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FINANCING INFRASTRUCTURE INVESTMENTS

JOINT HEARING

BEFORE THE

COMMITTEE ON THE BUDGET

AND THE

COMMITTEE ON TRANSPORTATION

AND INFRASTRUCTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, MAY 8, 2008

Serial No. 110–35

(Committee on the Budget)

Printed for the use of the Committee on the Budget

and the Committee on Transportation and Infrastructure

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/budget/index.html 

(II)

COMMITTEE ON THE BUDGET

JOHN M. SPRATT, JR., South Carolina, Chairman 

ROSA L. DELAURO, Connecticut, 

CHET EDWARDS, Texas 

JIM COOPER, Tennessee 

THOMAS H. ALLEN, Maine 

ALLYSON Y. SCHWARTZ, Pennsylvania 

MARCY KAPTUR, Ohio 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL BLUMENAUER, Oregon 

MARION BERRY, Arkansas 

ALLEN BOYD, Florida 

JAMES P. MCGOVERN, Massachusetts 

NIKI TSONGAS, Massachusetts 

ROBERT E. ANDREWS, New Jersey 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

BOB ETHERIDGE, North Carolina 

DARLENE HOOLEY, Oregon 

BRIAN BAIRD, Washington 

DENNIS MOORE, Kansas 

TIMOTHY H. BISHOP, New York 

GWEN MOORE, Wisconsin 

PAUL RYAN, Wisconsin, 

Ranking Minority Member 

J. GRESHAM BARRETT, South Carolina 

JO BONNER, Alabama 

SCOTT GARRETT, New Jersey 

MARIO DIAZ–BALART, Florida 

JEB HENSARLING, Texas 

DANIEL E. LUNGREN, California 

MICHAEL K. SIMPSON, Idaho 

PATRICK T. MCHENRY, North Carolina 

CONNIE MACK, Florida 

K. MICHAEL CONAWAY, Texas 

JOHN CAMPBELL, California 

PATRICK J. TIBERI, Ohio 

JON C. PORTER, Nevada 

RODNEY ALEXANDER, Louisiana 

ADRIAN SMITH, Nebraska 

JIM JORDAN, Ohio 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

ELLEN O. TAUSCHER, California 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

RUSS CARNAHAN, Missouri 

JOHN T. SALAZAR, Colorado 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

DORIS O. MATSUI, California 

NICK LAMPSON, Texas 

ZACHARY T. SPACE, Ohio 

MAZIE K. HIRONO, Hawaii 

BRUCE L. BRALEY, Iowa 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ACURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

JERRY MCNERNEY, California 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

WAYNE T. GILCHREST, Maryland 

VERNON J. EHLERS, Michigan 

STEVEN C. LATOURETTE, Ohio 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CONNIE MACK, Florida 

JOHN R. ‘RANDY’ KUHL, JR., New York 

LYNN A WESTMORELAND, Georgia 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

ROBERT E. LATTA, Ohio 

(III)

C O N T E N T S

Page 

Hearing held in Washington, DC, May 8, 2008 .................................................... 1

Statement of: 

Hon. John M. Spratt, Jr., Chairman, House Committee on the Budget ..... 1

Hon. James L. Oberstar, Chairman, House Committee on Transportation 

and Infrastructure ........................................................................................ 2

Hon. Paul Ryan, ranking minority member, House Committee on the 

Budget ............................................................................................................ 4

Peter Orszag, Director, Congressional Budget Office .................................... 6

Prepared statement of ............................................................................... 8

Responses to questions for the record ..................................................... 100

Patricia A. Dalton, Managing Director, Physical Infrastructure Team, 

Government Accountability Office ............................................................... 49

Prepared statement of ............................................................................... 52

Responses to questions for the record ..................................................... 102

Hon. Russ Carnahan, a Representative in Congress from the State of 

Missouri, prepared statement of .................................................................. 96

Hon. Jerry F. Costello, a Representative in Congress from the State 

of Illinois, prepared statement of ................................................................ 96

Hon. Rosa L. DeLauro, a Representative in Congress from the State 

of Connecticut, questions for the record ...................................................... 97

Hon. Harry E. Mitchell, a Representative in Congress from the State 

of Arizona, prepared statement of ............................................................... 99

Hon. Niki Tsongas, a Representative in Congress from the State of Massachusetts, prepared statement of ............................................................... 99

Hon. Timothy J. Walz, a Representative in Congress from the State 

of Minnesota, questions for the record ........................................................ 100

Hon. Jason Altmire, a Representative in Congress from the State of 

Pennsylvania, prepared statement of .......................................................... 100

(1)

FINANCING INFRASTRUCTURE INVESTMENTS 

THURSDAY, MAY 8, 2008

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE BUDGET,

COMMITTEE ON TRANSPORATION AND INFRASTRUCTURE, 

Washington, DC. 

The Committees met, pursuant to call, at 10:09 a.m., in room 

2167, Rayburn House Office Building, Hon. John Spratt [chairman 

of the Committee on the Budget] presiding. 

Present for Committee on the Budget: Representatives Spratt, 

Blumenauer, Scott, Baird, Ryan, Simpson, Alexander, and Smith. 

Present for Committee on Transportation and Infrastructure: 

Representatives Oberstar, Taylor, Tauscher, Schmidt, Latta, and 

Sires. 

Chairman SPRATT. Despite the numerous votes we are about to 

have today, I think it behooves us to begin the hearing. Before 

turning to the two witnesses we have today for their testimony, let 

me ask unanimous consent that the committee agree to the following rules to facilitate this hearing. First of all, for the purpose 

of questioning witnesses, we will alternate between the two committees beginning with the Budget Committee Democrats, followed 

by the Budget Committee Republicans and then proceed to the 

Transportation and Infrastructure Committee Democrats, Republicans. As usual, members who were present at the beginning of 

this hearing will be recognized by seniority, and the members arriving later will be recognized in the order that they appear. Members will have 5 minutes to ask questions, to make statements. 

After all members have had a chance to address the witnesses, 

members may follow up with an additional 5 minutes if time permits. All members will be allowed to submit an opening statement 

for the record. Those members who do not have the opportunity to 

ask questions will be given 14 days to submit questions for the 

record. And the written testimony of all witnesses will be made 

part of the record so that they may summarize their testimony to 

allow time for questions and answers. Is there any objection to 

those rules and procedures before we begin this hearing? Hearing 

none, so ordered. 

I told Mr. Oberstar that I felt a bit self-conscious sitting in his 

chair here to which he has long established the right. I have a feeling we are being set up for something on the Budget Committee 

by the gracious hospitality that they have extended to us, but we 

are delighted to meet with them today. I look forward to this hearing. This is a joint hearing of the Committee on the Budget and 

the Committee on Transportation and Infrastructure. Today’s hearVerDate 0ct 09 2002 21:42 Jul 15, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 J:\DOCS\HEARINGS\110TH\110-35\42280.TXT HBUD1 PsN: DICK
2

ing is the first joint hearing, to the best of my knowledge, held by 

these two committees. 

Historically, our committees have not always seen eye to eye. 

And I hope this hearing signals the commitment to work together 

on infrastructure issues because they are vitally important. Today 

we will put our budget and infrastructure experience together to 

explore how we can fund or finance capital projects in the Federal 

budget. Our witnesses include Dr. Peter Orszag, Director of the 

Congressional Budget Office, and Ms. Patricia Dalton, managing 

director of GAO’s physical infrastructure team. Public infrastructure is vital to us and to our economy, whether we are talking 

about highways or mass transit or rail or aviation or drinking 

water or wastewater treatment. Despite their vital importance, infrastructure investments have not kept pace with repair, maintenance and the need for expansion and replacement. 

As a result, there is a growing interest in how we can maintain 

the appropriate level and the proper kind of infrastructure investment. The Transportation and Infrastructure Committee understands our infrastructure needs, after all, it is their charter. The 

Budget Committee wants to better understand ways that we can 

fund or finance such investments and how we can evaluate the assorted options. The Federal support for infrastructure usually 

comes in the form of grants embodied in the authorizing legislation 

and funded during the appropriations process. But there are numerous means of financing. Some are described as banks, some as 

revolving funds. Some increase borrowing or create new forms of 

borrowing. Some establish entities to manage or operate such 

projects. 

All of these proposals, along with a new highway bill looming on 

the horizon in the not too distant future, give these two committees 

a chance to put our heads together. And putting these two committees together, there are a lot of heads. Maybe a third of the House, 

Mr. Oberstar. We want to understand the budgetary implications, 

the amount and manner by which we increase our capital investments. We want to know under what scenarios it is appropriate to 

consider investment mechanisms other than direct Federal financing, of any policy tradeoffs of one mechanism over the other. We 

need to understand the new proposals for financing infrastructure 

improvements, keeping in mind there is never, in the end, such a 

thing as a free lunch. We hope this hearing will be a starting point 

for a longer and larger conversation about how to fund and finance 

infrastructure investments and how to evaluate such proposals. I 

now turn to Chairman Oberstar for his opening statement. 

Mr. OBERSTAR. Thank you very much, Mr. Chairman. Welcome 

to our committee. I am glad to have you here and I am glad to be, 

once again, part of the Budget Committee, which I served on for 

my limited 6 years in the 1980s and into 1990. And I want to welcome the gentleman from Wisconsin, Mr. Ryan, who represents 

three of the most important constituents in the United States, my 

granddaughters in Kenosha, Wisconsin. 

And as I said to him, we could be having this meeting at 

Tenuta’s Deli in Kenosha, a wonderful welcoming place. But I want 

to welcome everyone back to the subject of capital budgeting. Let 

me just read a few brief highlights—13 percent of the Nation’s 

3

aging dams are classified as ‘‘high hazard.’’ Municipal water systems need $100 billion to keep up with demand. Nearly 1 of every 

2 miles of paved highways needs resurfacing or reconstruction. 

Half of America’s bridges are too old, too weak to adequately and 

safely handle today’s traffic; 56 of the 184 principal locks in the 

Nation’s inland waterways will require major repairs over the next 

20 years. Deepwater ports have insufficient capacity and are stifling trade. That from a report by the Subcommittee on Economic 

Development, which I chaired in 1982, a report that my then-colleague and later Chair of the House Government Reform Committee, Bill Clinger from Pennsylvania, spent an enormous amount 

of time working on, developing the hearings. We spent months 

crafting this report. 

We concluded in our recommendations to the committee and to 

the House the adoption of a capital investment budget is a move 

toward a prospective public policy, rather than the retrospective action that is too often indicative of public works decisions. A capital 

budget would provide important information not available to the 

Congress and the executive branch so that they can then make capital decisions weighing the evidence, evaluating resources and projecting future needs. That is what we need. 

In the course of that hearing, there was an extraordinary moment when David Stockman turned around and said, yes, I think 

a capital budget would be a good thing. But as an annex to the 

Federal budget, not as an integral part of it. Now, those figures I 

read off from 1982, you can say that today, 260 of the Nation’s inland waterway locks are inadequate to handle the capacity. Today 

it takes 820 hours round trip from Clinton, Iowa to New Orleans 

to export grain from America’s heartland. That is 3 weeks travel 

one way. We have to do better than that, because the locks are 600 

feet long and the barge tows are 1,200 feet long, and you have to 

split them in half, send 600 feet through—the next 600 feet 

through tie them together and then go onto the next of those five 

inadequate locks. 

And on the Illinois-Ohio river system, they need an additional 12 

each—1,200 foot lock—we passed that legislation through this committee, through the House, by an overwhelming vote, overrode a 

presidential veto. Yet not a dime, not a single project entered into 

the President’s budget for the coming fiscal year. 

I don’t want to go back and update all these figures. But just on 

bridges we said half. That meant 73,784 structurally deficient 

bridges in the U.S. that are on the verge of collapse. We need to 

invest in America. On Monday, I participated as the keynote speaker for the European transport ministers’ meeting in Slovenia, the 

land of half of my ancestors, to talk about our investment needs 

in infrastructure in waterways, highways, airways, railways and 

ports and to exchange with the European ministers on their plan. 

This is their plan—the Trans-European Transport Network (TEN–

T). 

But this plan was formally presented to the council of ministers, 

all 27 of them, yesterday, by Jacques Barrat, who is the European 

Union Transport Commissioner. The TEN–T Plan would provide 

$350 billion over 10 years for highway, railway, high-speed passenger, high-speed rail, ports and lockage systems that will link 

4

the Atlantic Ocean through the English Channel to the Black Sea, 

to the Seine River, to the Rhine, to the Danube and to the Black 

Sea to link with a water highway. They already ship enormous 

amounts of goods. $350 billion. They have every one of their priority projects listed page by page, process by process, funding 

source by funding source. 

We don’t have that kind of capital budgeting. We need to do that. 

Some say it will be too much money, it will be too big a challenge. 

But if we don’t know what the picture is, then how can you 

prioritize? How can you make choices? We have to make those 

choices. They are tough choices to make, of course. But that is our 

responsibility as Members of Congress. 

So I plead to develop a capital budgeting process. I think we need 

to have a roadmap, a water map, an airways map, a railways map 

as Europe is doing or we will fall behind. Just one final observation. In 1989, China had 168 miles of interstate quality highway. 

Today, they have 22,500 miles and in 10 years they will have 

55,000 miles. With their investment, they have reduced the travel 

time by truck from Beijing to Hong Kong from 55 hours to 25 

hours. Nowhere in America, with all of our investments, have we 

reduced truck travel time by 30 hours on any stretch of roadway. 

We have increased it by that amount of time. They have reduced 

the travel time by truck from Beijing to Shanghai from 35 hours 

to 14 hours. We have not made those kinds of investments and improvements. If we are going to compete in this world economy, then 

we have to make those investments. Thank you very much. 

Chairman SPRATT. Thank you, Mr. Oberstar. Mr. Ryan. 

Mr. RYAN. Thank you, Chairman Spratt. And I also want to 

thank Chairman Oberstar for his gratitude and his kind invitation 

to bring us here. I hope I get invited back after I read my opening 

statement. I also want to thank our witnesses for joining us today, 

Director Orszag and Patricia Dalton, managing director of GAO’s 

physical infrastructure team, welcome. And I look forward to your 

testimony. Before I share my statement on the subject of this hearing, I am going to take just a brief moment to talk about the transportation issue first on the minds of the American people. And I 

hear the bell, so I realize we have some time constraints here. And 

the issue that is first on the minds of the American people is clearly the skyrocketing price of gasoline. 

One of the things almost certain to come up today as we look at 

alternative financing mechanisms for public infrastructure is the 

possibility of increasing the gas tax. I think that is the last thing 

we want to do at this time. We need to be looking at ways of reducing the gas price burden on the American people. And that is why 

today I will introduce legislation that will suspend the 18.4 cent 

tax on gasoline for the summer and give American families at least 

a little relief. I know there is a concern, probably a lot in this room 

about the impact this proposal will have on the highway trust fund. 

So my bill holds the highway trust fund harmless and it goes a 

step further. It will actually shore up the trust fund by eliminating 

its 2009 shortfall. This may sound impossible, but it is not. We can 

address both these high priority issues, relief from high gas prices 

and needed infrastructure improvements. And we can do it without 

costing the taxpayers a single dime. We will do it by addressing a 

5

third issue that is also on the list of the American people’s concerns 

and that is Congress’ pork-barrel spending. If Congress will agree 

to give up earmarks for just one year as laid out in the KingstonWolf proposal, we could save $14.8 billion. This is a proposal that 

proposes a bipartisan commission to make sure that we have a system that is transparent and accountable to the American people 

who have lost faith in the way we spend their dollars. We could 

use that money to give taxpayers a little relief at the pump for the 

summer and still have more than enough money left over to shore 

up the trust fund in 2009, something that I know is a major priority for the transportation and infrastructure committee. Now, 

while my bill takes care of the highway trust fund’s short-term financing problem, there is—there is a longer-term issue on highway 

financing and that is what we are here to talk about today, clearly 

public infrastructure, from roads and bridges to dams and sewers 

is vitally important to the growth and productivity of our economy 

and to our way of life. There are two issues before us. First, how 

do we ensure Federal funding is allocated to high priority infrastructure that has a high benefit cost ratio. And second, what is 

the best means of financing this activity? Today we are here to discuss this second issue, what role, if any, alternative financing 

mechanisms can or should play in the funding of Federal investment in public infrastructure. 

In the past, the Budget Committees have concluded, as have 

CBO and GAO, that these alternative financing mechanisms from 

sale-leasebacks to third-party financing to tax credit bonds to be a 

more expensive, less transparent way to acquire and use capital assets when compared to conventional appropriations in treasury borrowing. And as Dr. Orszag notes in his testimony, there is no free 

money here. It is pay me now or pay me later. Regardless of what 

kind of mechanisms we use, alternative or otherwise, the bills still 

have to be paid. 

And while we have many worthy demands of Federal spending, 

the American taxpayers and thus Congress don’t have a limitless 

supply of money to fund them. So Congress has got to set priorities 

so we can ensure that our most critical public infrastructure 

projects get every bit of funding they need in the most cost effective 

way. 

Finally, as Dr. Orszag knows and has testified before the Budget 

Committee, the question of how we might finance extra spending 

on infrastructure or anything else will soon be moot if we don’t get 

to the business of reforming our entitlement programs. If we continue to push off entitlement reform, these programs will make 

most of our funding decisions for us. Because after paying for them, 

there simply won’t be enough money left in the budget to even finance our highest domestic priorities. This will take place regardless of what financing methods we use for these other programs. 

Federal infrastructure makes an important contribution to our 

economy. The chairman is right to point out the needs for America 

in the future. And I hope we can find the best way to address these 

key priorities in a transparent and a responsible way. And once 

again, I thank every one for being here. I thank you, chairman, for 

your invitation. And I look forward to the views of Dr. Orszag and 

Ms. Dalton. 

6

Chairman SPRATT. Mr. Mica, the ranking member of this committee is not here, I believe. Mr. Oberstar, Mr. Ryan, if it is agreeable to you, I thought we would start with Dr. Orszag, give him 

5 minutes and that will leave us about 5 minutes to get to the 

floor. We have got 6 votes, nearly an hour on the floor. And I beg 

your pardon, but we didn’t set the schedule. Let’s go ahead and see 

if we can’t make use of what time is available. Dr. Orszag, we will 

give you 5 minutes. But you can take your time when we come 

back to make sure you have a full presentation of your testimony. 

STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL 

BUDGET OFFICE 

Mr. ORSZAG. Thank you very much, Mr. Spratt. I will try to be 

brief in this initial period. Mr. Oberstar, Mr. Ryan, members of the 

two committee, thank you for having me this morning. Growing 

delays in air travel and surface transportation, bottlenecks in 

transmitting electricity, inadequate school facilities all suggest that 

some targeted additional infrastructure spending would be economically justifiable. 

First, let’s get some facts. As the first slide shows, the Nation 

spends about $400 billion a year on infrastructure. And I tried to 

give you a breakdown. I don’t know if you can see that of that $400 

billion. Of that, the Federal Government provides about $60 billion. 

This is from 2004. And Federal Government spending is very concentrated, particularly in highways. 

So $30 billion of the $60 billion or so in Federal spending on infrastructure is dedicated towards highway spending. State and 

local governments spend a disproportionate share of their money in 

other areas. You see that on utilities and other. And similarly, the 

private sector spending on infrastructure is disproportionately concentrated in things like electricity generation and transmission. 

The second slide that I have may be of more interest to people. 

For the first time, the Congressional Budget Office has gone 

through the various studies that exist on what would be needed to 

maintain current service levels from our infrastructure and what 

could be economically justifiable; that is, what projects could generate larger benefits than costs. And let me focus, for example, on 

highways. We currently spend about $67 billion a year on highway 

spending. The Federal Highway Administration has estimated that 

it would cost about $79 billion a year to maintain current levels of 

service. And so an additional, let’s say, $10 to $12 billion a year 

would be required to maintain current levels of service and that as 

much as $132 billion a year could be justified in terms of benefits 

exceeding costs. So that would be an extra roughly $60 billion or 

so. 

In aggregate for transportation infrastructure, additional spending to maintain current levels of spending—current levels of service 

would amount to perhaps $20 billion a year and perhaps as much 

as $80 billion a year could pass an economically justifiable test. 

Now, it is important to remember that although the economic rationale for some additional infrastructure spending is strong, it depends very specifically on the individual projects. Some projects 

generate large additional benefits, others not so much. 

7

So to say that these levels of spending may be economically justifiable is not to say that just pumping that amount of money into 

infrastructure would generate benefits. It depends very sensitively 

on which specific projects are chosen or where the money is directed. It is also the case that these estimates are dependent on 

and sensitive to what else is happening. And in particular, if we 

priced and used the existing infrastructure that we have more efficiently, these numbers would go down. 

So, for example, the Federal Highway Administration has suggested that widespread implementation of congestion pricing would 

reduce investment needed to maintain the current highway system 

by $20 billion, significantly reducing the necessary investments 

that we are showing there. Fourth, I want to note that the existence of additional economically justifiable investments does not determine who should pay for it. And in general, the benefits principle suggests that Federal taxpayers are often the least efficient 

source for financial support of an infrastructure investment after 

the direct beneficiaries of the investment and local and State taxpayers. Even when Federal support for a given type of infrastructure is justified in principle, implementation problems may make 

it undesirable in practice. GAO for example, found that States offset roughly half of the increase in Federal highway grants between 

1982 and 2002 by reducing their own spending and that the rate 

of substitution increased during the 1980s. 

Let me just finally say in my final 30 seconds that I think there 

is a lot that the Federal Government could be doing to better utilize and make more efficient the support that we already provide 

for infrastructure. My testimony goes through the inefficiencies in 

the current tax subsidies for tax exempt State and local bonds and 

ways that that could be made more efficient. And I would also note 

that we own a significant amount of property and other forms of 

infrastructure that could be much more efficiently managed and 

that could provide offsets or sources of funding for new investments 

in things like highways. Thank you very much, Mr. Chairman. 

[The statement of Peter Orszag follows:] 

8

PREPARED STATEMENT OF PETER R. ORSZAG, DIRECTOR,

CONGRESSIONAL BUDGET OFFICE


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Chairman SPRATT. We will recess——


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[Recess.] 

Chairman SPRATT. We will let you proceed with your testimony. 

Mr. ORSZAG. I thought I was done, Mr. Chairman. 

Chairman SPRATT. You are completed? 

Mr. ORSZAG. For now, yeah, sure. 

Chairman SPRATT. Okay. Ms. Dalton, we are glad to have you 

and we look forward to your testimony. As in the case of Dr. 

Orszag, your complete statement has been made a part of the 

record. You can summarize it as you see fit, but take your time. 

STATEMENT OF PATRICIA A. DALTON, MANAGING DIRECTOR, 

PHYSICAL INFRASTRUCTURE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. DALTON. Thank you, Chairman Spratt and members of the 

committee. I really appreciate the opportunity to testify on infrastructure financing issues today. These are important issues because the Nation’s physical infrastructure is under strain raising a 

host of safety, security and economic concerns. My remarks today 

are going to focus on the challenges associated with our infrastructure, principles that we at GAO have identified to help guide efforts to address these challenges and existing and proposed options 

to fund investments in the nation’s infrastructure. The challenges 

are numerous. 

For example, just by increases in transportation spending at all 

levels of government and improvements to the physical condition of 

highways and transit facilities over the past 10 years, congestion 

has worsened and safety gains have leveled off. In addition, demand has outpaced the capacity of our Nation’s surface transportation and aviation systems resulting in decreased performance 

and reliability. Water utilities nationwide are under increased 

pressure to make significant investments. Needs across the country 

are estimated to range between $485 billion and $1.2 trillion over 

the next 20 years. For example, about a third of our water utilities 

report that 20 percent of their pipes are at the end of their useful 

life. Clearly these and other challenges need to be addressed. Additional investment is clearly warranted. However, calls for increased 

investment in infrastructure come at a time when traditional funding is increasingly strained and the Federal Government’s fiscal 

outlook is worse than many may understand. 

Addressing these challenges is complicated by the breadth of the 

Nation’s physical infrastructure which is owned, funded and operated by all levels of government and the private sector. Moreover, 

infrastructure policy decisions are inextricably linked with economic, environmental and energy policy concerns. Given these 

types of challenges and the Federal Government’s fiscal outlook, it 

is clear that the Federal Government cannot continue with business as usual. Rather a fundamental re-examination of government 

programs, policies and activities is needed, including in the infrastructure area. Questions to be asked include what are our goals 

and are they tied to the national interest? What is the Federal 

role? Are performance and accountability built into the funding decisions? Are we using the right tools, the best tools? Is the approach physically sustainable? Funding for the Nation’s infrastructure comes from a variety of Federal, State, local and private 

50

sources. As primary owners of the infrastructure, State and local 

governments and the private sector generally account for a larger 

share of infrastructure funding than the Federal government, however the Federal Government has played and continues to play an 

important role in funding infrastructure. 

Various existing funding approaches could be altered or new 

funding approaches could be developed to help fund investments in 

our infrastructure. These various approaches can be grouped into 

two categories for funding, taxes and user fees. An example of a tax 

is clearly the Federal fuel taxes on gasoline and jet fuel, which are 

attractive because they provide a relatively stable stream of revenue and their collection and enforcement costs are relatively low. 

Examples of user fees include air passenger facility charges or 

highway tolls. The concept underlying user fees; that is, users pay 

directly for the infrastructure they use is a long standing aspect of 

infrastructure programs. 

Financing strategies on the other hand can provide flexibility to 

bridge gaps when traditional pay as you go funding sources are 

scarce as they are nowadays. Financing mechanisms can create potential savings by accelerating projects to offset rapidly increasing 

construction costs and offer incentives for investment from State 

and local governments and from the private sector. The Federal 

Government currently offers several programs that provide infrastructure financing. For example, the TIFIA program provides 

loans for transportation projects of national significance. The government also has authorized a number of revolving funds that are 

used to dedicate capital to be loaned for qualified infrastructure 

projects. 

In general, loan dollars are repaid, recycled back into the revolving funds and subsequently reinvested in the infrastructure 

through additional loans. Such funds exist at both the Federal and 

State level. They include State infrastructure banks, the clean 

water State revolving fund and the drinking water State revolving 

fund. Several proposed bills would make additional financing mechanisms available for infrastructure. For example, the proposed 

Build America Bond Fund would provide $50 billion in new infrastructure funding through bonds. The National Infrastructure Development Act bill introduced by Ms. DeLauro, would establish a 

loan program administered by a government sponsored entity to 

fund a variety of infrastructure projects. 

A National Infrastructure Bank Act would provide an infrastructure bank at the national level as a revolving fund. Although each 

of these financing mechanisms has different merits, each mechanism in the final analysis is a form of debt, but ultimately must 

be repaid with interest. Furthermore, since the Federal Government’s cost of capital is generally lower than that of the private 

sector, financing mechanisms such as bonding should be recognized 

as more expensive than full upfront funding. 

To help policymakers make explicit decisions about how much 

overall Federal spending should be devoted to investment, we previously have proposed establishing an investment component within the unified budget by recognizing the different effects of various 

types of Federal spending. An investment focus within the budget 

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would provide a valuable supplement in the unified budget’s consideration of macroeconomic issues. 

Moreover, with direct attention to the consequent choices within 

the budget under existing budget limitations, a level which is now 

not determined explicitly by policymakers but is simply the result 

of numerous individual decisions. In conclusion, various investment 

options have been and likely will be continued to be identified to 

repair, upgrade, expand and better use our Nation’s infrastructure. 

Ultimately, Congress and other Federal policymakers will have 

to determine which option or more likely which combination of options best meets the needs of the Nation. There is no silver bullet. 

The suitability of any of these options will depend on the level of 

Federal involvement the policymakers decide in a given area. We 

look forward to continuing to work with the committees as you consider these various options. Thank you, Mr. Chairman. 

[The statement of Ms. Dalton follows:]

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Chairman SPRATT. Thank you very much. Just to start off the 

questions. We have had several hearings here at which the topic 

of capital budgeting has been raised as if it is a beginning at least 

towards more rational planning, more rational budgeting and funding of infrastructure projects. How would we take the Federal 

budget and recast it into capital and noncapital operating budgets? 

Is that a viable idea and does it accomplish anything that we 

couldn’t do by other means just as easily? 

Mr. ORSZAG. I guess I will start on that, Mr. Chairman. As you 

know, we released a study this morning on a capital budget. And 

let’s separate how you would do it from whether you would want 

to. With regard to whether you would want to, there are trade offs, 

but I would note it is awkward to move to accrual accounting, 


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which is what a capital budget is, just for part of the budget. Most 

of the budget is cash based. And moving to accrual accounting for 

capital spending but not for entitlement spending or lots of other 

parts of the budget is an awkwardness and it raises the question 

of whether one should move to full accrual accounting. And on that, 

I would just note that there are lots of countries that have evaluated that question, decided not to do it and that also there are 

many countries that have not moved to a capital budget for precisely that reason, that it is awkward to do it just for this part of 

the budget. Secondly, that if you were going to do it, just for part 

of the budget, there is a lot of pressure that would come to bear 

on the definition of what capital is. So if you have one system for 

capital and another system for noncapital, it becomes very attractive to start labeling everything as capital and one would have to 

pay particular attention to the definition of capital spending. 

With regard to how you could do it, that is frankly not as complicated as the normative question of whether you should. It would 

involve simply taking out—moving away from a cash basis system 

of accounting for capital investments, however defined, instead of 

when you buy something for a dollar of capital, that currently is 

scored as a dollar. Instead, what would happen is that you would 

not score that dollar; but instead as the capital depreciated, there 

would be an allocation each year, a charge each year for the depreciation. 

Chairman SPRATT. Mr. Dalton, do you have any observation 

about capital budgeting and what it might offer us? 

Ms. DALTON. The one additional point I would make is one thing 

to consider where I don’t think it will work very well at the Federal 

level is that we don’t own a lot of the infrastructure. We do fund 

a lot of it, but it is owned at the State and local levels. So therefore, when you are looking at capital budgeting, fundamentally it 

assumes that you are owning the infrastructure and from an accrual basis, you are using that asset over time and depreciating 

that. When the Federal Government doesn’t own the infrastructure, you don’t have that opportunity from an accounting standpoint. 

Chairman SPRATT. Would human investments be considered—

could they be considered a capital investment as part of the capital 

budgeting? 

Mr. ORSZAG. Well, I think you’re touching upon one of the tensions which is that the theory behind a capital budget is that there 

are things that we pay for today that have long-term economic benefits. It is traditionally interpreted as physical capital, but many of 

the same arguments would apply to research and development 

spending, to education spending. Some people would even argue 

things like——

Chairman SPRATT. Do you need a discrete or several discrete revenue streams or income streams that you can then attach, levy or 

tax in order to repay the front-end capital costs? 

Mr. ORSZAG. Not conceptually with regard to a capital budget. 

You do need that sort of thing with regard to other financing mechanisms that have been under discussion. But with regard to a capital budget by itself, you know, conceptually at least you could just 

say that amount of capital or that definition of capital is not countVerDate 0ct 09 2002 21:42 Jul 15, 2008 Jkt 000000 PO 00000 Frm 00088 Fmt 6602 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-35\42280.TXT HBUD1 PsN: DICK
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ed when it is purchased but rather as it depreciates. And that can 

be independent of whether there are user fees or specific tax revenues that are tied to that capital. 

Chairman SPRATT. And how would you treat the funding of capital projects differently from, say, other projects which is funded on 

a year-to-year basis? Would you borrow and then have an identified 

source of money to pay back the capital outlays? 

Mr. ORSZAG. Well, one of the consequences, again, would be—and 

maybe this is getting to your question—one of the consequences 

would be there would be more of a divergence than currently exists 

between the reported deficit and the amount of financing that the 

Federal Government would require. So if we went out and we purchased a dollar of investment goods or of capital goods and that 

was excluded from the budget, only the depreciation would be 

counted in future years, we would still need to finance that dollar 

in terms of borrowing or some other financing mechanism. And 

that would be another source of divergence between the reported 

deficit and the treasury’s borrowing needs. 

Chairman SPRATT. Ms. Dalton? 

Ms. DALTON. There is nothing I could add to that. 

Chairman SPRATT. There are different ideas being proposed that 

would give us a different way of identifying activities that generate 

expenses and are different from—that could be used to complement 

existing revenue sources. The gasoline tax, for example, which 

could be complemented by a congestion tax. Is a potential congestion tax sufficient to really put much stock in what could be done 

with it in terms of financing capital improvements and highway 

improvements, transportation improvements of various kinds? 

Mr. ORSZAG. I will take a crack at that. Congestion pricing has—

it is almost a twofer. It has two potential benefits. I know there 

are concerns about it that we could talk about also, but it has two 

significant benefits. First it could raise revenue that could be used 

to finance new investments; and secondly, it reduces the amount of 

investment that is necessary to undertake or to maintain current 

services or to exhaust the economically beneficial projects that are 

out there. It allows us to use the infrastructure that we have or 

that we would build much more efficiently and the evidence on this 

is very clear. When you price something by time of day or by congestion, you do get the results that you are looking for in terms of 

reducing congestion costs and more efficiently using the infrastructure that we have. And that would apply to highways. It applies 

frankly to landing rights at airports. It applies in lots of different 

settings. 

Chairman SPRATT. You can see how cities like London and New 

York can apply taxes of this kind. But is it feasible for the Federal 

Government to apply a congestion tax which depends very much on 

local conditions? 

Ms. DALTON. You are correct, Mr. Chairman, in that it does depend on local conditions. And traditionally the congestion taxes 

have been imposed at the local level or the State level reflecting 

the demand on the infrastructure in trying to spread that demand 

over time usually. 

Mr. ORSZAG. But, for example—and I agree that this is traditionally not a Federal role. But, for example, one could construct sceVerDate 0ct 09 2002 21:42 Jul 15, 2008 Jkt 000000 PO 00000 Frm 00089 Fmt 6602 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-35\42280.TXT HBUD1 PsN: DICK
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narios or policy options—I will just give you one possibility—that 

you could require a higher State and local match on Federal grants 

for projects that do not have congestion pricing relative to those 

that do. There are lots of different ways that you can have the Federal Government encourage this and try to recapture some of the 

potential benefits. 

Chairman SPRATT. Thank you very much. Let me turn now to 

Mr. Simpson. 

Mr. SIMPSON. Thank you, Mr. Chairman. And thank you for setting up this hearing. I appreciate it. It is a subject that is of interest to me and should be of interest to all of us, because, you know, 

no matter where you travel in the world, you come back with the 

conclusion that one of the reasons that we have become the strong 

economy of the world is because of our infrastructure and the investment that we have made in it over the years, that our forefathers made in it. 

In fact, it is kind of interesting, I would have liked to have heard 

the debate when the Eisenhower administration proposed the 

interstate highway system. I am sure the debate was are you kidding me, we are not going to need interstates in Idaho and Montana and Wyoming. And in fact, when they built them there, I can 

remember driving 50 miles down the road and never passing another car. And while it was real nice, now those areas—actually 

some of them have some pretty good congestion in them. Those 

were forward looking individuals that did that. And I am afraid 

that we haven’t done the same or aren’t doing the same and future 

generations are going to pay for that if we don’t invest in the infrastructure of this country, not only roads and bridges and railways 

and waterways, and as you said, our water systems and so forth. 

Let me ask you, does capital budgeting make much sense without 

capital planning? 

Ms. DALTON. I certainly don’t believe so. I think one of the things 

that we need to be looking at is having a comprehensive capital 

plan identifying what we are trying to achieve, what our goals are, 

what the role we should be having in this infrastructure or any 

type of capital expenditures so that we have a way to prioritize 

what needs to be done. Clearly there is an awful lot that we need, 

we would like. What are our highest priorities and how do we set 

those. I think a capital planning approach would assist in that decision making. 

Mr. ORSZAG. And I would just agree that again, the return to different projects vary substantially and just kind of throwing money 

at infrastructure does not get you what at least economists would 

hope for. 

Mr. SIMPSON. Let me express one of my frustrations that I have 

had here, is that we don’t have plans for those kinds of things. And 

as you know, we are sometimes accused of doing congressional directive spending, otherwise known as earmarking things, which I’m 

not opposed to. The problem is I never know where that stands in 

terms of a national need when you start looking at what projects 

are. And my assumption is that a local person that represents a 

district knows that district better than I do and so forth. So I have 

a tendency to listen to them. 

87

But I don’t know how it fits the national need. And another example is that I sit on the Energy and Water Subcommittee. The 

Army Corps of Engineers comes in and wants to dredge harbors to 

make deepwater harbors and so forth. There are harbors all over 

this country. And I don’t know that there is—well, I know there is 

not a plan to say how are the ones that we are going to actually 

make deepwater harbors going to fit into the overall transportation 

system? We need a plan somehow. Then we’ve got to sit down and 

say how are we going to pay for that plan. And it obviously can’t 

be just the gas tax and the local units are about property taxed 

out. Registration fees in most places are getting high. We’ve got to 

find some alternative ways of doing it. 

And as we were mentioning before this hearing started, I think 

people are willing to pay when they see improvement in the system. If they are just hiring more employees and stuff, they have 

got some concerns. Go ahead and respond if you would like. 

Ms. DALTON. One of the things I was going to point out was one 

of the things that capital planning will do is that it helps you in 

choosing between projects, because there may be three or four different solutions for a particular problem; which one is the best? A 

rigorous analysis and evaluation of the project through a capital 

planning approach lets you choose. 

You know, you may be presented with two different things. Well, 

one person says this is the best; another one will say that. Well, 

how do you tell? And through that rigorous analysis, hopefully it 

will lead you to better decision-making, so that the return on that 

investment will be greater. 

What kind of performance can I expect out of a rail project 

versus building another highway? 

Mr. SIMPSON. Mr. Oberstar, I appreciated his opening statement; 

he seems very interested in this. And I would hope the T&I Committee would actually sit down and take some time and work on 

how to put together a capital plan, because, to me, that is a 

multiyear project of putting that together. 

Ms. DALTON. It is one of the reasons that we at GAO believe that 

having an investment component as part of the unified budget 

would be helpful, in that it would, at least as a start, start beginning together all of the investment projects and efforts that we 

have under way and identifying them clearly in the budget to assist in making those decisions. 

Mr. SIMPSON. Well, as we mentioned earlier, this is something 

that—I have been interested in the trust funds and how the trust 

funds are used. And Mr. Blumenauer and I are going to introduce 

a resolution dealing with the trust funds and studying the trust 

funds and how they are used. Because sometimes I think they are 

used improperly or not used as they should be. Some of them are 

actually growing in amount when we have a need out there. 

And I will be talking to you, I am sure, in the near future, as 

we do that, to see how we can work on that so that we are using 

the resources appropriately. 

And then look at, as I said earlier, how are we going to pay for 

this? We have got to find some innovative ways to pay for it, some 

that we probably don’t employ right now that are totally different. 

So I appreciate it. 

88

And, thank you, Mr. Chairman. 

Chairman SPRATT. The Chair recognizes Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

And to our witnesses, I appreciate your time. 

In rural Nebraska, we have seen an obvious pattern of economic 

growth along four-lane interstates or expressways, and certainly 

our State trust fund is suffering, just like the Federal. And I would 

say that simply adding the gas tax on a per-gallon basis doesn’t 

really address things long-term, kind of piggybacking off of Mr. 

Simpson’s comments. 

But as we do look to the future and some population differences 

just within Nebraska, we see congestion being addressed using 

trust fund dollars in the urban areas. I would challenge whether 

or not that is enough forward-thinking, by merely adding lanes, actual lane miles. Whereas in rural Nebraska we can leverage more 

economic growth, I think, looking to the future, just as the interstate system did many years ago. 

Do you have some suggestions of how dollars should be spent in 

terms of adding lane miles versus other types of transportation infrastructure? 

Ms. Dalton, if you would? 

Ms. DALTON. Yes, I think there are some things that can be 

looked at, because, in some ways, in some areas, you really can’t 

build your way out of the congestion. You have to look at how can 

we use what we have better. 

And there are a number of tools. Congestion pricing is just one 

of them. There is also technology that can be used. We have seen 

that here in this area, with some of the lighting systems to get on 

the interstates and trying to regulate the flow of traffic. 

Congestion pricing helps to spread the demand out over time, so 

that if you are going to travel from 4 o’clock to 6 o’clock in the evenings, it may cost you more than if you are traveling at 6:30 or 

3:30. And that just helps move the flow of traffic. 

And those are certainly tools that should be used in conjunction 

with overall infrastructure, construction and development, and trying to look at what are the least expensive but also the most effective alternatives in terms of performance, and what are we trying—it basically gets down to what are we trying to accomplish. If 

we are trying to reduce congestion, are there ways to spread that 

out? Do we really need to, as I said, build another lane? Are there 

alternative transportation systems available, such as bus transit? 

Mr. SMITH. I guess also, you know, proactively developing things, 

rather than just waiting for the auto count to get up to the point 

where we can react. 

Ms. DALTON. Exactly. Right. And you mentioned economic development. You know, where is that development going to occur? Can 

you anticipate that? And, certainly, if you can anticipate it and 

build ahead of time and accommodate it, you are in a much stronger position. 

That is why oftentimes local governments will, as there is a 

housing development going in, they work with the developer to 

build in the infrastructure as part of that development, as one example of trying to anticipate what is going to happen. 

Mr. SMITH. I see. Very good. 

89

Dr. Orszag, if you would address, perhaps, any information you 

might have that speaks to the effectiveness of transportation dollars being spent in more rural areas in a more proactive fashion. 

Do you guys quantify any of those expenditures and how that is leveraged? 

Mr. ORSZAG. No, we haven’t. 

And I would say most of my written testimony, not surprisingly, 

given my background and our outlook, is based on cost-benefit 

analysis and similar things. There obviously are other considerations that policymakers want and do take into account. But it is 

the case under most cost-benefit analyses that rural projects often 

don’t look as good as projects in more concentrated areas. 

Mr. SMITH. And how far into the future would that gauge? 

Mr. ORSZAG. It depends on the outlook of the underlying study. 

Sir, I can’t give you a generic answer to that question. 

Mr. SMITH. Then, as well, do you ever look at perhaps a multiState effort? 

I mean, the Heartland Expressway is an example in mid-America 

where it is several States. Actually, Ports-to-Plains Corridor is a 

multi-State effort, rather than just one State at a time. 

Does that get much credit in the big picture? 

Mr. ORSZAG. Well, let me sort of broaden the question. It is clear 

that, as we tried to lay out, infrastructure investments generate 

additional economic activity. And, obviously, the more that the different components of the system fit together so that you don’t have 

inconsistencies across the Nation’s infrastructure, the better, in 

terms of generating economic activity. 

Mr. SMITH. All right. 

Thank you, Mr. Chairman. 

Chairman SPRATT. Thank you. 

Mr. Blumenauer? 

Mr. BLUMENAUER. Thank you, Mr. Chairman. 

I deeply appreciate having this hearing, and I hope that there 

will be an opportunity for us to explore in greater detail in the future, because I am concerned. 

I heard my friend from Nebraska raise some concerns that he 

has, in terms of making sure that the infrastructure needs are appropriately met. And I think, from where I sit, the deficiency we 

have now is not having an overall vision or plan about how the 

pieces fit together. Because there are some areas, frankly, that may 

not pencil out in the short term, but they are part of a network. 

And if we don’t have a network, rural America and small-town 

America is shortchanged. 

Too often, we see investments in some rural areas that are just 

like darts thrown at a map. They have political cache, but they 

aren’t part of meeting the overall needs of agriculture, of electrical 

infrastructure. And I am hopeful, I know I have been in consultation with my friend from Idaho, about a way to look at the big picture, maybe actually have an infrastructure plan for this century. 

Mr. Orszag, something that is not on your plan in terms broken 

out, but you have ‘‘utilities and other,’’ in terms of water infrastructure that is going to probably be the greatest stressor with climate 

change, with depletion of water supplies, with an aging infrastructure. 

90

These are things that I am hopeful that we, as a Congress, can 

be able to zero in, flesh out, help have a big picture, and then think 

about what is economically justifiable and how the pieces fit together. 

You have passenger rail, an economically justifiable investment; 

we don’t have an element there. But we have aviation, that with 

one-third of the trips in this country now 350 miles or less by airplane, that doesn’t pencil with $120-a-barrel oil. They economically 

don’t work. 

We have the potential, if we could look at it comprehensively, 

with some modest investment in rail passenger service, to eliminate some of the pressures for aviation, for instance, for airport expansion. We would actually get capacity, and we would be able to 

have something that would be more pleasurable for the riding public. 

Mr. Orszag, we have talked in the past about present-value accounting that currently in a capital budget may help move us in 

this direction. But there are so many elements here in the transportation system that don’t take into account the dollars we know 

we are going to spend or the cost that we are going to avoid. 

Have you had any further thought about what we could do with 

the Budget Committee to look at this long-term picture of infrastructure investment and ways that we will be able to coax more 

value out of the system to deal with rail, to deal with water, to deal 

with surface transportation, motorway, that would reflect avoided 

costs, that would reflect investments that will make money over 

time, that would have a fairer application of our budget rules? 

Mr. ORSZAG. Well, let me answer that in two ways. 

First, we did come out this morning with a report on capital 

budgeting, in particular. And I can talk more about that. 

But, secondly, and part of your question is, what is the long-term 

benefit or return to these various different investments? And we 

did try in this document, in the testimony that we prepared, the 

written testimony, which is longer than normal for us, to go 

through the evidence on the returns to infrastructure spending. 

And while they are positive on average, they vary a lot by specific 

project. And they are also lower than some early estimates from 

the early 1980s suggested. 

So, there is a long-term benefit to additional infrastructure investment. It obviously depends very sensitively on the specific 

projects, on the specific types of infrastructure. 

I would also just note quickly, you had mentioned wastewater 

and drinking water. We do have estimates in the testimony that 

is based on previous work by CBO, suggesting that the Nation is 

spending about $26 billion a year currently on those, and that investments would need to average between $30 billion and $47 billion a year to basically maintain current services and do a little 

more. 

Mr. BLUMENAUER. Thank you. I will look to further examination. 

I am sorry we were chopped up a little bit. 

Mr. Chairman, I appreciate your indulgence and having this 

hearing. 

The point of inquiry, I will warn you, next, Dr. Orszag, when I 

am sure our paths will cross, is the notion that, if we are able to 

91

actually have a comprehensive infrastructure plan and a vision, 

whether that wouldn’t help us actually coax more value, avoid 

some of the problems Ms. Dalton is talking about, and be able to 

put us ahead overall. 

Mr. ORSZAG. I just hope our paths don’t cross while we are both 

on bicycles. That could get a little messy. 

Mr. BLUMENAUER. Thank you. 

Chairman SPRATT. Mr. Baird? 

Mr. BAIRD. I thank the Chair. 

I thank our distinguished witnesses. 

This may have been addressed already. Forgive me. I was at another meeting. 

I certainly felt that the most recent stimulus package amounted 

basically to dropping money out of helicopters and was not our best 

investment. There are some business provisions of the stimulus 

package that make sense, but the rebates I did not think did. 

We did some surveys in my own State and district about projects 

which were ready to go, in the sense that they were permitted, designed, could be actually putting people to work in the same time 

frame it has taken us to get the stimulus package out, and that 

would produce jobs with paychecks and lasting infrastructure to 

the good of people for many years to come. 

It has been quite frustrating, because there seems to be this 

sense that—it is a shibboleth but I don’t think a fact—that infrastructure investment doesn’t stimulate the economy. I wonder if 

you could talk a little about that, what seems to be received wisdom by the economists’ side, but in direct conflict to the evidence 

I get on the ground when I talk to school boards or local communities, et cetera. Frankly, you walk around these Capitol grounds 

and you see needed infrastructure repairs right there. 

Educate us on this, if you would. 

Mr. ORSZAG. I think that one might be for me. Let me say two 

things. 

First, as I tried to indicate earlier, there is a long-term return 

or a long-term benefit to infrastructure spending. We are now just 

talking about the degree to which money can flow out the door 

quickly in a period of economic weakness, which is a different question. 

There I have pushed my folks hard. And I would just again say, 

outside of road resurfacing, where it looks like money can flow 

more rapidly, that I have been eager to receive the list of specific 

projects that people believe can move fast. Because it is often the 

case that, when you start to actually go down those lists—and I 

don’t want to just take it on faith; I want to be looking at the specifics involved—that you get responses like, ‘‘Oh, no, we meant we 

could get it permitted rapidly, not actually have money out the 

door.’’ The question is, how quickly can money actually go out the 

door? 

Mr. BAIRD. But permitting isn’t free. You don’t magically get a 

permit. I mean, someone has to be employed to do the paperwork 

for the permitting. 

And so my belief is there is a continuum of projects in the pipeline, some of which are at the permitting stage, some of which are 

92

at the design stage. People actually get paid money and then pay 

taxes on that money. 

Mr. ORSZAG. Yes. The question is just, what share of the cost of 

the project is occurring rapidly? And the cost of the permitting 

process is often only a very small share of the overall cost of the 

project itself. 

So the question is really, what is the spend-out rate? If you are going to spend $100 on this project, what share of that $100 do you 

get out the door rapidly? 

Mr. BAIRD. Let me ask this: If I pump $20 billion into the economy and it is going to transportation infrastructure, whether the 

money is going to employ a geologist or a hydrologist to work on 

permitting, even a lawyer, heaven forbid, or whether some of those 

projects—which I am convinced they are, because my school districts have shown me the plans—actually get some people nailing 

boards and pulling wire, that is money that is going to a domestic 

workforce in all of those cases. 

And whether or not that permit is done now or 5 years from now 

is a bit chronologically fungible. But doing it now sets up later 

projects. So you have to invest in it at some point. So the point is, 

there are many stages on infrastructure projects that we could invest money in right now. 

And the second point is this: Relative to a flat-screen plasma TV 

made in Korea, that, except for the exchange, the import and export by shipping and the guy that works at Best Buy and gets a 

2 percent commission, the stimulus to me and the long-term benefit 

for our society is vastly superior. 

The cost-benefit ratio to the feds and the public of building a 

water treatment plant or fixing your school, I would wager, pencils 

out a good bit better than buying that plasma TV. 

Mr. ORSZAG. Well, a couple things. 

First, it is true that the larger the share of imported value-added 

or imported goods and whatever is purchased with the stimulus 

money, the less impact there is on domestic production. I would 

note that a lot of the rebate checks will probably go for things like 

food at restaurants and what have you and not just for plasma 

televisions, and that some component of infrastructure spending 

also involves imported inputs or imported goods. 

Again, I think the real question is, out of that $20 billion, and 

assuming it is a well-chosen project, there will be long-term economic benefits. If your objective, as most of the policy debate earlier this year was framed, was to get the economy a jumpstart now, 

within the next 3 or 4 or 5 months, what share of that $20 billion 

can go out the door within that 3 or 4 months. And that is a separate question from whether we should be spending the $20 over 

time or not or the returns to it. 

Again, I would just come back to, I want to see the specific 

projects that can get a big share of their $20 billion or their $100 

or whatever it is out the door really fast, and by that I mean 

months. 

Mr. BAIRD. One last comment on that. I don’t think it is necessary that the checks arrive and the building starts in order to get 

$20 billion of economic stimulus. If you promised me that 4 months 

from now there would be money made available to me to do someVerDate 0ct 09 2002 21:42 Jul 15, 2008 Jkt 000000 PO 00000 Frm 00096 Fmt 6602 Sfmt 6602 J:\DOCS\HEARINGS\110TH\110-35\42280.TXT HBUD1 PsN: DICK
93

thing on my home, I could start working on that home today and 

put the people to work on the promise of the money. So I don’t 

have to write the check today to have the stimulus effect today. 

I yield back. 

Ms. DALTON. The one thing I would add is, on the spend-out 

rates, when you are going to do a project, you have committed the 

money, you may start spending. Oftentimes with infrastructure, 

that spend-out rate goes over time, often over years, so you in all 

likelihood won’t have that immediate impact on the economy, 

which is one of the issues with an economic stimulus package. 

There are ways, if you can identify projects that are ready to go 

and the spend-out plans are immediate, yes, they could influence 

the economy. 

Mr. BAIRD. My problem was I saw no effort to do that in this 

stimulus package. And I think it was a terrible lost opportunity. 

Chairman SPRATT. Mr. Simpson? 

Mr. SIMPSON. I just want to say that I agree with my friend from 

Washington, that we could have spent this a lot more wisely, and 

I think it would have had a better stimulus effect. I will guarantee 

you that I can show you communities, cities, that have wastewater 

treatment facilities, they are waiting for their match from the Federal Government. And within 4 weeks, they could be spending 

money, literally, because they have things ready to go, highways 

that are ready to be built and so forth that we just don’t have the 

money for. 

I think we could have had a much more effective stimulus plan, 

and, quite frankly, that is why I voted against it. 

So, anyway, it is an interesting discussion we are going to have, 

but it is one that is vital to the future of this country that we have, 

because if we are going to have the infrastructure for the next generation and if we are going to keep America on the leading edge 

of the economies of this world, we had better start investing in our 

infrastructure. And it is one we are going to have to sell the American public, and we are going to have to take some political courage 

to do it. 

So I appreciate it. I am sure that we will be calling you and talking to you substantially in the near future about this. As Congressman Blumenauer and I were just talking about, we plan on making 

this one of our highest priorities in the next Congress. 

So I appreciate it. Thank you. 

Chairman SPRATT. A couple of final questions. I thought Doris 

Matsui was here, but she has left. 

Back in January 2008, the National Surface Transportation Policy and Revenue Commission recommended an annual investment 

of $225 billion for surface transportation. Has GAO or CBO undertaken an examination of that? 

Ms. DALTON. We currently, Mr. Chairman, are taking a look at 

that, the recommendations of the policy commission. That work 

isn’t completed yet. 

I will say, on the $225 billion, what we have seen so far is that 

it is based on their highest needs scenario, and we are really trying 

to work to get beneath those numbers at this point. We are not——

Chairman SPRATT. Does CBO—excuse me. Go ahead. 

94

Ms. DALTON. I was going to say, what we are looking for is, what is the support for that $225 billion? 

Mr. ORSZAG. And the reason the figures that I presented to you 

this morning differ from those include that it is not clear whether 

the investments proposed were economically justifiable or were, 

sort of, held to that standard. And also it is not clear if the opportunity cost of capital—that is, when you put $1 into this project, 

it means that you either have to pay interest, if you want to think 

about it that way, or are you are foregoing opportunity to invest 

in something else—was actual fully taken into account. 

Chairman SPRATT. Have you produced any sort of written anal- ysis of the $225 billion? 

Mr. ORSZAG. I don’t think we have produced a written analysis 

of it, no. 

Chairman SPRATT. Okay. As you know, the Budget Committee’s 

principal annual output is something called a budget resolution. Do 

you have any recommendations for whether or not we should target 

or somehow identify or classify how much of the budget is going for 

capital purposes and improve the budget system for allocating to 

capital needs? 

Mr. ORSZAG. Again, as was earlier discussed, I do think there are 

things that can be done without moving to a full capital budget to 

better identify and classify capital investments and to give some 

structure and rigor to the process of deciding both on the aggregate 

amount and on the specific projects. 

With regard to the aggregate amount, as I have already said, 

there does appear to be additional capital spending that would be 

required to maintain current services and that would be economically beneficial in the sense of generating larger benefits than 

costs. 

And I would also say that I think there are significant things we 

can do to offset those costs through both some of the pricing mechanisms that we discussed and also through better management of 

the infrastructure that we already own, including Federal buildings 

and property and other capital assets that we already currently 

own and, I think, arguably, we are not doing a terrific job managing. 

Ms. DALTON. I would add that another benefit would be that it 

would bring together all of the various investment expenses and 

hopefully agreement on what we consider to be investments. 

We have talked a lot about transportation. Dr. Orszag just mentioned Federal buildings. We have talked about human capital. Are 

those part of the investment component or not? 

And I think it would be helpful, as part of the budget resolution 

and budget structure, to make some of those distinctions and determinations. 

Chairman SPRATT. Any further observations from either of you 

before we close the hearing? 

Mr. ORSZAG. I would just note on this last question that, as part 

of the study on capital budgeting that we put out this morning, we 

do have a section on, for example, creating a separate enforcement 

cap under a possible new statutory pay-as-you-go rule for capital 

spending and other things you can do along the lines that you seem 

to have been suggesting. 

95

Chairman SPRATT. Ms. Dalton? 

Ms. DALTON. I would just conclude with that I think this is a 

good opening discussion of what we want in terms of our goals, 

what the Federal role should be, what are we trying to achieve. A 

lot of our programs were developed in the mid-1900s or earlier; do 

they fit with the 21st century? 

And I think, as we start looking at investment in total, it will 

help us in those decisions as to, do these programs still work, what 

do we need in the future? We definitely need more investment, but 

how do we want to go about that and get the greatest return from 

that investment. 

Chairman SPRATT. We will definitely continue this inquiry, but 

the next time we hold a hearing, we will look for a better day. 

Thank you very much for your patience, your forbearance and 

not least your excellent presentations and testimony. It has been 

extremely useful to us. And while we didn’t have as many members 

as we would have liked here, rest assured your work product will 

redound to the benefit of the whole institution, particularly our two 

committees. 

Thank you very much, indeed, for coming and testifying. 

Ms. DALTON. Thank you, Mr. Chairman. 

Chairman SPRATT. The hearing is now adjourned. 

[The statement of Mr. Carnahan follows:]

96

[The statement of Mr. Costello follows:]

PREPARED STATEMENT OF HON. JERRY F. COSTELLO, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF ILLINOIS

Thank you, Mr. Chairman. I am pleased to be here today as we examine financing 

our infrastructure investment. I would like to welcome today’s witnesses. 


carnahan.eps
97

The United States has an extensive system of highways, ports, locks and dams, 

and airports. Yet, we have neglected our infrastructure over the years and as a result, it needs major improvements and modernization. 

For example, our Interstate System is almost 50 years old. Thirty-two percent of 

our major roads are in poor or mediocre condition; one of every eight bridges is 

structurally deficient; and 36 percent of the nation’s urban rail vehicles and maintenance facilities are in substandard or poor condition. 

I strongly believe we have an obligation to maintain it and modernize our infrastructure it as it becomes antiquated. According to the Transportation for Tomorrow 

report, a significant surface transportation investment gap exists that can only be 

filled by an annual investment level of between $225 billion and $340 billion by all 

levels of government and the private sector. If we look at our current capital investment from all sources in all modes of transportation, it is $85 billion, well below 

the recommended level. 

I am Chairman of the Aviation Subcommittee and according to the FAA’s Operational Evolution Plan (OEP), new runways and runway extensions provide the 

most significant capacity increases. The FAA’s 2007-2011 National Plan of Integrated Airport Systems (NPIAS) states that during the next five years, there will 

be $41.2 billion of AIP-eligible infrastructure development, an annual average of 

$8.2 billion. However, the FAA states that the current NPIAS report may understate the true cost of needed capital investment. The 2007—2011 Airports Council 

International—North America (ACI-NA) Capital Needs Survey estimates total airport capital needs—including the cost of non-AIP-eligible projects—to be about $87.4 

billion or $17.5 billion per year from 2007 through 2011. 

The FAA’s ‘‘Capacity Needs in the National Airspace System, An Analysis of Airport and Metropolitan Area Demand and Operational Capacity in the Future’’ report 

found that 18 airports around the country are identified as needing additional capacity by 2015, and 27 by 2025. As you can see, aviation infrastructure is muchneeded and that is why in HR 2881, we increased the PFC and also increased the 

authorization for AIP by $4 billion over the Administration’s proposal. 

Continued congestion and delays in our skies, on our roads, in our ports and on 

our waterways is costing us excessive amounts of money. We must and can do better. We must find a way to make the necessary improvements to our entire transportation system to make sure the highest level of safety is maintained and that 

the US economy remains strong. I am interested in hearing more from our witnesses on their recommendations as Congress looks for ways of financing the much 

needed infrastructure investment. 

With that, I look forward to today’s hearing as we discuss financing infrastructure 

investment.

[Questions submitted by Ms. DeLauro follow:]

MS. DELAURO’S QUESTIONS SUBMITTED TO DR. ORSZAG

The Government Accountability Office released a report in February 2006 entitled 

‘‘Excess and Underutilized Property Is an Ongoing Problem.’’ In short, the report 

makes clear that the problem of unused federal property ‘‘puts the government at 

significant risk for wasting taxpayers’ money and missing opportunities to benefit 

taxpayers.’’ Such properties are costly to maintain and could be put to more costbeneficial uses, including being sold to generate revenue. I believe a reasonable action for the federal government to take would be to sell these unused federal properties, which in a sense is unused and idle infrastructure, and use that revenue to 

benefit the taxpayers by putting it toward renovating our public infrastructure. We 

could, for example, use that to offset the $18 billion cost for funding the ‘‘ready to 

go’’ infrastructure projects identified by state transportation departments across the 

country in a recent American Association of State Highway and Transportation Officials (AASHTO) survey. 

When we are talking about infrastructure, we are talking about the heart of our 

economy, jobs, GDP growth and fiscal responsibility. Government does not always 

create jobs, but it can set forth creative policies that do in fact bring about opportunity. Funding these ‘‘ready-to-go’’ projects would create approximately 850,000 

jobs and create over $110 billion in economic activity. Offsetting the cost by mandating the sale of these unused federal properties would allow us to do that in a 

fiscally responsible and paid for way. I would appreciate, from a budgetary perspective, your observations and thoughts on such a policy? 

98

MS. DELAURO’S QUESTIONS SUBMITTED TO MS. DALTON

I introduced a bill, the National Infrastructure Development Act (HR 3896). The 

bill would establish a tax exempt National Infrastructure Development Corporation 

that would make loans, purchase securities, issue ‘‘public benefit’’ bonds and offer 

other insured financing packages, in order to maximize private investment to fund 

our most critical infrastructure projects. Within five years the Corporation would 

prepare a plan to transition to a government-sponsored enterprise, including broad 

distribution to long-term investors with all voting securities ultimately transferred 

to non-federal government investors. The Corporation would at that point become 

self-financed through user fees or other dedicated sources of revenue, as well as the 

sale of public stock. 

In your prepared testimony you refer to proposals intended to increase investment 

through new financing mechanisms in the nation’s infrastructure. You touch on 

bonds as a source of up-front capital, yet an expensive investment for the federal 

government. You also talk about a national infrastructure bank and the associated 

pros and cons, including defaults on loans and inflation. In short, you suggest there 

is no silver bullet to address the multi-faceted infrastructure challenges we face. I 

understand that my proposal surely also has pros and cons and is by no means a 

silver bullet, yet I believe it is well worth considering as a key component of any 

bold infrastructure plan to rebuild America. In my mind, the Federal Government 

simply cannot do this on its own. We must build effective private-partnerships and 

we must leverage significance private sector investment if we are going develop a 

21st Century state-of-the art infrastructure. 

Accordingly, I would like to get your expert opinion on the concept of a GSE, a 

Fannie Mae type entity, in the realm of infrastructure. What do you see as the pros 

and cons in relation to the other financing proposals out there? Do you think there 

are certain infrastructure sectors, water treatment for example, where it might 

work better than others? Are there perhaps geographic areas where it might work 

best, perhaps funding big city infrastructure projects?

[The statement of Mr. Mitchell follows:]

99

[The statement of Ms. Tsongas follows:]

PREPARED STATEMENT OF HON. NIKI TSONGAS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MASSACHUSETTS

I thank the Committee on Budget and the Committee on Transportation and Infrastructure for holding this important hearing to explore alternative mechanisms 

for investing in our nation’s infrastructure. This hearing could not be more timely 

or more relevant. In recent years, federal appropriations have failed to fully meet 

the demands of our nation’s aging infrastructure while current alternative funding 

mechanisms, such as the Highway Trust Fund, are poised to run multi-billion dollar 

deficits. 

These shortfalls come at a particularly critical time for Massachusetts, which 

must maintain some of the oldest infrastructure in the country in a climate that 

is often punishing to the state’s roads, bridges, ports, airports, and railroads. Even 

though Massachusetts’ share of the nation’s population has decreased, its total number of inhabitants continues to grow, further adding to the strain on its infrastructure. 

According to data from the American Society of Civil Engineers, more than half 

of the bridges in Massachusetts have been deemed ‘‘structurally deficient’’ or ‘‘functionally obsolete,’’ 40 dams have been deemed deficient, and 71 percent of major 

roads are in ‘‘poor or mediocre condition.’’ Nationwide, 33 percent of the nation’s 

major roads are in ‘‘poor or mediocre condition’’ and 36 percent of major urban highways are congested. 


mitchell.eps
100

Failure to adequately invest in our nation’s infrastructure has had a direct impact 

on our safety, our energy dependence, and our economic health. In my district, examples abound of the effect that infrastructural improvements can have on the 

economy. For instance, construction of an interchange on Interstate-93 near 

Tewksbury and Andover would alleviate existing traffic congestion, providing a 

major economic stimulus. The area is home to such global industry leaders as 

Wyeth, Proctor and Gamble/Gillette, Charles River Laboratories and others, each of 

which is currently unable to expand its operations as long as transportation resources remain so restricted. Similarly, at the national level, investments in infrastructure have been shown to stimulate both short term job growth and long-term 

economic health. According to the U.S. Department of Transportation, every $1 billion of federal highway investment supports 34,779 jobs. These jobs have a subsequent magnifying effect throughout the economy. 

By making critical, coordinated investments in our transportation systems, we can 

spur economic development, create jobs, restore confidence in the safety of our system, and maintain our global competitiveness.

[Questions submitted by Mr. Walz follow:]

MR. WALZ’S QUESTIONS SUBMITTED TO THE WITNESSES

To all witnesses: 

• How would you say the level of coordination and cooperation between units of 

government at the federal, state, and local level is working now, and what would 

you suggest to improvement this coordination? • We have been hearing a great deal lately about a temporary gasoline tax break. 

What do you think the impact of such a proposal would be in helping develop our 

national infrastructure? • What incentives for the private sector could intensify their participation in public-private partnerships to develop our transportation infrastructure? • Which experiences from foreign countries do you take into consideration when 

determining what strategies we should use?

PREPARED STATEMENT OF HON. JASON ALTMIRE, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF PENNSYLVANIA

Thank you, Chairman Oberstar, for holding today’s joint hearing with the Committee on the Budget to examine methods that can be taken to finance investments 

in our nation’s infrastructure. I would like to also thank Chairman Spratt for agreeing to join us today. His Committee’s expertise will be of great benefit to us today 

as we discuss investment opportunities and how these investments will fit into our 

nation’s budget. 

Like many of my colleagues on this committee, I have serious concerns about the 

future of our nation’s infrastructure. Increased congestion on our roads and rail 

lines is resulting in significant costs to American taxpayers. In 2005, congestion on 

our nation’s roadways cost motorists over $78 billion, which equates to an average 

cost of $710 per traveler. It is apparent that steps must be taken to improve and 

expand our infrastructure. 

Furthermore, the tragic collapse of the Interstate 35W bridge in Minnesota last 

year brought to America’s attention what many members of this Committee have 

known for years—the infrastructure in this nation is in desperate need of repair. 

In the six counties that I represent, there are currently more than 1,000 bridges 

considered structurally deficient. These repairs and improvements will not be cheap. 

It will truly take the combined efforts of the Transportation and Budget Committees 

to develop a comprehensive plan for future investments that can finally begin to address this growing problem and I look forward to being a part of this process. 

Chairman Oberstar, I would like to thank you again for holding this hearing.

[Responses to questions for the record from CBO follow:]

RESPONSES FROM THE CONGRESSIONAL BUDGET OFFICE TO QUESTIONS FOR THE

RECORD

Question: The Government Accountability Office released a report in February 

2006 entitled ‘‘Excess and Underutilized Property Is an Ongoing Problem.’’ In short, 

the report makes clear that the problem of unused federal property ‘‘puts the government at significant risk for wasting taxpayers’ money and missing opportunities 

to benefit taxpayers.’’ Such properties are costly to maintain and could be put to 

more cost-beneficial uses, including being sold to generate revenue. I believe a reasonable action for the federal government to take would be to sell these unused fedVerDate 0ct 09 2002 21:42 Jul 15, 2008 Jkt 000000 PO 00000 Frm 00104 Fmt 6602 Sfmt 6621 J:\DOCS\HEARINGS\110TH\110-35\42280.TXT HBUD1 PsN: DICK
101

eral properties, which in a sense is unused and idle infrastructure, and use that revenue to benefit the taxpayers by putting it toward renovating our public infrastructure. We could, for example, use that to offset the $18 billion cost for funding the 

‘‘ready to go’’ infrastructure projects identified by state transportation departments 

across the country in a recent American Association of State Highway and Transportation Officials (AASHTO) survey. 

When we are talking about infrastructure, we are talking about the heart of our 

economy, jobs, GDP growth and fiscal responsibility. Government does not always 

create jobs, but it can set forth creative policies that do in fact bring about opportunity. Funding these ‘‘ready-to-go’’ projects would create approximately 850,000 

jobs and create over $110 billion in economic activity. Offsetting the cost by mandating the sale of these unused federal properties would allow us to do that in a 

fiscally responsible and paid for way. I would appreciate, from a budgetary perspective, your observations and thoughts on such a policy?

Response: As noted in CBO’s testimony, the General Services Administration reports that about 10 percent of all federal government facilities are either underused 

or empty. Remarkably, no information is readily available about the market value 

of those facilities, and federal agencies destroy thousands of facilities each year that 

have little or no market value. Some of the facilities do not meet current building 

and safety standards and some pose environmental hazards. 

Selling unused federal properties could be desirable for a number of different reasons. More detailed analyses of the inventory of federal facilities and the state of 

the local markets for such facilities appear to be warranted.

RESPONSES FROM THE CONGRESSIONAL BUDGET OFFICE TO QUESTIONS FOR THE

RECORD FOR CONGRESSMAN WALZ

Question 1. How would you say the level of coordination and cooperation between 

units of government at the federal, state, and local level is working now, and what 

would you suggest to improvement this coordination?

Response: As noted in CBO’s testimony, the Government Accountability Office 

and other researchers have found that federal highway grants generally do not increase total spending dollar for dollar, because state and local governments reduce 

spending from their own funds. Greater clarity about the appropriate roles of each 

of the three levels of government (and the private sector) in supporting the development of additional infrastructure could facilitate a clearer division of responsibility, 

which in turn could reduce uncertainty and allow for better planning.

Question 2: We have been hearing a great deal lately about a temporary gasoline 

tax break. What do you think the impact of such a proposal would be in helping 

develop our national infrastructure?

Response: CBO has not analyzed such proposals.

Question 3: What incentives for the private sector could intensify their participation in public-private partnerships to develop our transportation infrastructure?

Response: Private firms will be motivated to participate in partnerships with the 

public sector to the extent that they anticipate a level of profits that is sufficiently 

attractive given the risks involved. Partnerships are not sources of ‘‘free money’’: Although private firms may, in some cases, reduce total costs through management 

efficiencies, all infrastructure is ultimately paid for by some combination of users 

and taxpayers. Accordingly, private firms will evaluate the revenues expected from 

those sources (through contract fees and/or rights to charge fees to the users of infrastructure services) and any forms of cost-sharing by the public sector (such as 

tax-preferred financing and loan guarantees).

Question 4: Which experiences from foreign countries do you take into consideration when determining what strategies we should use?

Response: CBO does not make policy recommendations (except on issues relating 

to the budget process) but does examine other countries’ experiences where relevant 

to our analyses. In the case of investment in infrastructure, foreign experiences with 

user fees, asset management, and capital budgeting can provide useful perspectives 

on questions facing policymakers in the United States. For example, CBO’s May 

2008 ‘‘Capital Budgeting’’ paper discusses the use of accrual budgeting in Australia 

and New Zealand—where it is applied not only to depreciation of government assets, but also to employees’ pension benefits and the future cost of environmental 

cleanup associated with government services—and the rejection of separate capital 

budgets by five countries in northern Europe.

[Responses to questions for the record from GAO follow:]

102

RESPONSES FROM THE GOVERNMENT ACCOUNTABILITY OFFICE TO QUESTIONS FOR

THE RECORD

QUESTION FROM CONGRESSWOMAN DELAURO

Question: I introduced a bill, the National Infrastructure Development Act (HR 

3896). The bill would establish a tax exempt National Infrastructure Development 

Corporation that would make loans, purchase securities, issue ‘‘public benefit’’ bonds 

and offer other insured financing packages, in order to maximize private investment 

to fund our most critical infrastructure projects. Within five years the Corporation 

would prepare a plan to transition to a government-sponsored enterprise, including 

broad distribution to long-term investors with all voting securities ultimately transferred to non-federal government investors. The Corporation would at that point become self-financed through user fees or other dedicated sources of revenue, as well 

as the sale of public stock. 

In your prepared testimony you refer to proposals intended to increase investment 

through new financing mechanisms in the nation’s infrastructure. You touch on 

bonds as a source of up-front capital, yet an expensive investment for the federal 

government. You also talk about a national infrastructure bank and the associated 

pros and cons, including defaults on loans and inflation. In short, you suggest there 

is no silver bullet to address the multi-faceted infrastructure challenges we face. I 

understand that my proposal surely also has pros and cons and is by no means a 

silver bullet, yet I believe it is well worth considering as a key component of any 

bold infrastructure plan to rebuild America. In my mind, the Federal Government 

simply cannot do this on its own. We must build effective private-partnerships and 

we must leverage significance private sector investment if we are going develop a 

21st Century state-of-the art infrastructure. 

Accordingly, I would like to get your expert opinion on the concept of a GSE, a 

Fannie Mae type entity, in the realm of infrastructure. What do you see as the pros 

and cons in relation to the other financing proposals out there? Do you think there 

are certain infrastructure sectors, water treatment for example, where it might 

work better than others? Are there perhaps geographic areas where it might work 

best, perhaps funding big city infrastructure projects?

GAO response: We agree that we will need to consider all options, and as you 

mentioned, we will likely need to use a variety of options as there is no silver bullet. 

We also agree that the federal government cannot do it all—it will take the collective efforts of all levels of government and the private sector to address our infrastructure challenges. In considering the different options, one of the first steps is 

determining the federal role—because the suitability of any of the options depends 

heavily on the level of federal involvement desired. 

In terms of the advantages, government-sponsored enterprises (GSE) can be designed to sustain their operations from business income. In addition, GSEs are distinguished from other chartered private entities by investors’ perception of an implicit federal guarantee of GSEs’ debt obligations. Therefore, a GSE potentially 

could borrow funds at a lower interest rate since the risk is perceived to be lower. 

The perceived federal guarantee, however, is also a disadvantage—that is, there is 

an assumption that the federal government would step in and bail the GSE out if 

needed. 

One area where GSEs could be particularly useful is in the funding of infrastructure projects of regional or national significance—that is, projects that benefit regions or the nation as a whole. These projects can be large and costly, requiring the 

cooperation and financial support from multi-jurisdictions. However, as we have previously reported, it can be difficult for state and local governments to secure funding 

for these kinds of multi-jurisdictional projects because transportation projects that 

provide benefits that are more readily discernable to immediate localities are favored. The GSE could provide an alternative financing source for these types of 

projects. 

QUESTIONS FROM CONGRESSMAN WALZ

Question: How would you say the level of coordination and cooperation between 

units of government at the federal, state, and local level is working now, and what 

would you suggest to improve this coordination?

GAO response: We did not examine the level of coordination and cooperation between the different levels of government for our testimony. However, last year we 

issued a report on intermodal transportation, which enables freight and passengers 

to cross between different modes of transportation efficiently and can improve mobility, reduce congestion, and cut costs. We identified several barriers that inhibit 

intermodal transportation, including limited collaboration among the many entities 

103

and jurisdictions involved. For example, the Department of Transportation (DOT) 

operating administrations and state and local transportation agencies are organized 

by mode—reflecting the structure of funding programs—resulting in an organizational structure that DOT’s own assessments acknowledge can impede coordination 

between modes. In addition, collaboration between the public and private sector can 

also be challenging; for example, some transportation officials told us that privatesector interests in airport, rail, and freight have historically not participated in the 

regional planning process. These barriers impede state and local agencies’ ability to 

carry out intermodal projects and limit DOT’s ability to implement Congress’ goal 

of a national intermodal transportation system. To help address these barriers, we 

recommended that the Secretary of Transportation direct one office or administration to lead and coordinate intermodal efforts at the federal level by improving collaboration and the availability of intermodal guidance and resources.

Question: We have been hearing a great deal lately about a temporary gasoline 

tax break. What do you think the impact of such a proposal would be in helping 

develop our national infrastructure?

GAO response: We have not examined the gasoline tax break proposals in detail. 

We would note, however, that fuel taxes are the primary revenue source for the 

Highway Trust Fund, which is the major source of federal highway and transit 

funding. Therefore, unless an alternative revenue source was identified, the suspension of the gasoline tax would negatively impact the balance of the Highway Trust 

Fund. Furthermore, the most recent Highway Trust Fund projections, which do not 

factor in the proposed tax break, predict that the balance of the fund will be exhausted by 2012.

Question: What incentives for the private sector could intensify their participation in public-private partnerships to develop our transportation infrastructure?

GAO response: As we reported in February 2008, the private sector has traditionally been involved as contractors in the design and construction of highways. In 

recent years, however, the private sector has become increasingly involved in assuming other responsibilities including planning, designing, and financing. The private sector, and in particular, private investment groups, including equity funds and 

pension fund managers, have recently demonstrated an increasing interest in investing in public infrastructure. They see the sector as representing long-term assets with stable, potentially high-yield returns. As a result, the private sector has 

also entered into a wide variety of highway public-private partnership arrangements 

with public agencies. 

In addition to the expected return on investment, there are several other incentives that can encourage the private sector to participate in highway public-private 

partnerships. For example, the private sector can also receive potential tax deductions from depreciation on assets involving private sector investment and the availability of these deductions were important incentives to the private sector to enter 

some of the highway public-private partnerships we reviewed. Obtaining these deductions, however, may require lengthy concession periods. In the United States, 

federal tax law allows private concessionaires to claim income tax deductions for depreciation on a facility (whether new highways or existing highways obtained 

through a concession) if the concessionaire has effective ownership of the property. 

Effective ownership requires, among other things, that the length of a concession 

be greater than or equal to the useful economic life of the asset. Financial and legal 

experts, including those who were involved in the Chicago and Indiana transactions, 

told us that since the concession lengths of the Chicago Skyway and the Indiana 

Toll Road agreements each exceed their useful life, the private investors can claim 

full tax deductions for asset depreciation within the first 15 years of the lease agreement. The requirement to demonstrate effective asset ownership contributed to the 

99-year and 75-year concession terms for the Chicago Skyway and Indiana Toll 

Road, respectively. One tax expert told us that, in general, infrastructure assets 

(such as highways) obtained by the private sector in a highway public-private partnership may be depreciated on an accelerated basis over a 15-year period. 

Private investors can also potentially benefit from being able to use tax-exempt 

financing authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act for the 21st Century—A Legacy of Users (SAFETEA-LU) in 2005. Private 

activity bonds have been provided for private sector use to generate proceeds that 

are then used to construct new highway facilities under highway public-private 

partnerships. This exemption lowers private sector costs in financing highway public-private partnership projects. As of January 2008, the Department of Transportation (DOT) had approved private activity bonds for 5 projects totaling $3.2 billion 

and had applications pending for 3 projects totaling $2.2 billion. DOT said it expects 

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applications for private activity bond allocations from an additional 12 projects totaling more than $10 billion in 2008. 

Finally, the private sector can potentially benefit through gains achieved in refinancing their investments. Both public and private sector officials with whom we 

spoke agreed that refinancing is common in highway public-private partnerships. 

Refinancing may occur early in a concession period as the initial investors either 

attempt to ‘‘cash out’’ their investment—that is, sell their investment to others and 

use the proceeds for other investment opportunities—or obtain new, lower cost financing for the existing investment. Refinancing may also be used to reduce the initial equity investment in highway public-private partnerships. Refinancing gains 

can occur throughout a concession period; as project risks typically decrease after 

construction, the project may outperform expectations, or there may be a general decrease in interest rates.

Question: Which experiences from foreign countries do you take into consideration when determining what strategies we should use?

GAO response: In previous reports, we have examined how foreign countries approach various transportation challenges and solutions. For example, based on experiences from foreign countries we recently concluded that consideration of highway 

public-private partnerships in the United States could benefit from more consistent, 

rigorous, systematic, up-front analysis. By weighing the potential benefits of highway public-private partnerships against potential costs and trade-offs through careful, comprehensive analysis, decision makers can better determine whether publicprivate partnerships are appropriate in specific circumstances and, if so, how best 

to implement them. We found that governments in other countries, such as Australia, have developed such systematic approaches to identifying and evaluating 

public interest and require their use when considering private investments in public 

infrastructure. While similar tools have been used to some extent in the United 

States, their use has been more limited. Using up-front public interest evaluation 

tools can assist in determining expected benefits and costs of projects; not using 

such tools may lead to aspects of protecting the public interest being overlooked. For 

example, projects in Australia require consideration of local and regional interests. 

Concerns by local governments in Texas that their interests were being overlooked 

resulted in state legislation requiring their involvement. To balance the potential 

benefits of highway public-private partnerships with protecting public and national 

interests, we recommended that Congress consider directing the Secretary of Transportation to consult with them and other stakeholders and develop and submit to 

Congress objective criteria for identifying national public interests in highway public-private partnerships. We also believe that, the Secretary should, when developing these criteria, identify what guidance and assessment tools are appropriate 

and needed to protect national public interests in future highway public-private 

partnerships. 

In 2006, we issued a report that examined how other countries—specifically, Canada, Germany, Japan, France, and the United Kingdom—approached efforts to reform intercity passenger rail systems. We found that intercity passenger rail reform 

efforts in other countries illustrate that, to be more cost effective and offer increased 

benefits in relation to expenditures, there are a variety of approaches—and several 

key reform elements—that need to be addressed when implementing any approach. 

Over the past 20 years, several countries have employed a variety of approaches in 

reforming their intercity passenger rail systems to meet national intercity passenger 

rail objectives—that is, primarily achieving more cost effective, value-added passenger service for the level of subsidies spent. These approaches, alone or in combination with each other, have been used to support other national objectives as 

well, such as increasing transparency in the use of public funds and providing transportation benefits and public benefits. For example, France and Germany changed 

their public funding structure by devolving decision making to local and regional 

governments in order to support the purchase of intercity passenger rail service, allowing local and regional governments to be more flexible and purchase service that 

best fits the preferences of the users. Prior to, or during, implementation of these 

various approaches, several elements key to comprehensive reform were addressed. 

The national governments of most countries we visited focused their efforts on the 

following elements: (1) clearly defining national policy goals; (2) clearly defining the 

various roles and responsibilities of all government entities involved; and (3) establishing stable, sustainable funding for intercity passenger rail. These elements were 

important to determining how passenger rail fit into the national transportation 

system and to increase the value of both federal and nonfederal expenditures on 

such systems.

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[Whereupon, at 1:25 p.m., the committees were adjourned.]

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