to be determined by Congress. Congress decides the 
policy of what to be put before the bank. But the individual 
project--the sponsors will come with the projects which fit the 
criteria set down by Congress. And then the independent bank 
will then decide which ones are creditworthy and, therefore, 
receive the loans, which have to be repaid.
    Senator Kerry. Correct. And the judgments about those deals 
are made based on the economic viability of the revenue stream 
and the flow of the project--capacity to repay. Correct?
    Mr. Dove. Correct. And that doesn't necessarily mean, if I 
may continue, tolls. There is the opportunity of some sort of 
availability payment, which is being used in Florida for the 
Miami port tunnel and for the ring road around Jacksonville in 
Florida. So there are different structures. It doesn't always 
mean user fee tolls. It could be some sort of other structure 
which would be put in place and one which I would think be 
appropriate for the West Virginia project you were referring 
to.
    Senator Kerry. Thank you very much, sir.
    The Chairman. Thank you, Senator Kerry.
    Senator Ayotte?
    Senator Ayotte. Thank you, Mr. Chairman. I want to thank 
the witnesses for coming here today.
    I believe that we do need to take up a reauthorization of 
the transportation bill and that we need to make some hard 
choices so that people can plan on infrastructure across this 
country. And I also believe that we need to get back to some 
basics in making those hard choices. With respect to this fund, 
I do have a question of Ms. Trottenberg.
    In speaking of the national infrastructure bank 
representing a public-private partnership, I can tell you that 
I think the people of this country are very tired of bailouts. 
And one issue that really leaps to my mind in hearing about 
this that I think we need to have a very good answer to before 
we would establish it is how can we be assured that the 
infrastructure bank would not leave the taxpayer on the hook 
for bad investments? What would happen if the project fails? 
What would happen, I suppose, if it overextends this bank? 
Obviously, there would have to--what metrics would we use to 
measure success? And how can we assure taxpayers that this 
doesn't just become another government entity, that we end up 
bailing out bad projects and that we end up privatizing the 
profits while socializing the losses?
    Ms. Trottenberg. That's a very good question. I think it 
gets a little bit in part of the debate that, obviously, you 
all are having and we've had within the administration about 
whether you're locating it within a federal agency, you're 
making it separate, how independent its financial authorities 
are. The way it works with our credit programs at DOT is, 
essentially, Congress grants us budget authority, and the 
Treasury determines for a given project what the possible risk 
is.
    Let's say if we're going to give a $100 million loan, we 
may say that the credit risk premium is 10 percent. We will 
take $10 million and, basically, the Treasury holds onto it. 
And the Treasury builds up a reserve, and that covers the cost 
of any projects defaulting. So, we do a very careful financial 
analysis and make sure we have the right reserves.
    I think one of the things that has sometimes frustrated our 
private sector partners is it takes us a long time to do due 
diligence, because we are the public sector, and we want to 
make sure that the taxpayer dollars are protected. Thus far 
with the federal programs, we've had a very, very good track 
record. But you're right. You have to design it carefully so 
that there is no risk to the taxpayer.
    Senator Ayotte. And one of the things I'm--I think this is 
probably a good question for Mr. Offutt or Mr. Dove. When I 
think about a project, for example, of high-speed rail--why 
would the private sector invest in that? I mean, if you look at 
projects around the world and the return on investment--I mean, 
can you help me with a project like that, why that would be a 
project you would want to invest in?
    Mr. Offutt. Sure. I can start. When the Florida high-speed 
rail project was being considered, we had many conversations 
with construction companies, private equity sources, and others 
who were very much interested in being part of that project. 
But the assumption was that, ultimately, it would be structured 
in such a way that when the project is first introduced, 
ridership may not cover the operating cost, but ultimately, 
over time, it probably would. Therefore, there would need to be 
some bridge to make sure that there were not operating losses 
that would need to be basically covered by the private sector 
over that period.
    And there are examples--and Mr. Dove highlighted a few--
where availability payments have been used to try to smooth 
that development out. And if it's structured appropriately, 
high-speed rail is an example where it could work. But it is 
definitely a more difficult type project, because you need high 
density areas where you're trying to move enough people.
    Senator Ayotte. If I'm remembering correctly in having 
looked at this, there's really only one place in the world 
where you've actually been able to break even with the 
passenger fare in rail. So this is an area where I'd be 
concerned--we're investing--if we're going to invest and we're 
going to have the private sector join in, that we would be on 
the hook for something that--and it's one of my concerns with--
in terms of getting back to basics in our transportation 
funding of roads and bridges, because in New Hampshire, I can 
tell you there are roads and bridges that need to be fixed 
before we start allocating money elsewhere.
    So this, to me, is--in terms of how we would decide where 
the money is allocated, this is a very important issue, I would 
think, for the private sector on return on investment.
    Mr. Offutt. That is right. Specifically, in my testimony, I 
highlighted transit because it is very difficult for some 
transit projects to be able to demonstrate that the revenues 
from the fares does cover the operating costs and be able to 
ensure that safety is not jeopardized. That's true.
    Senator Ayotte. And one final question to Ms. Trottenberg, 
which is about--you know, in our state, and I'm sure in many 
other states, local officials spend a tremendous amount of time 
coming up with a transportation infrastructure plan based on 
local priorities, state priorities. And if we create another 
national--this would be done through the bank in the DOT--how 
do we preserve that local feedback in terms of--in my--I think 
the people in New Hampshire make better decisions on where to 
put the funding than someone in Washington, and that's a 
concern that I have. So I wanted you to address that.
    Ms. Trottenberg. I'll say a couple of things. First of all, 
to reiterate, these types of programs that we're talking 
about--these are to supplement regular highway and transit 
formula funds, the bulk of which go to the states and transit 
agencies and are spent as the states and local jurisdictions 
want to spend them. So this is not to replace that.
    But I'll just give you the example of the TIGER program, 
which is somewhat of a hybrid of grants and loans. One thing we 
did in TIGER that had never been done before was instead of 
just having state DOTs and transit agencies apply, we opened it 
up to all communities across the country. We actually got a 
flood of creative applications at the really local level, and 
over half the TIGER grants that we gave were to local 
jurisdictions.
    So one nice thing that an infrastructure bank can do is 
open the door to all kinds of communities and different 
entities to apply. It can open the door to more local 
creativity, and the ideas are going to come from the local 
level. But it is true, the models we're discussing--there is 
decisionmaking happening here in Washington. And, again, that's 
why--I don't think it's in any way to supplant the bulk of the 
formula funds that are going to the states.
    Senator Ayotte. And one concern I just have overall--I 
understand that this would be a supplement. But how do we know 
that it won't be Washington's priorities versus the absolute 
needs within that state as you're making these decisions. Can 
you comment on that?
    Ms. Trottenberg. Yes. I think that's part of the--
hopefully, the negotiations we'll be having here on Capitol 
Hill and within the Administration. These are federal dollars, 
and federal dollars do tend to come with the priorities of 
Congress, and sometimes those priorities are in line with what 
local communities want. Sometimes they can be frustrating. And 
it's usually a negotiation.
    I think in transportation, we've done a pretty good job of 
having a lot of decentralization of our programs. States and 
localities and transit agencies have a decent amount of 
autonomy in project selection and priorities. But we are going 
to have to find that right balance.
    Senator Ayotte. I want to thank all the witnesses for being 
here. Thank you.
    The Chairman. Thank you, Senator Ayotte, for your excellent 
questioning.
    Now, Senator Lautenberg.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman.
    And thank all of you for your presentations here today. It 
does open up the subject of the public-private partnerships, 
and it appears that there are few other routes we are willing 
to take here now that will get us going on our infrastructure 
problem. America's roads, railways, runways keep our economy 
moving, but much of the infrastructure is now so deficient, you 
know. And we look at a situation that escapes attention, in my 
view, and that is that in 30 years, our population grew by 100 
million people, and it's expected that the next 100 million is 
going to happen in shorter time. And the infrastructure wasn't 
built for the present population, and you wonder how we're 
going to resolve it in the future without spending hours on the 
road that otherwise should take 15 minutes.
    Across the country, one-third of our roads are in poor 
condition, more than a quarter of our bridges deficient, our 
aviation transit systems outdated. In my home state of New 
Jersey--we can confirm the experience around the country. More 
than three-quarters of our major roads are in poor or mediocre 
condition. And one-third of the bridges are in need of 
immediate repair.
    A failing transportation network impairs job creation, and 
economic development, productivity, and businesses can't 
succeed when the employees or customers are stuck in traffic or 
when delivery delays prevent them from putting products in the 
hands of customers. Investing in transportation infrastructure 
is, I think, the primary hope for people to get back to work 
immediately. And make no mistake--there is plenty of work do 
to.
    And that's why Chairman Rockefeller and I have proposed 
creating a national infrastructure investment fund that focuses 
on much needed large-scale transportation projects. They're 
hard to get financed. This fund will offer loans as well as 
loan guarantees that complement existing grant programs. It'll 
help our country leverage public funding by encouraging private 
investment. And it will give us, I think, a much bigger bang 
for our federal dollar.
    The infrastructure investment fund will be a new vehicle to 
invest in America's future and make sure that we remain 
competitive in the global economy. I spent a lot of time in 
business. But an early lesson that I learned--if you want to be 
successful tomorrow, you'd better start laying the foundation 
today or repairing the business infrastructure now to take care 
of growth and expansion.
    The same principles apply here. If we want to leave our 
children and grandchildren a better country, a better 
functioning country, we've got to make smart investments on 
their behalf now. So I thank the witnesses for their 
suggestions on how we can finance these decisions to move our 
infrastructure repair and rehabilitation in a much better 
fashion.
    Amtrak has proposed building a new gateway tunnel under the 
Hudson River between New York and New Jersey to increase high-
speed rail and commuter rail service. And this question is for 
Ms. Trottenberg. This project will create thousands of 
construction jobs and expand access to good-paying 
opportunities throughout the region. Can an infrastructure fund 
that combines grants and loans be used effectively to support 
the development of these regionally significant projects?
    Ms. Trottenberg. Yes, Senator Lautenberg. I think, clearly, 
that it can, and that's a project, obviously, we have been 
hearing from Amtrak about and talking with the delegations 
about. It's a very exciting project with a big price tag, and 
it's going to take a lot of creative ideas on how to capture 
the monetary value of, clearly, the incredible economic 
opportunity and efficiency gains that project would bring and 
bring that project to fruition. I think an infrastructure bank 
could play a very big part of that, and there could potentially 
be a loan piece to it and a grant piece as well.
    Senator Lautenberg. Mr. Bruno or Mr. Ruane, our friends on 
the other side of the Capitol have proposed slashing funds for 
surface transportation programs by 35 percent. What's the 
effect on progress, on job creation, and our economy if the 
House Republicans have their way?
    Mr. Bruno. Senator Lautenberg, I have never studied 
economics and I don't have a degree in economics. But one of 
the things that I know, that I've learned over the course of my 
experience in life, is that there's one basic principle in 
economics, and that's the supply and demand principle. And what 
I see is that there's a significant supply of labor out there 
for which there is no demand. And this particular bill presents 
an opportunity to satisfy that and to put that supply and 
demand back into balance.
    I think that as a principle, eliminating or declining to 
utilize this opportunity is a bad idea for the American 
economy, and I think it would be hurtful to ignore an 
opportunity such as this. Infrastructure investment is a proven 
job creator. We relied upon it back in the 1950s and after 
World War II to develop the interstate highway system, and I 
think it worked very well in putting people to work and jump-
starting the economy at that time. I think this is an 
opportunity, albeit not as grand a scale as that, to start that 
project or to start the economy once again in that direction.
    Senator Lautenberg. Mr. Ruane?
    Mr. Ruane. Senator, obviously, if there is no action in 
this Congress, both in the House and the Senate, we are looking 
at a major, major dislocation in the construction industry in 
every segment. The number, 600-plus thousand jobs, has been 
cited by several senators here this morning. Those are 
legitimate numbers. Those are potential losses that could occur 
in the coming years if there's no action.
    But it's not just a House proposal. And I do not believe, 
by the way, that they're making such proposals out of hostility 
toward investing in transportation. They are playing, as they 
say, the cards they were dealt. But, nonetheless, the same 
thing can happen if the Senate is unable to move legislation 
here in the coming days.
    The construction industry has a 16.3 percent unemployment 
rate right now, as compared to a 9.2 nationally for the whole 
country. As mentioned by my colleague here, there's excess 
labor out there. There are opportunities to do more projects 
because of that. And so the imperative here is to get timely 
action on this bill, because the consequence--given the flow of 
money, by the way, into the Highway Trust Fund, we're going to 
see cuts if the Congress does not find a way to come up with 
additional resources to keep that program steady. It's 
inevitable.
    Senator Lautenberg. Well, in my state, our governor chose 
to decline $6 billion worth of support to build a tunnel that 
would have created 44,000 jobs immediately, get 22,000 cars off 
the road every day and he, very shortsightedly, decided to 
cancel it because of the possibility of overruns, which could 
have been taken care of through other programs, low-cost loan 
programs, et cetera.
    So these people are sitting on their hands, waiting to go 
to work immediately and to relieve the citizens in our area, 
the commuters, of excess pollution, of cost of driving, of 
delayed schedules. So there is a lot of shortsightedness going 
around. We have to get busy.
    Thank you all very much.
    And thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lautenberg, very much. 
You've put more time and energy into transportation than 
anybody.
    Senator Lautenberg. Thank you.
    The Chairman. Senator Blunt?

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Chairman.
    Ms. Trottenberg, you said, of course, this would supplement 
the bulk of the formula funds. I may have missed this in the 
testimony or the analysis of the bills. But what size 
infrastructure bank are we talking about here?
    Ms. Trottenberg. The administration's proposal that we had 
in our Fiscal Year 2012 budget was $5 billion a year over 6 
years, so a total of $30 billion. Admittedly, that was based on 
proposing a very large 6-year reauthorization proposal in the 
area of $550 billion. Current negotiations in Congress--it's 
not clear we'll get to a number that big. But I think that 
gives you a sense of the----
    Senator Blunt. Was that your anticipated shortfall between 
what the Highway Trust Fund would produce and the needs out 
there now? How did you come up with that?
    Ms. Trottenberg. We came up with that number by taking a 
look at the pipeline of projects based on our own experience 
through our TIGER and TIFIA and RRIF programs. That was a 
number we thought captured the pipeline and that could 
reasonably be run through a program and handled through the 
personnel at DOT.
    Senator Blunt. And, Mr. Offutt, the states just don't have 
the capacity to do this through state bonding authority, or the 
difference in the percentage they would pay would be--explain 
that to me a little bit.
    Mr. Offutt. Sure. The states are dealing with their own 
budget deficits, and the projections for the next fiscal year 
are about the same as the deficits they have had to deal with 
over the last fiscal year. They're still very much focused on 
trying to close that gap, and as a result, the ability for them 
to issue traditional bonds is quite limited these days.
    Senator Blunt. Now, why would that be? I mean, I don't 
quite understand why, if they could retire these bonds, they 
couldn't retire bonds they issued----
    Mr. Offutt. I was thinking more in terms of net issuance of 
new bonds to support new projects and what that might mean in 
terms of potential credit pressure from the rating agencies.
    Senator Blunt. But they wouldn't have that same credit 
pressure from the rating agencies if they committed to pay back 
these bonds?
    Mr. Offutt. It depends on how it's structured. But the way 
I always thought it would be just like private activity bonds, 
where the government entity could be the conduit, but when it 
comes down to the repayment obligation, it's really the private 
sector that's responsible for that.
    Senator Blunt. And then that other term you mentioned, 
availability payments--was that--would you define that for me 
again?
    Mr. Offutt. Sure. For example, the Florida Department of 
Transportation used it to fund a couple of their projects. The 
idea would be they would be making certain annual payments that 
would make up for an estimated shortfall between the revenue of 
the project and what the operating costs would be. And there 
are ways that that could be phased out over time. But it's a 
way in which there is more predictable cash-flows, and, 
therefore, it's easier to finance, not only in terms of 
accessing funds like TIFIA, but also traditional bank loans 
from infrastructure--commercial banks around the world.
    Senator Blunt. It sounds like to me in that situation, the 
Florida Transportation Authority would be a lot more than just 
an intermediary between the people paying the bonds off and the 
people getting the money.
    Mr. Offutt. Exactly. In that case, it is an obligation for 
them. So that is definitely the case of how that deal was--or 
those deals were structured.
    Senator Blunt. Are there other examples besides that one 
that you or Mr. Dove either one--have I--I understand tolls and 
how that might pay for a bridge or pay for something. But I'm 
not sure I quite get this availability payment concept.
    Mr. Offutt. Sure. I'll give one example that's outside of 
transportation. The Long Beach Courthouse was a project, 
obviously, in California built with the idea that the private 
sector could build it at a lower cost and operate it at a lower 
cost, but in return for building the courthouse and operating 
it and being responsible for all of those ongoing liabilities--
it kind of shifted the risk to the private sector. The private 
sector would be able to get certain guaranteed payments backed 
by the credit of the City of Long Beach.
    And so, yes, that's an obligation for the city ongoing. But 
those payments are less of an obligation than it would have 
been if they were to build it, finance it on their own, and 
then cover the operating costs. So everyone's viewed that, as 
other deals that have been done outside of the U.S., 
specifically Canada, as an example where it's a win-win, 
something getting built that wouldn't be built otherwise and 
having efficiencies that may not have been generated otherwise.
    Senator Blunt. All right. Are there examples in Canada of 
somebody building a transportation system? I understand the 
depreciation and all that that--I think that's actually--
there's some real merit to that, whether it's a college campus 
dorm or a courthouse or anything else. But I don't quite see 
how that transitions to a non-toll bridge or expressway of some 
kind.
    And I guess I'm out of time, Mr. Chairman, but I think I 
might have gotten my question in within my time.
    Either one of you want to explain that a little better to 
me, how a nonrevenue producing asset really helps this 
situation any?
    Mr. Dove. Senator, I used this structure in London for the 
London Underground, the metro system in London, where there was 
a decision made by the U.K. government to hand over the capital 
project--so that's the upgrade of the signals, the lines, new 
trains, refurbishing of stations--to the private sector, and in 
return, the government would make these availability payments 
on a fixed and regular basis. So, so long as the private sector 
complied with the concession documents, which was to deliver 
the upgrades in time, to refurbish the station, to provide an 
environment for the traveling public which met standards of the 
contract, then the government would make these availability 
payments.
    And what the private sector took on was the risk of 
actually delivering those projects on time and on budget, 
because if there was a cost overrun, that was taken by the 
private sector. If it wasn't delivered in time, then the 
availability payment would not be made. So that's the sort of 
structure, and what it's really doing is shifting a risk from 
the public sector to the private sector in partnership with the 
public sector. And the partnership is key to making it work.
    Senator Blunt. Thank you.
    The Chairman. Thank you, Senator Blunt, and that was an 
excellent question.
    Senator Begich, you have returned.
    Senator Begich. Thank you very much, Mr. Chairman. I'll be 
very quick here.
    First, Ms. Trottenberg, I know Senator Kerry talked about 
his infrastructure proposal and kind of the rural impact. Can 
you tell me from the administration's standpoint--how you treat 
rural?
    Ms. Trottenberg. That's a good question.
    Senator Begich. Because, just to be very frank with you, 
from my perspective from Alaska, you know, we have small 
projects that can't compete against these large projects, and 
we will lose every time.
    Ms. Trottenberg. And I think that's part of the reason, 
Senator--and, again, it's some lessons we learned from running 
the TIGER program--why in our infrastructure bank proposal, we 
propose doing both loans and grants, because we do think--and 
this is true in rural areas and other areas--that there are 
certain projects that clearly have social benefits that make 
them worth investing in, but they're not going to generate a 
revenue stream. And that's particularly true in rural areas 
where you have small populations where collecting tolls may not 
be feasible.
    One other thing I would just say we discovered in the 
course of our TIGER program--I know there has been a lot of 
concern in rural areas--is this going to help us? We wound up 
investing a lot of TIGER funds in rural freight projects. 
There's a big need in a lot of rural parts of the country to 
get agricultural projects, energy projects, other things to 
ports and to population centers. And there is huge economic 
value to be unlocked there by investing in freight projects.
    So I think something like an infrastructure bank--it can 
have a lot of value in rural areas. In West Virginia, speaking 
of roads, we did a Highway 10 project. That was a project that 
had tremendous safety benefits. You're not going to get toll 
payers on a road like that. Not enough people use it. But that 
is also the kind of project that we think with grants, an 
infrastructure bank could also invest in.
    Senator Begich. And just to make sure, is your style of 
infrastructure bank or grant program development--if you'll use 
that as an example, the West Virginia project--would that have 
to compete in this bigger pile with all these larger projects? 
In other words, my concern is not that you would have some for 
rural. It's when a rural project has to compete against a very 
intense urban project, when you do the cost-benefit analysis of 
how many people will be served and all that, we lose.
    Ms. Trottenberg. We require in our infrastructure bank that 
there be a geographic balance, and we also have a lower dollar 
threshold for rural areas. I know in some of the proposals that 
are out there, there is a rural set-aside. We have that now in 
TIGER, and I have to say we've found that it has been very 
useful and has helped us find some terrific rural projects 
around the country. I think that's a decision for you all. 
There are a few ways you can design it so that you're sure that 
rural projects will compete.
    Senator Begich. OK. Let me ask, if I can, Mr. Dove--if I 
can ask you some general questions. I come from the background 
of being a former mayor. We built more roads, more 
infrastructure than in the last two decades in our city. 
Everything from vertical to horizontal, you name it, we built 
it. We loved building stuff. I liked driving to work every day 
and seeing cones on the road blocking off streets, because that 
told me there was something happening.
    And because of that, that infrastructure we built prepared 
the city for this great recession we went into. And it was 
Business Week that rated the city that I was mayor of, 
Anchorage, as probably one of the most likely cities to recover 
the quickest. And Forbes just rated it as one of the cities 
that has the best opportunity for jobs because of the 
infrastructure investment.
    It's a two-part question. One, first, is in the process of 
private financing and partnerships, how will you handle that?--
I mean, in a lot of cases--I'll take our city that I was mayor 
of--solid rating, solid everything, platinum client to any 
finance. How do you determine to make sure that the fee 
structures are fair for a client of that nature when you're 
doing these large projects, because they're good money on your 
end? And so how do you manage that, in other words, to ensure 
that at the end of the day, there's not this pile of fees on 
these private projects?
    Mr. Dove. Well, first of all----
    Senator Begich. I'm just being very blunt with you.
    Mr. Dove. No, no, and I'll be very----
    Senator Begich. Because here's how I operated as mayor. 
When people came to see me, and they were from the finance end, 
we loved doing business with them. We sold more bonds, but we 
were the platinum client and we wanted the best deal.
    Mr. Dove. Well, first of all, I wouldn't expect you just to 
negotiate a deal with me alone. You would run a competitive 
process.
    Senator Begich. Right.
    Mr. Dove. And in running that competitive process, that 
would ensure you that you were getting the best market-
available terms to your particular project. I think what I'm 
sort of emphasizing is that maybe as a bigger project where the 
user fees or the tolls or the availability payment is not 
sufficient on a standalone basis----
    Senator Begich. I got you.
    Mr. Dove.--to make that work. So maybe this bridge or 
development of the airport or whatever it could be needs a 
level of capital that could make that project work or make it 
more attractive to Carlyle Infrastructure to invest in. And 
that's why I'm enthusiastic about the national infrastructure 
bank as a provider of that level of capital for whatever the 
project is. But at the end of the day, it will be a competitive 
process, and everybody recognizes that.
    Senator Begich. Very good. And the last question--and I'll 
end on this--and that is in saying all that about good credit, 
based on the situation we're facing here in the federal 
government, can you just give me 2 seconds on--if we're unable 
to resolve this in a meaningful way--the debt crisis and the 
deficit--how will that affect the markets that you have to tap 
into in order to then partner with the government sector who 
wants to build infrastructure? And I'll leave it at that.
    Mr. Dove. Everything is priced off Treasuries. So it'll be 
determinant on where the market feels the risk is for U.S. 
Treasuries at that point in time and the rate. And there would 
be expected to be a small premium over treasuries for any 
funding by a national infrastructure bank. I hope that answers 
your question.
    Senator Begich. Thank you.
    The Chairman. Thank you.
    Senator Thune?

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman, and I appreciate 
today's hearing. This is a critically important subject for the 
entire country.
    Maintaining a transportation infrastructure is just 
critical to our nation's commerce. We've got a $2.2 trillion 
backlog out there of infrastructure projects, and a $12 billion 
projected shortfall in gas tax revenues versus current spending 
levels over the next 2 years. So our transportation 
infrastructure is in desperate need of a facelift. And I 
appreciate the opportunity to get at some of these issues and 
appreciate your sharing all your thoughts on this, because at 
the heart of the problem is the lack of a long-term funding 
source that we can make available to pay for a lot of these 
needed transportation infrastructure improvements.
    There are a couple of questions I want to ask, if I could, 
to Assistant Secretary Trottenberg. It wasn't that long ago in 
front of the Budget Committee we had Secretary LaHood, and I 
asked him about any thoughts he had on long-term funding plans. 
And at the time, he didn't have anything specific that he 
mentioned in terms of ideas about how the administration 
intended to raise revenue to fund our transportation 
infrastructure improvements. And I guess my question is since 
that hearing, has the administration developed any specific 
ideas or plans on how we might raise the revenue that's 
necessary to finance some of these infrastructure improvements?
    Ms. Trottenberg. Certainly, there has been a lot of debate 
and discussion within the administration. I will also say I 
think at this point that discussion is caught up, obviously, in 
the larger debate that's happening here right now about the 
debt ceiling and dealing with all the issues we have there. 
We're hopeful in the course of those discussions that we'll be 
able to put some of these ideas on the table, obviously working 
with Congress, both the House and the Senate, and find some 
bipartisan solutions.
    Senator Thune. So there's still not really anything 
specific?
    Ms. Trottenberg. Not that I'm going to put on the table 
today.
    Senator Thune. Let me ask you if you--could you give us an 
assurance that some of those ideas that are on the table but 
not, obviously, evidently ready to be made public that generate 
revenue for transportation infrastructure projects will be used 
exclusively for that? One of the concerns that some of us have 
had with proposals that were used during the stimulus was that 
they weren't used more for infrastructure and got involved in 
financing all kinds of other types of projects. So some of 
these ideas, which I assume may include mechanisms that are 
similar to some that have been discussed today--that they would 
be used exclusively to finance infrastructure projects as 
opposed to being used for other purposes.
    Ms. Trottenberg. I want to be cautious about 
prognosticating, I think, collectively how the administration 
and Congress will tackle a lot of the spending and debt issues 
we have. I think we understand very much the desire that we 
have dedicated sources of revenue for transportation and that 
those aren't used for other things and that we put them toward 
solving, I think, what we all agree is the very, very big 
needs--infrastructure needs in the country.
    Senator Thune. Let me express a concern I have about the 
proposed creation of a national infrastructure bank. I'm 
obviously concerned that that type of fund would primarily 
benefit larger, metropolitan areas while ignoring the needs of 
rural states. In my own state of South Dakota, we have 
residents that frequently travel significant distances on 
roadways as part of their daily livelihoods. As such, they 
would be looking at paying a significantly large amount in toll 
fees or other dedicated revenue sources so as to help repay the 
national infrastructure bank loan.
    I'd ask you this question--and then perhaps maybe Mr. 
Offutt and Mr. Dove could comment--on what your thoughts are on 
a national infrastructure bank and how it might impact rural 
states. And what, if anything, can Congress do to ensure that 
rural states are not penalized due to their smaller population 
size?
    Ms. Trottenberg. As I was saying to Senator Begich, we did 
have that very much in mind when we were designing our 
infrastructure bank. And it's part of the reason we chose to do 
both grants and loans, because we do particularly think there 
are certain types of projects--and the ones you referenced 
would be the case--that have a lot of public benefits. But 
you're not going to be able to generate toll revenue and maybe 
not even availability payments to cover the cost of the 
project. But there are still projects that we need to do.
    As I was also saying, I think there's another category of 
projects, rural projects, that would do very, very well in an 
infrastructure bank, and that's freight projects. Under TIGER 
grants, we discovered when we looked for projects all over the 
country that there were freight projects that scored extremely 
well, including projects in South Dakota and all throughout the 
Plains States. As you all know, you have a lot of agricultural 
and energy products, and lowering the cost of getting those 
goods to the ports and to population centers can have a 
tremendous economic impact in rural America.
    So I think a lot of those projects actually will compete 
well and can be monetized and the private sector can help work 
on those. And then, certainly, I think for rural safety and 
economic development projects, some of those--yes, you're 
probably going to want to use grants.
    And you can design an infrastructure bank in a variety of 
different ways. You can have a rural set-aside or a rural 
minimum or lower the requirements on what the match might be. I 
think there are a bunch of different proposals on the table to 
ensure that rural states and rural areas can compete and 
benefit from an infrastructure bank.
    Senator Thune. And I see my time has expired, Mr. Chairman. 
But if either of you would care to comment on that----
    Mr. Dove. I think the importance of having a rural set-
aside--so if we say that the proposals are $100 million minimum 
requirements for a national infrastructure bank loan, having 
something a lot smaller than that for rural is the right way to 
approach that problem. But each project should stand on its own 
and should be self- sufficient on its own, and the loan to that 
project should be repaid by the funds generated by that 
project.
    Senator Thune. Thank you, Mr. Chairman.
    Thank you all.
    The Chairman. Thank you, Senator Thune.
    Senator McCaskill?

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Thank you.
    Let me step back from this and look at this from a bird's 
eye view. It appears to me that it's in the government's 
interest to do an infrastructure bank for one of two reasons, 
either to shift risk, or to access capital. Would anybody 
disagree with those two reasons that we would want to do this 
in the first place? OK. Is there another reason I'm missing 
besides access to capital or risk shifting?
    Ms. Trottenberg. I would actually add one more. It gives us 
an opportunity to do a really rigorous competition and project 
analysis and use benefit-cost analysis and the type of tools 
that Senator Rockefeller was noting that in other countries 
they've been using these for a long time. We've been doing less 
of it in the U.S. in part because, I think, we've had a Highway 
Trust Fund that until recently was pretty adequately funded.
    But this gives us a chance at the federal and the state and 
the local level to really improve our analytic skills and do a 
better job of project selection and finding projects that are 
going to get the most value for the money. I think an 
infrastructure bank can really help with that.
    Mr. Ruane. Senator, I would echo that, because the 
expertise of the private sector in the past projects has been--
they have been especially helpful in the very large complex 
projects. Bringing in, particularly, the financial sector to 
the table has been of great assistance to the state DOTs in 
these projects.
    Senator McCaskill. Well, I'm a little worried about that 
answer, because it seems to imply that bringing in other 
people's capital allows us to have a more rigorous analytical 
process as to how we decide what projects to build. What is 
there currently that would keep us from having that kind of 
analytical process? Why wouldn't we be doing that with all the 
money we spend on our infrastructure?
    Ms. Trottenberg. Well, I mean, our traditional formula 
funds--that money is just basically allocated by formula to 
states and transit agencies for the most part.
    Senator McCaskill. But aren't they going through an--I 
mean, I know the analytical thing in my state is incredibly 
intense. And we have required hearings, we have required input, 
we have all kinds of bid processes, we have all kinds of--I 
mean, it's not as if the states that are making the decision on 
this money are doing it by some formula. They're doing it based 
on priorities and cost-benefit analysis.
    Ms. Trottenberg. I have to say, Senator, it varies greatly 
from state to state. And some states are really leaders and on 
the forefront of this. Some states are not so far ahead on 
this. They've been used to getting a lot of formula funds and 
not doing some of the rigorous analytics that would really 
benefit at the state level as well. So it's not to say we 
aren't doing it, but I think an infrastructure bank gives us a 
chance to do it better.
    And I can just say that USDOT running the TIGER grant 
program--we require benefit-cost analysis for all the 
applications. And I would say that the state-of-the-art was all 
over the map. I mean, we got some applicants who had done a 
phenomenal job and really made a great case and some that 
barely knew how to do it at all. And, you know, we've been 
working with them and helping them get up to speed. But it's 
sort of an ongoing national learning process right now.
    Senator McCaskill. Well, if there's something that we can 
do as we begin to debate and consider this infrastructure bank, 
which I'm not saying in any way that I'm not supportive of. All 
the things you're talking about is what we should be doing 
anyway.
    Ms. Trottenberg. Absolutely.
    Senator McCaskill. I mean, there's nothing about an 
infrastructure bank that should bring about a requirement for a 
highly analytical competitive process and prioritization of 
projects with public dollars. I mean, all of that--whatever we 
need to be doing--if it's all over the map and if it's just the 
TIGER grants that are causing this discipline, maybe we need to 
make that requirement on all the money.
    Ms. Trottenberg. I think that's absolutely right. And, 
certainly, in the reauthorization proposals that we're looking 
at, we are trying to help the states and transit agencies do 
more of that, provide technical assistance embedded in their 
planning process. But it is a--I think there is a real learning 
curve going on. And, again, some parts of the country are 
further along than others.
    But I do think now, as we find ourselves with a Highway 
Trust Fund that's running short and we're taking a harder look 
at how we spend our dollars, it's definitely true that states 
and transit agencies around the country are going to need to 
improve their game even more. And we certainly, from DOT's 
point of view, want to help with that.
    Senator McCaskill. OK. So from the government's standpoint, 
you think it will help tighten the analytical and selection 
process, plus risk shift and capital. From the private sector, 
there's only one reason to do this, and that's profit. Correct?
    Mr. Offutt. Correct.
    Senator McCaskill. Correct. So----
    Mr. Dove. I have to make a return for my investors who 
give----
    Senator McCaskill. Absolutely. I mean, there's nothing evil 
about that. I just wanted to get it out on the table that the 
reason the private sector is interested in this is not because 
they want to become part of government but because they see an 
opportunity to return value to the investors in the form of 
profit.
    Mr. Dove. Correct, yes.
    Senator McCaskill. So as I step back and look at this, that 
means that the way they make profit is going to be either off 
of the governments that hire them to do this, or it's going to 
be off the taxpayers that access the projects. Correct?
    Mr. Dove. If I may, I would also suggest that maybe there 
is an opportunity for a partnership between the private sector 
and the government side or the public sector, generally, to 
address an infrastructure problem in a different way, whereby 
the capital is spent and deployed and the risk of that spending 
is shifted in return for a sharing of revenues going forward.
    Senator McCaskill. I don't quarrel that the government gets 
something out of this, and I don't quarrel that there is 
something to the partnership. But I'm trying to get at the 
profit. The profit can only come from one or two places. Right? 
It is only either going to come through payments from the 
government, or it's going to--and the fact that the project is 
managed well so that there is a profit margin based on what you 
expect in payments from the government, or it's going to be 
revenue generating from the people that are using whatever the 
project is that's built.
    Mr. Dove. Yes.
    Senator McCaskill. OK. That's what I wanted to make sure I 
understood. And that's why I think it's really important for us 
to keep that in mind, because taxpayers are going to be paying 
one way or another. They're either going to be paying through 
the money we pay to these companies, or they're going to be 
paying by tolls. And I think that sometimes we get caught up in 
this new idea, which is great, but I don't want us to get away 
from the bottom line--the folks out there are going to pay for 
this one way or another. They're going to pay for it.
    This isn't going to be a magic bullet that's going to all 
of a sudden take away the need for the public to pay for 
infrastructure. It's just going to shift how they pay for it in 
a nontraditional way. And I just want to make sure that we all 
examine that carefully as we move forward.
    Thank you, Mr. Chairman.
    Thank you all very much.
    The Chairman. Point made.
    Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman. Thank 
you. All of us--as you know, we care a lot about 
infrastructure. In our state, that was really brought home to 
us when we had our bridge collapse, I-35W bridge. But whether 
it's a big thing like that or a little rail spur in Wadena, 
Minnesota, these things matter. And so I wanted to thank you 
for focusing on this today.
    First of all, I want to thank you, Ms. Trottenberg, for 
coming to Minnesota and speaking to our transportation alliance 
last month. I heard it was a good conversation. So thank you 
for that.
    One of the goals, of course, for the national 
infrastructure bank is to give state and localities resources 
for projects that meet merit-based national and regional 
economic objectives. And I share some of the concerns of my 
colleagues about how mega projects could dominate over smaller 
projects. And how do we ensure equity of funding projects of 
different types and sizes across the country while still 
showing that the return ultimately goes to our national 
economy?
    Ms. Trottenberg. Again, it's very, very important that you 
do achieve geographic and urban and rural balance in a program 
like this. Obviously, you all here in Congress will want to 
make sure that as you craft--if you're going to collectively 
ultimately craft legislation--that you get that balance right.
    Again, as we've discovered through the TIGER program, and 
also through RRIF, our railroad credit assistance program, we 
have made some very big loans, and we have made some incredibly 
small loans, and we've made some very small grants, too. I 
think you can do both, and there are sort of slightly competing 
visions on an infrastructure bank. One is that it is funding 
tremendously large projects of national significance, and we 
need those, like a CREATE--the big freight rail projects we 
have that span many states and would be very, very hard for 
individual states to ever make happen through existing formula 
funds.
    But we also think there are great ideas and very local 
needs. We funded through TIGER and through RRIF some very small 
local short----
    Senator Klobuchar. You mentioned TIGER, and I think that 
was a very popular part of AARA. And I just wondered if you 
could say--and I know there are efforts to permanently 
authorize those grants. Are there ways that TIGER can be 
improved as we look at permanently authorizing the program?
    Ms. Trottenberg. Just going on our experience at DOT and 
some of the feedback we've gotten around the country and from 
Members of Congress, I think clarifying and sharpening in a 
consensual way what the goals of the TIGER program are--and it 
gets at exactly what you're saying--how much is geographic 
balance; how much is economic return; how much is achieving 
social benefits; how much we want to do in grants; how much we 
want to do in TIFIA loans. And we've run the program now for 
two years. We're starting the third. We are trying to refine 
all the processes, make them more transparent. But I think 
that's another area. We would like to work with Congress and 
make sure we get it right.
    Senator Klobuchar. Very good. You know, the Twin Cities 
area in Minnesota is considered to be one of the most livable 
places in the U.S. Now that Begich is gone, I can say that, now 
that he's done touting Anchorage. And I believe part of that is 
that we've placed a big importance on multimodal 
transportation, everything from the way we run the bus system 
to the bike paths around all the lakes. And it's really kind of 
incredible the way it all works together.
    Could you talk about how a national infrastructure bank 
could fit into the overall goal of consolidating and 
streamlining the numerous federal funding silos that currently 
exist?
    Ms. Trottenberg. Right. That's a good question. One of the 
examples I talked about was the Denver Union Station project, 
which is a transportation, livability project that had all 
kinds of different elements to it and wound up drawing from 
four different pots at USDOT, from TIFIA, from RRIF, from 
federal highway funding, and federal transit funding. It was 
complicated and time-consuming.
    In our vision of an infrastructure bank, you could 
encompass all those different elements. The applicant would 
have one point of contact, and we could structure the best 
possible deal and, hopefully, in the process do a lot of 
streamlining and cut down on the time and money that it takes 
for an applicant to successfully compete.
    Senator Klobuchar. Because otherwise we'd run the risk of 
just adding a new program----
    Ms. Trottenberg. No, no, in----
    Senator Klobuchar.--that they would then add funding to, if 
that were to----
    Ms. Trottenberg. In DOT's vision, we would be, over time, 
merging some of our existing programs into the infrastructure 
bank. The goal would be some streamlining and making it easier 
for states and communities out there that wanted to come to us 
and apply.
    Senator Klobuchar. OK. Very good. Thank you very much. 
Thank you, all of you, and I'll talk to you about the rail spur 
later.
    The Chairman. Senator Klobuchar----
    Ms. Trottenberg. I look forward to it, Senator.
    The Chairman.--you've got 20 seconds more to say----
    Senator Klobuchar. See, I was brief, Chairman Rockefeller.
    The Chairman.--three very good things about Minnesota.
    Senator Klobuchar. I was brief. And I have another hearing 
to go to, too.
    The Chairman. Oh, OK.
    Senator Klobuchar. Thank you.
    The Chairman. All right. Thank you, Senator Klobuchar. And 
I was teasing.
    I think this has been an amazing hearing. It may not appear 
that way to you, because you deal with these things all the 
time. We have not--and, you know, I was the Governor of my 
state for 8 years and dealt with wretched transportation 
problems during 1982 and 1983 when there wasn't any money for 
anything and during 1976 through 1980 when there was quite a 
lot of money available--you know, laying off 10,000 highway 
workers because we didn't have projects to pay them for.
    And all of a sudden, you know, in you walk, to my 
embarrassment--I mean, not that you walked in, but the fact 
that we hadn't called you three or four or five years ago or 10 
years ago to talk about the interest of the private sector to 
participate in this, and that it's something that you've 
actually done. The underground railroad in London--that's a 
rather large statement. If that was a PPP thing with you 
heavily involved in that, that's an extraordinary statement.
    So to me, this has been a very heartening, embracing 
hearing. And we've got, you know, a number of bills. I don't 
see why they can't be worked out and put together, because the 
cost of not doing it is not passing a bill, and I don't see 
anything that would prevent us from passing a bill on something 
which, obviously, people care--we had a very large turnout. We 
ordinarily don't have that many, so that--people came in 
because of various committee meetings at different times, but 
they really care about what you're talking about and so do I.
    Let me just ask one final question. And Senator Ayotte 
raised it, and that is the fact of having a group inside the 
Department of Transportation, as opposed to, quote, 
``independent and outside.'' The department--the group inside 
would not necessarily have to be made up of all government 
people. But there was the hint in her question--and I think it 
was very fair--that having that would open it up to politics. 
And that's a very rapidly spreading concept that people don't 
like.
    And then on the other hand, if it was done on the outside, 
and there weren't, let's say, a lot of government people, but 
people who were doing this, I mean, wonderfully for the good of 
the country but also to make sure there was a return--what is 
my question? My question is sometimes some projects are more 
important than others, and they may be cost-effective. That 
means, for example, in your projects that you've all done, 
you've always finished on time, and you've always finished on 
budget. That's my general impression. I mean, it has been a 
very effective process.
    On the other hand, you want to make sure that you get the 
projects that are in the relative form of priority, the 
national needs. And so if you just for a moment discuss inside 
the department and the politicalization or, on the other hand, 
inside the department and then having this kind of nationwide 
look at what needs to be done next--obviously, people apply to 
the Department of Transportation. That doesn't necessarily make 
it political. It means that they care. Now, they could do the 
same with an independent group outside.
    And I'm asking this question just because I want to know 
your views. I'll ask the three of you your views.
    And I've got to apologize to you, Mr. Bruno. I have a 
question just exactly for you, but I'm not going to get time to 
ask it, so I apologize to you.
    What is that? Is that a bit of a scare tactic, the 
politics? Or does it have truth to it, in your judgment? And if 
you were independent, would you be inclined to look at things 
that might make a return on investment--and be very, very 
careful about that, because you'd have to be--and, therefore, 
maybe come up with projects that are very good, because any 
project is very good for somebody somewhere but not necessarily 
in the order of, you know, a national priority list. And I 
think we're dealing here with that kind of discipline simply 
because of the lack of money even with you participating. So 
maybe the three of you could----
    Ms. Trottenberg. Maybe I'll start, because we had a very 
genuine debate about this within the administration. I think 
there were people really on both sides about whether it made 
more sense to have a separate independent entity or house it 
within USDOT. And so I think we're open to different solutions. 
We're not dogmatic about it.
    A couple of things in our thinking--one is can you create 
that truly independent entity that is somehow completely 
detached from all political and geographic considerations? I 
think it's a question mark if you look at the history of some 
of our efforts to do that. Some have worked better than others.
    I think for us, also, there was a pragmatic consideration 
which is--in USDOT we've been running the TIFIA program since 
1999. We do have a number of career experts and financial 
experts and project delivery experts and experts in all our 
offices around the country. And, we thought just in terms of 
technical capacity in getting the program up and running, it 
really made sense to house it in an agency that has a lot of 
expertise and a lot of people on the ground to help do the 
analysis.
    I think it doesn't mean maybe at some point you wouldn't--
and we structured it in such a way we have actually members on 
our council from other cabinet agencies with the notion that 
perhaps we would ultimately expand it to other types of 
infrastructure and maybe even spin it off at some point. But I 
think, pragmatically speaking, we thought it made sense to 
start it within DOT to get it up and running, and I think--I 
hope--we feel that we have done a good job in picking projects 
and not being overtly political. That's obviously a judgment 
that, you know, all the members here will have to make as to 
whether we've done right or not in that regard.
    Mr. Offutt. Just to add on my thoughts, I think the key 
thing is that the process of determining which projects are 
chosen is very transparent. There's a view that it either is 
because the project fulfills a national--is viewed as critical 
from a national infrastructure perspective, or it fits in 
specifically in a bucket to say that certain projects, you 
know, allocated to rural areas--that this would qualify, so 
that there's no questioning of why this project was chosen.
    And to be able to take the politics away from those 
ultimate decisions and so that people can feel very good that 
it was very much merit-based is going to be, I think, very 
important, because, inevitably, there will be more projects 
that are interested in using resources from a national 
infrastructure bank than there will be funds going to those 
projects. So it's just a matter of, again, making this 
transparent and taking politics as much out of that equation as 
possible.
    Mr. Dove. Mr. Chairman, I don't think you'll be surprised 
to hear that I think it should be independent. I think it 
should be independent because it gives much more credibility to 
the private sector, my investors, who are going to make the 
actual equity investment in the transaction, to know that this 
is an independent organization that has looked at the loan and 
determined that this is a creditworthy loan and will, 
therefore, grant a long-term, low interest rate loan. And so I, 
as an equity investor, are, therefore, more attracted to it.
    I would say, however, that it is important that any 
national infrastructure bank does have some sort of 
Congressional oversight, inasmuch as it would have to be 
reporting to a committee on an annual basis about what sort of 
loans it has done to establish this idea that it is sort of 
going across the country. But it is also critical to understand 
that this is a supplement to other forms of financing. This is 
not replacing grants. This is a supplement to. And certain 
projects will not pass the creditworthiness test, but maybe 
they would be ones which other departments within the 
government and the federal agencies would determine merit-
worthy of a grant.
    The Chairman. Mr. Bruno, Mr. Ruane?
    Mr. Bruno. I don't really have an opinion, to tell you the 
truth, either way. I'm not an expert in this field. I would 
just, if I have an opportunity here, Senator Rockefeller--just 
to remind everyone that I've heard significant comments today 
about the risk of the money that's associated with this 
project. But there are other risks that are involved here, in 
particular, the human risks and the safety issues that are 
associated with these projects.
    And I would ask the senator to assure that the legislation, 
in whatever type of investment situation we eventually settle 
upon, maintains that that's the primary interest of the 
American people and the responsibility of the government--is to 
ensure that the people that use these projects, when they're 
eventually completed, do not suffer the consequences of cost 
cutting because profit is threatened.
    We've seen this in Great Britain with their project, where 
cost overruns caused the private entity to cut back on some of 
the maintenance and caused a significant safety problem. Any 
time that occurs, it's a failure of the government, in my 
opinion, to not properly protect the people that they 
represent. And I would urge you to consider that and keep that 
foremost in your mind during the final development of this 
piece of legislation.
    The Chairman. Thank you, sir.
    Mr. Ruane?
    Mr. Ruane. Mr. Chairman, I would echo the need for absolute 
transparency, no matter which vehicle is chosen to house the 
bank. I think that is crucial to the success of this, because I 
have heard----
    The Chairman. What you're saying is that OMB should not be 
doing this.
    Mr. Ruane. Absolutely. They'd have to be involved, but I 
think the--to the outside world, you're going to have to--and 
this applies to the actual contracts that are reached between 
the entities. All that has to be out in the open. The problems 
that have been experienced around the country is where people 
have not had access to the details, and a lot of rumors take 
place, et cetera, as to what the real deal and what the margins 
are and the returns and all that. But if it's transparent, open 
to the public, I think you can solve a lot of that.
    And I would like to add a footnote to the discussion that 
Senator McCaskill initiated there a moment ago, and you started 
touching on it. One of the other benefits that I see from an 
infrastructure bank that has come out of the whole PPP 
experience in the last 20 years is there has been a tremendous 
amount of innovation in the project management, the delivery 
systems, on--as you were referring to--on budget, on time.
    And I see the freight intermodal connecter type projects 
being ripe for these kind of funding situations from the bank. 
And so I think that'll be an additional benefit besides, you 
know, the profit and the access to capital that the nation 
would gain by doing this whole idea.
    The Chairman. All right. I cannot thank you enough. Again, 
I'm shocked that we didn't have this 10 years ago, but can't 
help that. You have introduced a fundamentally important 
concept into additional ways to deal with our national 
infrastructure.
    One of my observations about the Congress as a whole is 
that in spite of sort of theological statements, people--since 
people back home really care about infrastructure, and they're 
really aware--I mean, I'm thinking in my own mind of when I 
drive to our farm in West Virginia of all the one-lane bridges 
30 years ago as opposed to none now and what that means, and 
that had to be paid for by somebody. And you magnify that by 
large projects and small projects throughout the country. 
You've made a very, very important contribution in this, our 
first ever hearing on this subject. So I thank you. And this 
hearing is adjourned.
    [Whereupon, at 12:02 p.m., the hearing was adjourned.]

                            A P P E N D I X

 Response to Written Questions Submitted by Hon. Kay Bailey Hutchinson 
                                  to 
                         Hon. Polly Trottenberg

    Question 1. DOT administers several loan programs, including 
Railroad Rehabilitation and Investment Financing (RRIF) loans. With 
respect to RRIF loans, many applicants have complained about long wait 
times for the approval of applications, over a year in some cases. What 
is DOT doing to improve the administration of the RRIF program?
    Answer. SAFETEA-LU established a 90-day clock for the Federal 
Railroad Administration (FRA) to act on RRIF loan applications. The 90-
day clock does not start until an application is complete.
    In order for an application to be complete:

   The NEPA process must be completed and the relevant NEPA 
        document signed.

   An independent Financial Advisor (IFA) must be hired and the 
        IFA must state that they have all the materials from the 
        applicant needed to complete their required financial analysis.

    The United States Department of Transportation (USDOT) and FRA are 
working to help applicants develop and submit complete applications and 
to improve the transparency of the application process. This is being 
done through a working group composed of industry representatives and 
consultants who help potential borrowers prepare applications for RRIF 
loans. We are also conducting an outreach effort with presentations by 
USDOT and FRA, brochures and articles.

    Question 2. DOT recently solicited proposals for a third round of 
Transportation Investment Generating Economic Recovery (TIGER) grant 
projects. What lessons has DOT learned from the first two rounds of 
TIGER grants that will help ensure a fair and transparent selection 
process?
    Answer. USDOT learned that it is important to establish clear 
selection criteria for the TIGER program and to communicate these 
criteria to prospective applicants. The Department also learned that it 
is important to work with prospective applicants to make sure they know 
how to submit a competitive application. The Department has done this 
through a variety of outreach mechanisms, including public seminars and 
webinars. These sessions also provide USDOT with a valuable opportunity 
to hear from prospective applicants about the program itself and how it 
can be improved.
    USDOT also learned that it is important to document the 
discretionary grant award process. In their formal review of the 
program GAO, found that USDOT generally did a good job of following 
applicable guidance and procedures for discretionary grant programs in 
administering the TIGER program. The report recommended that the 
Department consider better documentation of certain elements of our 
grant making process. We have taken steps to improve in this area.
    In addition, USDOT learned that both the TIGER program and its 
stakeholders benefit from USDOT personnel taking time to debrief 
unsuccessful applicants on the strengths and weaknesses of their 
applications. Over the last 2 years, we have conducted hundreds of 
debriefings for unsuccessful applicants. As a result, several of these 
applicants substantially revised their applications and were awarded 
funds in a subsequent round of TIGER.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                         Hon. Polly Trottenberg

    Question 1. Is the Administration supportive of an Infrastructure 
bank being created separate from the Transportation reauthorization 
bill?
    Answer. The Administration and USDOT are flexible with respect to 
the legislative vehicle that would be used to create a national 
infrastructure bank. However, we believe it is very important that a 
national infrastructure bank be considered as a supplement to the 
reauthorization of surface transportation programs, and not a 
replacement for these programs. These programs play a critical role in 
building and maintaining our nation's transportation infrastructure, 
which a national infrastructure bank could not replace.
    USDOT believes it is important for a national infrastructure bank 
to have the certainty of multi-year funding authorizations. This would 
allow credit assistance provided by a national infrastructure bank to 
be aligned with the project schedules, many of which would likely have 
multi-year development and financing plans.
    One benefit of creating a national infrastructure bank in the 
context of reauthorization would be to give state and local governments 
and other transportation entities a comprehensive view of the resources 
available from the federal government both through the national 
infrastructure bank and through traditional highway trust fund 
formulas.

    Question 2. While the Administration has been discussing funding 
mechanisms for transportation projects how much have you considered 
transportation infrastructure in rural areas and their importance to 
the country's commerce?
    Answer. USDOT believes that rural transportation infrastructure is 
vitally important for the nation's commerce, safety, and livability. 
Substantial funding has been provided for rural transportation projects 
through our competitive discretionary programs. For example, through 
the TIGER I and TIGER II Discretionary Grant programs, USDOT provided 
24 grants of about $241 million for projects in rural areas. The total 
cost of these projects amounted to about $438 million. The TIGER 
program is now set up to devote over one quarter of available funding 
for projects in rural areas, while about 17 percent of the population 
lives in rural areas. We found that rural freight projects and rural 
safety projects in particular were very well aligned with several of 
the Department's strategic goals, including economic competitiveness, 
safety, state of good repair, and livability.

   Examples of rural freight projects funded through TIGER 
        include:

     Reconstruction of the Mitchell-Rapid City Rail (MRC) line 
            in South Dakota (TIGER grant of $16 million).

      Project Description: The MRC line project will rebuild a state-
            owned branch line from Mitchell to Chamberlain, South 
            Dakota. The reconstructed rail line will increase the 
            capacity and efficiency of the line principally used for 
            transportation of agricultural commodities. The existing 
            branch line is in poor condition, limiting the amount of 
            freight shipped over the railway.

     The Aroostook Rail Preservation project in Maine ($10.5 
            million).

      Project Description: The Aroostook rail preservation project will 
            restore the rail routes serving Northern Maine by replacing 
            railroad ties and rail sections, and by clearing drainage 
            ditches. The project will rehabilitate 230 miles of rail in 
            Northern Maine constructed more than 100 years ago, which 
            was allowed to fall into disrepair by a previous rail 
            owner-operator.

     Northwest Tennessee Port at Cates Landing ($13 million).

      Project Description: Tiger II dollars will be used to build a 
            port and harbor facility on the Mississippi River, at Cates 
            Landing in Tennessee. Dock facilities will be constructed 
            and additional, necessary, on-site improvements will be 
            made to create a connection between barge traffic at the 
            port and truck freight movement.

   Examples of rural safety projects funded through TIGER 
        include:

     Improvements to US-18 in Oglala and Pine Ridge, South 
            Dakota ($10 million).

      Project Description: The project will reconstruct and surface a 
            deteriorating 15.6- mile segment of US-18 in Oglala and 
            Pine Ridge, SD. Shoulders with rumble strips will be 
            constructed, and other measures will be taken to improve 
            safety and diminish the high incidence of fatal road 
            crashes. Additional improvements include adding sidewalks 
            with lighting and improving access to transit. Curbs, 
            gutters and storm sewers will also be constructed.

     US 491 Safety Improvements through the Navajo Nation in 
            New Mexico ($31 million).

      Project Description: US-491 is the primary north-south highway in 
            this extremely rural area of northwest New Mexico. The road 
            connects the local Navajo Nation to other parts of New 
            Mexico, Colorado, and the Four Corners area. It is a major 
            trucking route with increasingly high volumes of commercial 
            traffic. The full project will expand the width of US-491 
            over a corridor length of approximately 69 miles, 
            constructing two new lanes adjacent to the two existing 
            lanes. Additional safety improvements include constructing 
            turn lanes for acceleration and deceleration in commercial 
            and high-traffic areas, and improving intersections, 
            signage, markings and drainage facilities.

     Route 10 Safety Improvements in West Virginia ($17 
            million).

      Project Description: This project will convert 12.84 miles of 
            West Virginia Route 10, a narrow, two-lane road with speeds 
            limited between 25-45 mph, into a four-lane limited-access 
            divided highway. The new construction will increase safe 
            highway speeds to 65 mph, reduce the grade of hills and 
            straighten out dangerous curves. The project will also 
            include a 10 foot wide median with a concrete barrier to 
            separate directions of traffic and enhance safety.

   Examples of rural livability projects funded through TIGER 
        include:

     State University Drive Complete Streets in Fort Valley, 
            Georgia ($1.49 million).

      Project Description: This project will construct streetscape 
            improvements and widen approximately one quarter mile of 
            State University Drive in the vicinity of Fort Valley State 
            University, in Fort Valley, Georgia. Currently, only a 
            portion of State University Drive has a 2-lane, center turn 
            lane configuration with sidewalks. This project will widen 
            a portion of this roadway, creating a 2-lane, center turn 
            lane configuration to match the other section of the 
            roadway.

     Moscow Intermodal Center in Moscow, Idaho ($1.5 million).

      Project Description: The Moscow Intermodal project will construct 
            a 6,800 square foot transit facility featuring exterior 
            covered structures with a 5,500 square foot passenger 
            loading zone and secure parking for buses and bicycles. The 
            new facility provides 34 vehicle and 10 bus stalls to link 
            services provided by Moscow Valley Transit, the University 
            of Idaho's Vandal Shuttle and intercity bus service from 
            Northwest Trailways and Wheatland Express. The facility 
            will also provide access for taxis, vanpools and carpools, 
            and will expand pedestrian and bicyclist accessibility

    Question 3. Do you foresee an infrastructure bank providing more or 
less funding, compared to the current formula fund distribution, for 
rural states.
    Answer. USDOT sees grants and loans provided through a national 
infrastructure bank as supplementing traditional formula funding for 
rural states, not replacing it.
    We believe that rural areas would compete well for funds under a 
national infrastructure bank, as they have under the TIGER 
Discretionary Grant program, where rural areas have received funding 
for large and small projects.
    The Administration's proposal for a National Infrastructure bank 
would provide assistance for projects in rural areas with eligible 
project costs of at least $10 million, compared with a figure of $50 
million for projects not in rural areas.

    Question 4. I'm concerned that creating any new loan program, 
instead of using existing programs such as the Highway Transportation 
Fund, would create additional bureaucracy and not get funding right 
away to much needed transportation projects. New loan programs that 
require new organizations and new rules take a long time to establish, 
even before loan applications are submitted and processed. As such, 
authorized and appropriated money would sit idle while bureaucracy was 
being created.
    Answer. USDOT has substantial, relevant experience establishing new 
programs quickly, obligating funds and building much needed 
transportation projects. The Department gained valuable experience in 
standing up the TIGER Discretionary Grant program and the High-Speed 
Rail program under the American Recovery and Reinvestment Act of 2009. 
Both of these programs, which were new programs that the Department had 
to create from scratch, met all statutory deadlines for announcing and 
obligating funds.
    USDOT also has considerable experience with administering 
transportation infrastructure credit assistance programs such as the 
TIFIA program and the RRIF program. A national infrastructure bank 
housed in the Department would draw on this experience and the 
expertise we have acquired to manage these programs effectively.
    The time needed to effectively implement a national infrastructure 
bank would depend on the bank requirements established in the 
authorizing legislation. However, our experience with administering the 
programs above gives USDOT confidence that a national infrastructure 
bank could be stood up in a timely and efficient manner, while ensuring 
protections for the taxpayer.

    Question 5. With the creation of a new loan program like an 
infrastructure bank, how quickly could the money be put to work?
    Answer. USDOT believes that grant and loan funding from a national 
infrastructure bank could be put to work expeditiously, particularly 
with a bank housed in the Department. A bank housed in the Department 
would be able to draw on the experiences, resources and success of 
existing programs like the TIGER Discretionary Grant program, TIFIA and 
RRIF. The time necessary to implement a national infrastructure bank 
would, of course, depend on the complexity of the program and the 
requirements for personnel and setup specified in the authorizing 
legislation.

    Question 6. What sort of administrative requirements 
(organizational structure, rules, staffing) would be required before 
loan applications could be accepted and processed?
    Answer. USDOT believes that the administrative requirements 
required to stand up a national infrastructure bank could be limited, 
to the extent the national infrastructure bank was housed within USDOT. 
By housing the bank within the Department, the bank could draw on the 
experiences, resources and success of existing programs like the TIGER 
Discretionary Grant program, TIFIA and RRIF. The administrative 
requirements necessary to implement a national infrastructure bank 
would depend on the size, scope and complexity of the program.

    Question 7. If a new loan program was created, what would the 
administrative costs be?
    Answer. The President's Budget requested $70 million for 
administering a national infrastructure bank in FY 2012.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Pryor to 
                              Robert Dove

    Question. Mr. Dove, I have had several constituents contact me 
about proposals to remove the ban on commercialized rest areas. These 
constituents point out that businesses that have been built up along 
the exits rely on motorists leaving the interstate for food and fuel, 
and have expressed concern about changing the law after businesses have 
been built on the premise that motorists must leave the interstate. If 
rest stops are commercialized, what would be financial impact on 
businesses at the exit interchanges?
    Also, with a decrease of traffic and business to exit interchanges, 
what would be the effect on the tax base of these cities, towns, and 
counties in which those businesses are located?
    Answer. If rest stops add commercial services, the financial impact 
on existing business located in the region is difficult to quantify 
without knowing the specifics of a particular area. In some locations 
it may attract more traffic as a result of an increase in food and fuel 
options for the drivers. In other instances owners of existing 
businesses--many who own large franchises in the area--may be offered 
to expand those franchises to the rest stops that are being developed.
    With respect to the second part of your question--the impact on the 
communities--I'm not certain one can assume a decrease in traffic to a 
particular business would occur as a result of commercial rest stops. 
Again without knowing the specific context of a particular area, it 
would be hard to quantify the impact. For example, it may be that the 
additional employment opportunities (new jobs) created as a result of 
these new projects would effect the local tax base. Additionally, 
potential increases in sales may occur which would impact a local 
jurisdiction's tax base to the extent that it may find little change or 
even additional revenues if more customers stop at these locations.
    One possible way to obtain useful data on the questions being asked 
would be to examine data in areas where existing rest stops are being 
virtually rebuilt and expanded into new facilities. In many instances 
these service plazas are run down and offer few options to the 
traveler, and many travelers opt for other choices. Some are even 
dangerous with child trafficking, prostitution, and cargo theft a 
problem--traits, incidentally, shared by some non-commercial rest 
areas. As these areas are rebuilt, services and customer options are 
being expanded; environmental improvements are being installed that 
provide cleaner air, safer traffic patterns, less noise, and a more 
attractive environment. In some instances increased participation by 
state troopers at small substations are being added. Reviewing the 
impact of these projects on businesses similar to what you describe as 
well as the rest of the local community, the tax base, etc., may be 
helpful. It also may be helpful to review how the balance of residents 
in the local community view the project.
    Additionally, there are currently Governors in several states who 
want to add commercial rest stops in order to their states to benefit 
from increased economic growth; providing more services to their 
constituents; increasing revenue from out-of-state visitors; and using 
the additional revenues for the operation and maintenance of their 
existing non-commercial rest stops. They would welcome the opportunity 
to add commercial rest stops to their interstates. The Congress may 
want to consider developing a set of pilot programs in some willing 
states that would create data that would also provide additional 
information the Senator is seeking.
    Thank you for the opportunity to answer your question.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Robert Dove

    Question 1. Do you foresee an infrastructure bank providing more or 
less funding compared to the current formula fund distribution for 
rural states?
    Answer. More funding. Rural America has significant infrastructure 
needs that can benefit from direct private investment outside of 
current formula funding, and an infrastructure bank can assist in that 
investment. Water systems in rural America need significant capital 
investment and management partnerships. And, as I mentioned in an 
earlier response, South Dakota and other states can benefit greatly 
with the rebuilding of their levees to protect against flooding; and 
refurbishing our the locks and dams in our inland waterways to help 
ship products from rural America. There is an opportunity for 
innovative mayors and other state and local officials in rural areas to 
take advantage of the potential for private investment in the 
infrastructure they are responsible for. Nevertheless, although the 
establishment of the bank would assist them, they shouldn't wait for a 
bank to be created. Economic models can be created that do not replace 
federal formula funding to rural areas but instead can provide 
additional resources. I would be pleased to work with you, Senator 
Thune, and your staff to provide additional information on this 
important issue as I know it is one of your chief concerns.

    Question 2. I'm concerned that creating any new loan program, 
instead of using existing programs such as the Highway Transportation 
Fund, would create additional bureaucracy and not get funding right 
away to much needed transportation projects. New loan programs that 
require new organizations and new rules take a long time to establish, 
even before loan applications are submitted and processed. As such, 
authorized and appropriated money would sit idle while bureaucracy was 
being created.
    Answer. Currently, one of the major problems currently is that 
existing programs take too long in getting funding to infrastructure 
projects. And when they are sped up, safeguards like solid due 
diligence, transparency and other important practices become casualties 
of the bureaucratic process. An infrastructure bank can be established 
that would evaluate important criteria like performance metrics, apply 
creditworthiness data, and process funding requests faster than any 
existing structure at the Department of Transportation or Environmental 
Protection Agency--and still maintain appropriate safeguards with 
respect to fund distribution. Respectfully, the objective is not 
creating another government bureaucracy. The goal is to design a 
funding process that allows new sources of capital speedily inserted 
into the infrastructure market in an innovative way and which would 
attract additional capital.

    Question 3. With the creation of a new loan program like an 
infrastructure bank, how quickly could the money be put to work?
    Answer. Again, one of the glaring weaknesses of the current project 
is the long horizon of any infrastructure project from the time it is 
approved to the time construction is completed. Most of that is time 
taken up in permit approvals, design changes and other issues that 
private investment in infrastructure can not sustain the way that much 
of the current process allows for. The issue is more fundamental than 
whether an infrastructure bank is established, but a bank that 
encourages private sector participation will encourage the horizon of 
these projects to be shortened. An infrastructure bank will encourage 
projects that include ``design-build-finance,'' (and in some instances 
``operate and maintain'') qualities that traditionally have much 
shorter horizons--and often much higher efficiencies.

    Question 4. What sort of administrative requirements 
(organizational structure, rules, staffing) would be required before 
loan applications could be accepted and processed?
    Answer. There are different models currently in other parts of the 
world--I mentioned the European Infrastructure Bank earlier in my 
testimony. I would be pleased to work with the Senator and this 
Committee to identify the structure and methods that would be most 
efficient and provide the most value to the bank's operation. I also 
believe it is critical for the bank to regularly report to the Congress 
on its performance.

    Question 5. If a new loan program was created, what would the 
administrative costs be?
    Answer. If the bank is set up and managed appropriately the bank 
would--and should--pay for itself. Also, it may be helpful for the 
Committee to review the current administrative costs of existing 
federal funding programs in the federal agencies, particularly programs 
designed to distribute funds for infrastructure projects. I am 
confident that a side-by-side comparison with these infrastructure 
federal agency funding programs would show that dollar for dollar, a 
bank's operation would be more efficient and more expedient in getting 
funds invested in projects. I would be pleased to work with the Senator 
and the Committee to determine what the administrative costs would be.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                            J. Perry Offutt

    Question 1. Do you foresee an infrastructure bank providing more or 
less funding, compared to the current formula fund distribution, for 
rural states.
    Answer. As part of the formation of a National Infrastructure Bank 
(the ``Bank'') a methodology by which it will deploy any funds needs to 
be determined. While certain formula funding programs currently aim to 
alleviate specific issues that are primarily urban in nature (i.e., 
improve aging infrastructure, address congestion), the Bank can also 
adopt as a core value the funding of new infrastructure development in 
locations where an adequate transportation alternative does not 
currently exist. Such a formalized approach will help ensure that 
funding provided by the Bank is allocated appropriately to all regions. 
Therefore, there could be more funding for infrastructure projects in 
rural states.

    Question 2. I'm concerned that creating any new loan program, 
instead of using existing programs such as the Highway Transportation 
Fund, would create additional bureaucracy and not get funding right 
away to much needed transportation projects. New loan programs that 
require new organizations and new rules take a long time to establish, 
even before loan applications are submitted and processed. As such, 
authorized and appropriated money would sit idle while bureaucracy was 
being created.
    Answer. Given the country's great infrastructure funding needs, it 
is very important that the Bank accelerates rather than slows potential 
project development. To accomplish this, the bureaucracy associated 
with the Bank should be kept to a minimum. Instead, there should be 
clear standards and criteria for the deployment of funds, such that 
assuming that the project meets certain criteria, such as achieving 
some or all of certain Bank objectives and also fully incorporating 
other funding sources. Such standards will reduce the need for a 
qualitative review of all applications and, consequently, the 
requirement for extensive bureaucracy. In summary, the Bank should be 
an additional resource, not another ``bureaucratic hurdle'' that could 
impede a project.

    Question 3. With the creation of a new loan program like an 
infrastructure bank, how quickly could the money be put to work?
    Answer. The ability to move quickly and nimbly should be a core 
objective of the Bank. As mentioned during my testimony, infrastructure 
needs in the U.S. top more than $2.2 trillion. Part of the issue is the 
time required to bring projects from initial development to realization 
given the time requirements of environmental and technical permitting 
and, in particular, financing. By providing funding early in a 
project's lifecycle, assuming it meets certain general criteria and 
ultimately contingent on securing required permitting, Bank loans could 
help take significant uncertainty off the table for projects and, 
consequently, improve the speed with which they reach fruition. 
Identifying the right group of people to administer the Bank's 
objectives will be a critical next step.

    Question 4. What sort of administrative requirements 
(organizational structure, rules, staffing) would be required before 
loan applications could be accepted and processed?
    Answer. As discussed, the Bank should have a relatively flat/non-
bureaucratic structure and clear objectives regarding the qualification 
and deployment of capital. For example, the Bank could limit the amount 
of capital that it deploys in any single sector to ensure that a large 
number of projects of all types receive funding.

    Question 5. If a new loan program was created, what would the 
administrative costs be?
    Answer. The Bank would require an appropriate level of staffing to 
review applications, provide oversight regarding the appropriate 
dissemination of funds and ensure coordination with other federal 
funding programs such as TIFIA and RRIF. However, to limit ongoing 
administrative costs, the requirements and mission of the National 
Infrastructure Bank could be closely linked with the goals of a 
potential Congressional National Infrastructure Commission (the 
``Commission''). Through it's specific focus on national infrastructure 
objectives, the Commission could also drive the funding criteria for 
the National Infrastructure Bank.
                                 ______
                                 
                  American Subcontractors Association, Inc.
                                      Alexandria, VA, July 21, 2011
Hon. Jay Rockefeller IV,
Chairman,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Hon. Kay Bailey Hutchinson,
Ranking Member,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Re: Hearing on ``Innovative Funding for Transportation Infrastructure''

Dear Mr. Chairman and Ranking Member:

    The American Subcontractors Association, Inc. (ASA) is a national 
trade association representing more than 5,000 construction 
subcontractors, specialty contractors and suppliers in the construction 
Industry. Please include this letter in the record of the Committee's 
hearing on ``Innovative Funding for Transportation Infrastructure.''
    ASA members work in virtually all of the construction trades and on 
virtually every type of horizontal and vertical construction. They have 
a significant interest in assuring that such construction is adequately 
funded and thus how federal funds can be used to leverage and partner 
with private sector capital to supplement existing transportation 
funding and increase overall investment into transportation projects.''
    ASA asks the Committee to assure that any such public-private 
funding programs include a requirement to assure payment to 
construction subcontractors and suppliers on the funded projects. 
Specifically, ASA recommends that Congress extend the requirements of 
the Miller Act (40 U.S.C.Section 3131 to 3134) to projects financed by 
public-private partnerships.
    Construction subcontractors and suppliers extend large amounts of 
credit on construction projects. Indeed, they pay most of the laborers, 
vendors, and taxes even before submitting an invoice for their work to 
the prime contractors or construction owners. All 50 states have 
adopted mechanic's lien laws that allow a subcontractor to secure 
payment on private construction by asserting a claim for the amount it 
is owed to the property it is improving. The federal government and all 
50 states also have adopted laws (i.e., Federal Miller Act, state 
``little'' Miller Acts) that require a prime contractor on public 
construction to provide a payment bond to assure payment to 
subcontractors and suppliers on such projects.
    But, depending on how a project funded by both public and private 
funding is structured, such projects may be exempt from both mechanic's 
liens and payment bond requirements, and thus provide no payment 
assurance to the subcontractors and suppliers that extend credit to the 
project. Further, subcontractors and suppliers may not have access to 
the information that would allow them to determine the extent of 
payment protections or whether there even is payment assurance until 
they already have extended credit. Construction subcontractors and 
suppliers that have doubt about the adequacy of project funding or 
assurance of payment for work performed will charge higher prices in an 
attempt to account for their higher risk. However, higher prices alone 
cannot protect a construction subcontractor or supplier from business 
failure when they are not paid for work performed.
    In summary, failure to assure payment to construction 
subcontractors and suppliers on construction projects financed with 
innovative methods could both increase the costs of such projects and 
put at risk small businesses that pay taxes, provide jobs and otherwise 
support the economic well-being of the Nation. The best solution to 
providing payment assurance to these businesses is to extend the 
Federal Miller Act to such projects.
    Please do not hesitate to contact me if you have any questions or 
require more information. I can be reached at (703) 684-3450, Ext. 
1317.
            Sincerely,
                                         Franklin L. Davis,
                                  Director of Government Relations,
                              American Subcontractors Association, Inc.

                                  
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