U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

76–886—PDF 2011

S. HRG. 112–640 

FINANCING 21st-CENTURY INFRASTRUCTURE 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 17, 2011 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

KENT CONRAD, North Dakota 

JEFF BINGAMAN, New Mexico 

JOHN F. KERRY, Massachusetts 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

OLYMPIA J. SNOWE, Maine 

JON KYL, Arizona 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

RUSSELL SULLIVAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 24 

WITNESSES 

Kile, Dr. Joseph, Assistant Director for Microeconomic Studies, Congressional 

Budget Office, Washington, DC .......................................................................... 6 

Rendell, Hon. Ed, co-chair, Building America’s Future Educational Fund, 

Washington, DC ................................................................................................... 8 

Posner, Matthew, director, Municipal Market Advisors, Chicago, IL ................. 10 

Roth, Gabriel, civil engineer and transport economist, Chevy Chase, MD ......... 12 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 35 

Grassley, Hon. Chuck: 

Opening statement ........................................................................................... 24 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 37 

Kile, Dr. Joseph: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 40 

Response to a question from Senator Hatch .................................................. 74 

Posner, Matthew: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 75 

Rendell, Hon. Ed: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 88 

Responses to questions from committee members ......................................... 93 

Rockefeller, Hon. John D., IV: 

Prepared statement .......................................................................................... 97 

Roth, Gabriel: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 99 

COMMUNICATIONS

American Society of Civil Engineers (ASCE) ........................................................ 111 

CEMEX USA ............................................................................................................ 116 

(III) 

(1) 

FINANCING 21st-CENTURY INFRASTRUCTURE 

TUESDAY, MAY 17, 2011 

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:05 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus, 

(chairman of the committee) presiding. 

Present: Senators Conrad, Kerry, Wyden, Nelson, Menendez, 

Cardin, Hatch, Grassley, Snowe, Coburn, Thune, and Burr. 

Also present: Democratic Staff: Russ Sullivan, Staff Director; Lily 

Batchelder, Chief Tax Counsel; Thomas Reeder, Senior Benefits 

Counsel; Ryan Abraham, Tax Counsel; and David Hughes, Tax Advisor. Republican Staff: Chris Campbell, Republican Staff Director; 

Mark Prater, Deputy Chief of Staff and Chief Tax Counsel; Christopher Hanna, Senior Tax Policy Advisor; and Nick Wyatt, Tax and 

Nomination Professional Staff Member. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

Today we welcome the newest member to the Committee on Finance. Senator Richard Burr is the 12th Senator from the Tar Heel 

State to serve on the Finance Committee. The last Senator from 

North Carolina to serve on the Finance Committee was Senator 

Clyde Hoey, who served until he passed away on May 12, 1954. 

Your membership, Senator, ends the longest period of time the 

State has not had a member on the committee. 

North Carolina has been well-represented on the Finance Committee since its creation in 1816. Nathaniel Macon was the first 

Senator from North Carolina to be appointed to the committee, 

serving for 4 years in the early 19th century. 

The North Carolinian with the most seniority on the committee 

was Senator Furnifold Simmons. He served for 22 years and was 

chairman from 1913 to 1919. Senator Burr, you will be the first 

member of the Republican party to serve on the committee from 

North Carolina. Every prior member who has served on the committee was a Whig, a Jacksonian, a Crawford Republican—I am 

not sure what that is—or a Democrat. 

Senator HATCH. Neither are we. [Laughter.] 

The CHAIRMAN. Senator Burr, I am very pleased to welcome you 

to the committee today. We are very, very happy to have you with 

us. 

2 

Speaking about the interstate highway system, President Dwight 

Eisenhower had this to say: ‘‘Its impact on the American economy—the jobs it will produce in manufacturing and construction, 

the rural areas it will open up—is beyond calculation.’’ 

Infrastructure moves our country forward. It does not just move 

our buses, planes and trains. Infrastructure also moves our economy. Building bridges, roads, and railways creates jobs. According 

to the Federal Highway Association, every billion dollars invested 

in infrastructure creates nearly 28,000 jobs. 

A more efficient transportation system cuts costs for the businesses that help our economy grow. But over the last several decades, our investment in transportation infrastructure has slowed 

significantly. Highways, railways, and roads have not kept up with 

our growing population, and our existing infrastructure is falling 

apart. The American Society of Civil Engineers gave the United 

States an overall grade of ‘‘D’’ on their report card for America’s infrastructure. 

Experts estimate that the roadway conditions contribute to more 

than half of all car crashes. We all remember the tragedy in Minnesota in August of 2007, when the Interstate 35 West Bridge in 

Minneapolis collapsed, killing 13 people, injuring another 154. Ensuring quality infrastructure is a safety issue we must take seriously. 

Maintaining our infrastructure is also an issue of America’s global competitiveness. Today the United States spends about 2 percent 

of our Gross Domestic Product on infrastructure. That is a 50- 

percent decline from 1960. But China spends close to 9 percent of 

the country’s GDP on infrastructure. 

Today we will look at our existing tools to finance infrastructure 

investment: the Highway Trust Fund and the Airport and Airway 

Trust Fund. Both of these funds need to be reauthorized this year. 

These trust funds are financed by the people who use them 

through excise taxes paid at the pump and airline ticket counters. 

Infrastructure on a State and local level is usually financed 

through tax-exempt bonds. 

In February, we passed a bipartisan bill to reauthorize the Airport and Airway Trust Fund through September 2013. It was a 

good start, and I hope we can begin discussions with the House 

soon to get it enacted into law. We should continue that good 

progress as we put together a highway bill. Congress must pass a 

highway bill by September 30, when the authority for the Highway 

Trust Fund expires. 

The Highway Trust Fund faces significant challenges. It relies on 

fuel taxes for 90 percent of its revenue. But given our tough economy and skyrocketing gas prices, many families have had to cut 

back at the pump. Cutting back at the pump means fewer contributions to the trust fund. 

The Congressional Budget Office estimates that the trust fund 

would need an additional $25 billion per year just to maintain current performance. Without that additional money, the Highway 

Trust Fund will be insolvent by the end of next summer. That 

shortfall will force the Transportation Department to slow payments to existing projects, and States would have to suspend critical infrastructure projects and cut jobs. 

3 

* For further information, see also, ‘‘Overview of Selected Tax Provisions Relating to the Financing of Infrastructure,’’ Joint Committee on Taxation staff report, May 13, 2011 (JCX–29– 

11), https://www.jct.gov/publications.html?func=startdown&id=3789. 

Just like many families in Montana and across the country, the 

Federal Government is currently facing the significant challenges 

of a tight budget. So today we will consider how to ensure that the 

Highway Trust Fund remains sustainable. To get our budget in 

order, we will have to make a lot of difficult choices. We will also 

need to look for ways to be creative, because the longer we wait to 

address our aging infrastructure, the more it will cost in the long 

run. 

Every failed bridge and broken levee has a significant cost in 

terms of dollars and cents. More importantly, these tragedies can 

cost lives. The committee has already started to think creatively. 

We have looked at alternative funding proposals, such as the use 

of public/private partnerships, increasing the efficiency of the infrastructure bond market, and creating a national infrastructure authority. 

Today we will consider these and other proposals to finance a 

21st-century infrastructure. All options should be on the table. So 

let us be creative in our efforts to develop infrastructure solutions 

and work together across the aisle to find the most efficient ways 

to build roads and bridges. Let us begin on the path to a 21stcentury infrastructure that will enable businesses to create the jobs 

the economy needs.* 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I appreciate 

your remarks and I, likewise, want to join with you in welcoming 

Senator Burr to this committee. This committee has challenges like 

no other committee in Congress. That is why a lot of us love being 

on it. Frankly, having witnessed Senator Burr and his work on so 

many other committees, I just have to say we are very fortunate 

to have you on this committee, and we look forward to working 

with you. You are one of the people whom I most respect in this 

body, and I just want you to know that. I am grateful that the 

chairman has made such a great statement on your behalf. 

Well, Mr. Chairman, I would like to begin today with a quote attributed to one of America’s greatest and most pragmatic statesmen. Franklin warned, ‘‘When the people find that they can vote 

themselves money, that will herald the end of the Republic. Sell 

not liberty to purchase power.’’ 

Now, this sentiment seems applicable to a variety of policies 

being considered by this Congress. Today it illuminates this committee’s examination of the Federal role in infrastructure financing. The committee’s role in infrastructure financing is most apparent in the maintenance of various trust funds. If the Highway 

Trust Fund is not the greatest of these funds, it is certainly the 

most troubled. That particular trust fund is the main subject of 

this hearing. 

4 

According to the Congressional Budget Office, this trust fund’s highway account will be under-funded by around $104 billion in 

2021 if current trends persist. Under current law, the trust fund 

is not actually able to incur negative balances, but the CBO estimate shows that the demands on the fund far outstrip its resources. 

The current solvency of the trust fund is an illusion created by 

gimmicky general fund transfers over the past few years. The last 

long-term surface transportation reauthorization, tortuously named 

the Safe, Accountable, Flexible, Efficient Transportation Equity 

Act: A Legacy for Users, or SAFETEA–LU, expired in 2009. Keeping with recent tradition, Congress has enacted a serious of shortterm extensions. The most recent extension expires this September. 

Now, what these extensions have done and continue to do is 

mask an enormous, yet simple, problem. There is no such thing as 

a free lunch. To most people, this is a cliche ́, but it evidently has 

not been said enough to sink in with those who want to finance infrastructure projects in excess of our ability to pay for them. 

Already this year I have heard from colleagues eager for federally funded infrastructure spending to continue unabated. One colleague, speaking in another committee, extolled the virtues of more 

investment in infrastructure. She closed her remarks with the following: ‘‘I am grateful to my colleagues on both sides of the aisle 

for their interest in moving forward together on a transportation 

bill that invests in our transportation system to help ensure we 

will meet America’s needs in the coming years.’’ 

We hear this sentiment from the President all the time: we need 

to invest in America. Well, of course we do. But that is not the 

issue. The first issue is who, in a constitutional system of enumerated powers, is going to pay for it. Will the States pay for it or will 

the Federal Government? 

The second issue is, how are we going to pay for it? If the Federal Government takes on significant infrastructure responsibilities, how are we going to pay for it? Believe me, if the President 

gets his way, we are going to pay for it. There is a lot of rebranding 

going on over on the left. What used to be called raising taxes is 

now called ‘‘shared sacrifice.’’ What used to be called government 

spending has now been dubbed ‘‘investments.’’ 

Apparently some strategists figured out that, to the American 

people, higher spending and higher taxes are equivalent to dirty 

words, so there is an effort to spin this Carter-era message of tax 

and spend in a way that will be more palatable to the American 

people. I know that Utahans are not going to buy it, and I do not 

think many Americans will. 

For them, the issue remains, how are we going to pay for all of 

these investments? It is not at all clear where this spending will 

come from. Traditionally, the spending has come from the trust 

funds which are maintained by the Finance Committee. Some seem 

to view this committee as a no-limit credit card, and they view the 

balances they run up here as somebody else’s problem. 

Our current circumstances make it impossible to continue that 

approach. The voters have made it clear that it is time to think 

twice about giving Federal policymakers an unlimited credit line. 

That is why this hearing is so important. The negative signs are 

5 

obvious. The Highway Trust Fund’s projected end-of-year balances 

are telling us that our current approach to highway financing does 

not work. Now is the time to thoroughly examine the Federal Government’s role in promoting infrastructure investments and improvements. 

The financing of these projects has deteriorated to the point that 

I am not sure most Americans, or even their elected representatives, know what they are actually paying for. Around 89 percent 

of the Highway Trust Fund’s revenues comes from excise taxes, 

and most of that is the 18.3 cents per gallon Federal gas tax. But 

I wonder if people, as they watch the number spinning around and 

around on the gas pump, realize that around 14 percent of Highway Trust Fund revenues go to the mass transit account. So, when 

we say that by paying Federal gas taxes taxpayers are paying for 

the roads they drive on, that might only be 86-percent true. And 

even 86 percent might be too high. 

A Government Accountability Office report from 2004 titled 

‘‘Trends, Effect on State Spending, and Options for Future Program 

Design’’ found, in part, that ‘‘increased federal highway grants influence States and localities to substitute Federal funds for funds 

they otherwise would have spent on highways.’’ In other words, an 

additional dollar of Federal money may not overall buy an additional dollar’s worth of infrastructure. It might just shift the burden of paying for it from States and localities to the Federal Government. 

From this hearing I hope we can get a clearer picture of what 

the appropriate Federal role in infrastructure financing ought to be 

and how we can make that happen. What is certain is that continuing the flawed policies of the past will not work. We need to 

look beyond simply putting more money into a leaky and brokendown highway trust fund or hiding the rusted-out shell of the trust 

fund among other financing vehicles that appear to be in better 

shape. 

I just hope that today’s witnesses can help us determine if our 

current policies need merely a tune-up or a complete engine rebuild. When I look at the roads in the District of Columbia, the 

greatest city in the world—take Constitution Avenue. I come in on 

it every day. It is a doggone mess. It is one of the lousiest roads 

in the country. You would think we would keep those roads up so 

that they would shape up and look good in our country’s capital. 

But that is an indication of how bad it is everywhere else. 

Now, taxpayers need to know if Washington can continue with 

business as usual or if fundamental reform of highway financing is 

in order—and I am going to be very interested in learning how we 

might solve these problems from these experts who are here today, 

and I want to personally welcome all of you here today. We are 

grateful for you taking time to be with us. Governor, we are grateful to have you here, and the others as well. So, we appreciate you. 

The CHAIRMAN. Thank you, Senator. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. All right. Let us get down to work. 

Our first witness is Dr. Joseph Kile. Dr. Kile is the Assistant Director for Microeconomic Studies at the Congressional Budget OfVerDate Nov 24 2008 16:45 Dec 04, 2012 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 R:\DOCS\76886.000 TIMD
6 

fice. Thank you, Dr. Kile, for taking your time to come here, and 

thanks for your testimony, too. 

Second, Governor Ed Rendell. Governor Rendell is the co-chair of 

Building America’s Future Educational Fund. Mr. Rendell served 2 

terms as the Governor of Pennsylvania and, before that, served as 

Mayor of Philadelphia for 8 years. 

Next, Mr. Matthew Posner. Mr. Posner is the director of Municipal Market Advisors. That is an independent research advisory 

firm for the municipal bond industry. Thank you, Mr. Posner. 

Finally, we have Mr. Gabriel Roth, a civil engineer and transport 

economist, formerly with the World Bank. 

Thank you all for coming. As you probably know, our customary 

practice here is to have your statements automatically included in 

the record, and we need you to speak for about 5 minutes, beginning with you, Dr. Kile. 

STATEMENT OF DR. JOSEPH KILE, ASSISTANT DIRECTOR FOR 

MICROECONOMIC STUDIES, CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC 

Dr. KILE. Thank you. Chairman Baucus, Senator Hatch, members of the committee, thank you for the invitation to testify today 

on issues related to funding of highways. My testimony today examines the Federal role in paying for highways, but it is also relevant to other types of infrastructure that are funded by the Federal Government. 

The United States spends about $160 billion per year on highways, with about one-fourth of that total coming from the Federal 

Government. Federal highway spending is funded mainly through 

taxes on gasoline and other motor fuels that are set to expire on 

September 30. The revenues from those taxes accrue to the Highway Trust Fund, and the Congress spends money from that fund 

for highways and other surface transportation programs. 

In recent years, the Congress has spent more than it has collected in transportation-related taxes, and it has supplemented the 

Highway Trust Fund with money from the general fund of the 

Treasury. Even if the provisions of current law are extended, CBO 

projects that the trust fund will be unable to meet its obligations 

in a timely manner sometime during the second half of 2012, unless the Congress chooses to transfer money as it has done in the 

past, identifies other sources of revenue, or reduces spending. 

To shed light on that choice I will turn briefly to three questions 

facing the Congress: (1) how much should the Federal Government 

spend on highways; (2) how should the Federal Government direct 

the use of those funds; and (3) how should the Federal Government 

raise those funds? 

The Congress has a range of options for future spending on highways. It can limit spending to the amount it collects in current 

taxes on fuel and other transportation activities. Doing so would reduce spending by about $13 billion per year. It could choose to 

maintain current spending, or it could target a particular goal. For 

example, maintaining the current performance of the highway system would require about $14 billion per year more, and funding 

projects whose benefits exceed their cost would require more money 

than that. 

7 

The Congress currently directs funds for highway infrastructure 

through three mechanisms. First, the Federal Government provides 

grants to State governments under formulas that allocate 80 percent of Federal spending. The remaining 20 percent goes to specific 

projects or purposes that are identified by the Congress or the Secretary of Transportation. 

Second, the Federal Government provides credit assistance 

through loans and loan guarantees that reduce the cost of borrowing by State and local governments. Those lower costs, however, 

impose a cost on Federal taxpayers who bear the risk of default. 

That is a cost that otherwise would be borne by the borrowers 

through higher interest rates. 

Third, the Federal Government reduces the cost of borrowing by 

State and local governments by providing tax preferences for the 

bonds that they issue. Tax-exempt bonds are widely used but are 

generally not considered cost-effective because the Federal revenues that are foregone are greater than the savings to State and 

local governments. 

Tax credit bonds are an alternative that allows bond holders to 

claim a credit against their tax liability or bond issuers to claim 

a credit payable to the Treasury. Tax credit bonds can be a more 

cost-effective way for the Federal Government to reduce the cost of 

borrowing by State and local governments. 

In recent years, other ideas for directing Federal money have 

also been proposed. For example, a Federal infrastructure bank 

might rely on cost/benefit analysis to select projects, and such a 

bank could attract private financing by reducing the cost of borrowing. However, doing so would impose the cost of such credit assistance on Federal taxpayers and would draw on future tolls or 

taxes to pay the financing costs. 

Regardless of how projects are chosen or how financing is structured, money for highways ultimately comes from highway users or 

taxpayers. Taxes, tolls, and fees imposed on highway users now 

fund about half of highway spending by the Federal, State, and 

local governments. The rest comes from the Treasury’s general 

fund and from similar State and local funds. 

A system that charged users for the full cost of travel would increase the cost to motorists, but could promote more efficient use 

of the highway system. Although taxes currently are charged for 

fuel, most of the cost of using a highway, especially the cost of 

pavement damage and congestion, are tied more closely to the 

number of miles traveled than to the amount of fuel consumed. 

Charging users based on the costs they impose would require a 

combination of fuel taxes and per-mile charges, sometimes called 

VMT taxes. Imposing such prices would encourage motorists to use 

the highways only when the benefits to them outweigh the costs, 

and a system like that would also reduce highway use, and thus 

future spending. 

Thank you again for the invitation. I would be pleased to answer 

any questions that you might have. 

The CHAIRMAN. Thank you, Dr. Kile, very much. 

[The prepared statement of Dr. Kile appears in the appendix.] 

The CHAIRMAN. Governor Rendell? 

8 

STATEMENT OF HON. ED RENDELL, CO-CHAIR, BUILDING 

AMERICA’S FUTURE EDUCATIONAL FUND, WASHINGTON, DC 

Governor RENDELL. Good morning, Senator Baucus, Senator 

Hatch, members of the committee. 

The CHAIRMAN. Good morning. 

Governor RENDELL. Let me begin by speaking to some of the 

points that Senator Hatch made. Senator, I respectfully disagree, 

and I think the American people disagree, that spending on infrastructure is not investment. They see it as investment. They see it 

as worthwhile. They see it as providing value to them. They see it 

as improving the quality of their life, their safety, and our Nation’s 

economic competitiveness. 

In the 2010 election, I think we would all warrant that that was 

the most conservative anti-spending election, certainly in my lifetime. Sixty-four percent of all transportation infrastructure referendums were approved, and each and every one of them called for either increased taxes, increased tolling, or increased borrowing. The 

American people approved them, even in the atmosphere that predominated in the 2010 election, because they knew the projects. 

They knew the projects were worthwhile and necessary, and they 

were willing to invest in things that had a benefit to them in the 

future. 

I think the key for this committee, and the key for infrastructure 

advocates like Building America’s Future, is to convince the American people that these projects are going to be worthwhile, they are 

going to change their lives, they are going to make us more economically competitive, they are going to make us safer, and they 

are going to give us back 10, 15 hours of our time that we spend 

in congestion. I think if we do that, spending, investment—however 

you want to call it—will be supported by the American people. 

What is the Federal Government’s role? I think the Federal Government should—as is done in every other developed nation in the 

world—have a significant role in infrastructure spending. I believe—and I will get off this because I know you guys have been 

wrestling this for 25 years—we should have a Federal capital budget. It is nuts. 

There is no corporation in America that does not separate operating and capital costs, and there is no other political subdivision 

in America. Every city, every State, every county has a Federal 

capital budget. Infrastructure, building a bridge which has a 40- or 

50-year lifespan, should not be paid for the same as buying paper 

clips, which have a 40- or 50-day lifespan. So, I think there are 

things that have to be done, and I think we should make a significant new investment in infrastructure. 

Having said that, I am going to address what I think the Congress is more likely to do and how you should do it, and I do it with 

a heart that is somewhat heavy, because I think we are missing 

a great chance to revitalize the American economy. 

Senator Baucus read a quote from Dwight David Eisenhower, a 

Republican who did more for the infrastructure of this country 

than any single person alive. He noted that it is the best job creator we have. Well-paying jobs that in fact will produce new Federal taxes which the CBO does not score when they talk about infrastructure spending, and they ought to score. You want to take 

9 

a look at, I think it is the 1974 Budget Act and the way you score 

around here. 

But I think that, if we are not going to do that, first we have 

to uncap States’ abilities to toll highways that were built with some 

Federal money. Right now, you have only given us a pilot project. 

Only three projects can be done with tolling on Federal highways, 

and two grants have been issued. They have not been built. 

I wanted to toll Pennsylvania I–80. We got turned down by the 

Department of Transportation in our bid to toll I–80. But you have 

to do it. First of all, we need to maintain those highways. The only 

way we are going to keep up with rising maintenance costs, if you 

are not going to give us the money—and my guess is you are not— 

is to allow us to toll. There are no ifs, ands, or buts about it. 

Congressman Oberstar, whom I admire greatly, used to say, well, 

we are not going to let you toll for maintenance because that would 

be having the people pay twice for it. Well, when you buy a car, 

you pay for it the first time, but you do not stop paying for its 

maintenance. When we were trying to toll I–80—I–80 goes through 

the northern tier of Pennsylvania. The weather is awful up there. 

The road gets the living daylights kicked out of it. We are spending 

right now $90 million a year on maintenance for I–80. It is a tollfree road. We wanted to toll it. 

One of the things we would have done, we would have used some 

of the tolls for other roads in Pennsylvania, but we would have increased our maintenance on I–80 to $200 million a year. States 

simply do not have that capacity without you allowing us to toll. 

So job one is, lift the cap on tolling. It will be our decision. It will 

be Governors and legislatures who will decide whether to toll or 

not. But for Lord’s sake, lift the cap. 

Second, unleash the private sector. I believe Felix Rohatyn, who 

serves as an advisor to Building America’s Future (BAF), has estimated there may be as much as $150 billion in foreign capital 

ready to invest in American infrastructure. I am sure Mr. Posner 

will tell you that there is a whole boatload of American dollars willing to invest in American infrastructure, because it is a stable investment with a fairly safe return. We can get, in my judgment, 

up to $20 billion a year invested from the private sector, helping 

us rebuild the American infrastructure. 

Third, bonding. Again, I know the Congress let Build America 

Bonds lapse. Senator Wyden has the Transportation and Regional 

Infrasturcure Project (TRIP) proposal, and he says that it is in 

great part paid for by the $900 million a year in user fees. There 

has to be some form of bonding if you are not going to do a capital 

budget. My guess is you will not. 

Build America Bonds were very successful. The State of Pennsylvania, in the teeth of the recession in early 2010, we did a $100- 

million construction bond, and we received an interest rate of 3.1 

percent; 58 percent of it was backed by BABs. It was the lowest 

interest rate in the history of the Commonwealth of Pennsylvania, 

and it was a significant savings to us and allowed us to do much 

more work with our own State dollars. 

Next, expand the Transportation Infrastructure Finance and Innovation Act. TIFIA should not be scored as anything other than 

zero. It actually makes money for the Federal Government. You 

10 

loan money out, and the loans are repaid with interest. TIFIA is, 

I think, at about $200 million now. I think you should quintuple 

it, get TIFIA up to $1 billion. TIFIA is those last dollars in to make 

projects work, and you actually make a slight profit on TIFIA. Private Activity Bonds are capped at $15 billion. If we are really 

serious about getting the private sector involved, either lift the cap 

or raise the cap on Private Activity Bonds. The Infrastructure 

Bank is a good idea for leveraging private dollars and getting them 

through the process and giving the public some confidence that 

projects of national and regional significance are going to be selected based on merit, based on cost/benefit analysis. We cannot do 

multi-state projects. We cannot do them. 

The Transportation Investment Generating Economic Recovery 

(TIGER) program, under stimulus, was the first Federal program 

in a while that allowed us to do multi-State projects. Pennsylvania 

joined with five other States on the Crescent Corridor project with 

Norfolk Southern. One-third private funding, one-third Federal 

funding, one-third made up by all six States. Enormously successful freight rail project. We need the Infrastructure Bank for those 

type of projects. 

Lastly, speed up the process. Lord knows, we do not need 2 years 

to do an environmental impact statement. We could do an environmental impact statement in 6 months. We do not need 2 years. 

That delay—the cash register, as Chairman Baucus said, keeps 

clicking and keeps running up each month we delay. There is no 

excuse. That work can be done in 6 months. There is no excuse for 

that at all. 

I know the committee has questions about, will the rural areas 

be left out of the Infrastructure Bank, et cetera? The answer is no. 

Number one, as you know, in Senator Kerry’s bill there is a rural 

set-aside. I think that is important. Number two, remember, we are 

just using the Infrastructure Bank to leverage new funding for national and regional projects. The basic formula funding that comes 

out of the Intermodal Surface Transportation Efficiency Act 

(ISTEA) or SAFETEA–LU, or whatever you call it, is going to continue. Then, three, take water projects. There may be a very important water project that will affect three or four rural States. There 

is no avenue to do it now. The Infrastructure Bank can be that avenue. 

So, that is it. 

The CHAIRMAN. Thank you. Very good. Thank you very much, 

Governor. 

[The prepared statement of Governor Rendell appears in the appendix.] 

The CHAIRMAN. Mr. Posner? 

STATEMENT OF MATTHEW POSNER, DIRECTOR, 

MUNICIPAL MARKET ADVISORS, CHICAGO, IL 

Mr. POSNER. Good morning, Chairman Baucus, Ranking Member 

Hatch, and members of this committee. I am Matt Posner, and I 

am a director at Municipal Market Advisors, MMA. We are the 

only independent research and data provider for the municipal securities industry. Our clients include investors, securities dealers, 

issuers, and regulators. Thank you for inviting me to testify before 

11 

you today and share my thoughts on infrastructure and the most 

important way in which it is financed in the United States: the municipal bond market, which has existed for over 100 years. 

I have to say, it is a bit of a daunting task to speak after Governor Rendell, a seasoned public speaker, so I think I am going to 

stick to my written remarks here. 

The market plays an integral role in the building and maintaining of our Nation’s infrastructure. Last year, the municipal market 

helped finance roughly $300 billion in new projects, with $70 billion going directly towards transportation. Given the magnitude of 

these figures, it is no surprise that this committee is eager to understand the drivers that have contributed to the dramatic reduction in municipal issuance this year. 

It is also important to understand the implications of this decline, as well as possible remedies to getting infrastructure projects 

moving in a down economy. I want to emphasize that MMA believes it is critically important to provide issuers flexible access to 

a wide variety of lenders, thereby ensuring that officials in all of 

their own communities can build schools, hospitals, and bridges at 

the lowest cost possible. 

Regardless of the innovative financing means that may be considered by Congress—taxable loans with subsidies, an Infrastructure Bank, or tax credit securities—there is a demand base made 

up of individuals and institutions that facilitate a low cost of capital for the current tax-exempt structure. 

During the first 4 months of this year, the municipal market has registered half the amount of issuance, roughly $62 billion through 

April, compared to the $131 billion during the same time last year. 

This decline has not only occurred because of reduced investor demand, but also because States must balance their budgets and are 

doing so by prioritizing their expenditures, including capital costs 

that are associated with servicing debt that finances them. We believe that this decline has facilitated projects being postponed. 

In a healthy environment, the municipal market allows communities to build what they need, when they need it. Perhaps, in the 

current setting, this has never been more important as the Federal 

Government’s expenditures to stabilize the United States’ economy 

and ensure our country’s freedoms and safety militarily have reduced the ability of States and localities to finance new projects, as 

well as the large amount of maintenance of older infrastructure 

that will be needed, especially in the next 5 years. 

How can lawmakers ensure that capital markets work and important infrastructure projects are completed? MMA believes Congress should be proactive; however, do not harm the current taxexempt structure. As I said earlier, the tax-exempt market helps 

States and local governments finance trillions of dollars of infrastructure projects. 

These governments bear the responsibility of financing a significant portion of the country’s roads, schools, airports, and sewers, 

among countless other projects that create jobs and improve the 

quality of life of the citizens living in those communities. Without 

the tax-exempt market, we believe some issuers may be priced out 

of whatever alternative market is created, and the country’s already broken infrastructure will continue to deteriorate. 

12 

As policymakers think about infrastructure, there are a few steps 

that could be taken to improve, or at least maintain, the municipal 

market. Direct subsidy bonds at a revenue-neutral rate and tax 

credit bonds are two ideas that should be enacted. Giving issuers 

more financing options, Congress can open them to a broader investor base and lower the cost of building to both State and local governments, as well as to the Federal Government. 

Our recommendations also offer taxable options that will work 

better for larger-scale projects, while maintaining the smaller 

projects that are facilitated through the tax-exempt market. Smaller communities such as those in Montana or Utah definitely take 

advantage of these tax-exempt options. 

A national infrastructure authority to encourage private investment is an excellent idea. This, along with improving the disclosure 

methodology of the current market, should occur. These five recommendations are fleshed out in greater detail in my written testimony. 

Finally, I implore you to think broadly and forwardly when defining infrastructure. The U.S. and global economies have changed 

dramatically in the past 20 years. Our Nation’s competitiveness, 

relevance, and leadership are dependent not only on simply the 

restoration of the infrastructure of the 19th and 20th centuries’ 

economies, but perhaps more importantly on the infrastructure 

needs of a global information economy defined by the speed of 

gigabytes and the capacity of clouds. 

Thank you again for inviting me here today. I look forward to answering any of your questions. 

The CHAIRMAN. Thank you, Mr. Posner. 

[The prepared statement of Mr. Posner appears in the appendix.] 

The CHAIRMAN. Mr. Roth, you are batting clean-up here. 

STATEMENT OF GABRIEL ROTH, CIVIL ENGINEER AND 

TRANSPORT ECONOMIST, CHEVY CHASE, MD 

Mr. ROTH. Mr. Chairman, I would like to start by thanking you 

and Senator Hatch for inviting me to speak before this important 

committee. I would also like to thank the other testifiers for their 

informative and helpful testimony. 

However, I could hear nothing in what was said to justify Federal expenditures on road or rail infrastructure other than expenditures from the Federal Highway Trust Fund. As you, Mr. Chairman, mentioned, President Eisenhower, in setting up that fund— 

I would like to point out that the fund was set up in such a way 

that monies could only be spent from funds accumulated in it. It 

was set up to protect taxpayers from spending on highways. 

The taxes had to be paid first—probably the fuel taxes. They 

went into the Highway Trust Fund, set up by Congress in the early 

1950s, and legislated in 1956. Monies had to come from that fund. 

There was no obligation from general taxpayers to finance infrastructure. What a contrast this is to the current proposals to finance high-speed rail infrastructure, for which there is no apparent 

source. I just cannot help wondering whether, because China is always mentioned in connection with that, we are all going to be invited to use chopsticks with Federal subsidies. 

13 

Why is Federal financing undesirable? Really, two reasons. First 

is that good government does not finance services that can be provided and sustained commercially. The U.S. has a strong user-pays 

tradition for transportation. The travelers pay for what they get 

and get what they are prepared to pay for. Payment for rail services and similar services are made out of fare boxes, and payments 

for roads out of tolls, out of dedicated trust funds, and for local 

roads out of property taxes. Having users pay the full cost of services protects taxpayers from capricious investments made more for 

political correctness than for customer satisfaction. 

The second basic reason is the accepted principle of subsidiarity. 

Matters ought to be handled by the smallest, lowest, or leastcentralized competent authority. The application of that principle 

to U.S. transportation infrastructure indicates that the Federal 

Government should not involve itself in matters such as local transit. That is the responsibility of States and local authorities. 

In addition to these two basic reasons, I mention in my testimony five reasons why Federal financing is damaging to highway 

financing. First, it encourages States to choose low priority projects. 

Second, it forces road users to pay for non-road facilities, and 

much more than 14 percent of payments by road users are spent 

on non-road facilities. Twenty percent goes to transit. 

Third, it increases highway costs by high specifications, also by 

regulations, such as Davis-Bacon labor project agreements, that increase road costs enormously when they are federally funded. 

Fourth, the system favors some States at the expense of others. 

Fifth, it enables the Federal Government to impose conditions on 

States, for example, 55 mile-an-hour speed limits, which the Federal Government may not even have the constitutional power to 

impose. Governor Rendell gave a good example of this, how Federal 

regulations stopped the State of Pennsylvania tolling a road that 

the people there thought should be tolled. It seems to me that 

should not be the job of the Federal Government. There are many, 

many regulations that discourage the efficient production of transport facilities, and these regulations need to be looked at and abolished. 

Governor Rendell spoke eloquently on the need for an infrastructure bank. What he said made a lot of sense, but such a bank cannot be financed by governments. There are solid commercial banks 

in Pennsylvania capable of raising $10 billion for an infrastructure 

bank. Governor Rendell himself sounds like the ideal person to lead 

such as bank. [Laughter.] 

This committee has enormously important responsibilities. I am 

sure that all of us testifying today wish its members all success in 

steering this country to a financially sustainable future. Thank 

you. 

The CHAIRMAN. Thank you, Mr. Roth, very much. 

[The prepared statement of Mr. Roth appears in the appendix.] 

The CHAIRMAN. I think we all agree that our country is in dire 

straits. We must address the infrastructure gap, such as it is. We 

have all mentioned the reasons why. The next question, really, is 

how do we do it, and at what speed and to what degree? I am going 

to let you, Governor, follow up on the challenge that Mr. Roth gave 

14 

to you: why do we need Federal Government help here? You mentioned in your testimony, open up the gates, let the private sector, 

foreign and domestic, invest in U.S. infrastructure. Why can that 

not be addressed commercially alone? Why do we need the Federal 

Government? 

Governor RENDELL. Sure. I mean, there is an easy answer to 

that. The private sector is only going to invest when they can make 

a return on their investment. Basic American capitalism—we understand that. There are just so many parts of our infrastructure 

that can in fact be tolled to give that return on the investment. 

Pennsylvania, for example, has 5,500 structurally deficient 

bridges. Only 2 or 3 of them could be tolled to produce the type of 

revenue needed to make the repairs on those bridges, so that 

leaves 547 bridges that we cannot toll and the private sector would 

have no interst in doing. No one is going to invest in something 

that would lose money, clearly, so that has to be done governmentally. That is the basic answer. 

Most of our infrastructure—some of the large projects, yes, we 

can toll. We can get a return on investment, and we should. But 

most of what we do in Oklahoma, in Florida, in Pennsylvania, in 

Montana and Utah, those things are not susceptible to any sort of 

structure that would give a return on the investment. So our government has to be involved. 

The CHAIRMAN. I think that is a good point. There are a lot of 

donee States under the Highway Trust Fund, too. I take my State 

of Montana. If there were not a Highway Trust Fund, interstate 

highways would stop at the border. 

Governor RENDELL. Absolutely. 

The CHAIRMAN. We have a very high gasoline tax. Very high 

State gasoline tax. But frankly, we cannot afford to build these 

interstate highways. The truck traffic that goes across the country 

would not be able to go through States like Montana. 

Governor RENDELL. And it would be very, very hard. The specific 

question on the Infrastructure Bank is, the Infrastructure Bank, as 

opposed to PNC or any bank that I might start—thank you, Mr. 

Roth; I have never aspired to be a banker, but maybe—the difference is, the Infrastructure Bank—and we have seen it work in 

California and in South Carolina, and now Virginia where Governor McDonnell has gone down that road—infrastructure banks 

do require a return on their investment. 

If we loan money to a project, the Infrastructure Bank, we want 

to get some money back. We want to make a return. But our rates 

are significantly lower, and that allows projects to go forward because the rates are lower than you could get in the private market. 

Infrastructure banks anywhere in the world do not finance the entire project, but they are often that key last money in that makes 

a difference. 

The CHAIRMAN. Right. So what is the percent? What percent is 

financed by Uncle Sam or by the public? 

Governor RENDELL. The European Investment Bank, what is the 

rate of return? I think they charge—we would suggest, Building 

America’s Future—an interest rate at about a third of what the 

private sector interest rate is. By the way, the Infrastructure Bank, 

15 

a Federal Infrastructure Bank, can encourage State and local investment. 

For example, I think everybody knows about what Los Angeles 

County voters did in approving the 30-year project for all sorts of 

transportation. They agreed to lift their sales tax by half a cent. 

But that money comes in over 30 years. The Infrastructure Bank 

could make a loan to allow some of that work to begin right now 

and get a rate of return on their investment. 

The CHAIRMAN. Right. I do not have a lot of time here, but you 

suggested—and it is very appealing—just try to find ways to bolster the Highway Trust Fund; in addition, create some kind of Infrastructure Bank, look at the new debt financing and the bonding 

ideas that have been talked about, add more to TIFIA, and so 

forth. 

A couple of questions come to my mind. There is not time to go 

through all of them right now. But one of the benefits I think of 

the Highway Trust Fund is it is an American program. It is for 

America. People drive across the country, and they pay the gasoline 

taxes or diesel fuel. We are together as a country with the interstate highway system and the Federal roads that we have here. 

I am a little concerned—at least it is a question in my mind— 

how much of that—if that is important, and I think that it is— 

would be lost if we also grafted on top of it all these different proposals where we start to lose the sense of one country driving together, if you will, on the Highway Trust Fund? 

Governor RENDELL. I have never been asked that question. It has 

a very empathetic ring to it. But I think it ignores reality. When 

I was trying to privatize the Pennsylvania Turnpike, which would 

have gotten us $13 billion from private investors, the legislature 

turned it down. Boy, would they like to have that deal back right 

now! 

But one of the knocks on it was that the investor was a Spanish 

company, and we did not want to turn our turnpike over to foreign 

intervention. Well, I said to the public, so no one can fly in to Disney World because that same Spanish company, Abertis, runs the 

Orlando Airport? We are a new world. We are one world. People 

want to invest. I am told by Felix Rohatyn that there is money in 

China that wants to invest in the American infrastructure. Would 

it not be great to get the Chinese investing in something American? 

So I think we have to take a more global view. It is not what 

it was back in 1956. But we still control it. I was going to lease 

the Pennsylvania Turnpike, not sell it. The State of Pennsylvania 

would control the conditions. I think we could do the same with 

private investment all across our infrastructure. 

The CHAIRMAN. Thank you very much. 

Senator Hatch? 

Senator HATCH. Thank you. Thank you, Mr. Chairman. I have 

enjoyed this today. This is a very interesting set of discussions. Let 

me just ask you this, Mr. Roth. I certainly enjoyed, Governor 

Rendell, your remarks. I have enjoyed all your remarks. Sorry. I 

just wanted to mention that. 

Mr. Roth, the administration has proposed the creation of a national Infrastructure Bank, and legislation has been filed by some 

of our members that would create an Infrastructure Bank. What 

16 

impact do you think the creation of a national Infrastructure Bank 

would have on infrastructure spending? Would the Infrastructure 

Bank lead to efficient allocations of public and private capital? 

Mr. ROTH. I would be concerned that, if there was an Infrastructure Bank, and if it lent on favorable terms, it might even reduce 

the amount of private sector involvement. States would be queuing 

up to get money from the Infrastructure Bank, and this would 

cause delays. 

Also, the bank would be run by politicians and would probably 

have to be careful not only to lend to good projects, but also to be 

fair, which means that, if it lends for projects in the South, it 

would have to lend to projects in the North. Already in what we 

have heard, it has allocated a certain amount to be lent to rural 

projects. I am just wondering how much litigation that would lead 

to as to what is rural and what is not rural. 

I would be concerned about lending being controlled by politicians rather than by people who see profitability as their principal 

criterion for investment. 

Senator HATCH. All right. The discussions of highway funding 

today frequently revolve around getting more money to feed into 

the Highway Trust Fund and how to separate hardworking Americans from more of their money. It is a constant battle back here 

in Washington. 

Now, I am a believer that this country does not have a tax problem, but really has a spending problem. I think that is true with 

regards to Federal funding of highways as well. With all of the 

other pressure my fellow Utahans and other Americans are facing 

right now, including high gas prices, the last thing they need is for 

us in Washington to pile on further by raising gas prices even 

more. Now, this clearly is not a popular topic of conversation. I 

think we need to look at ways to extract greater value from the 

money that we are spending right now. 

Now, would you elaborate—you made the point in the section of 

your written testimony where you discuss how factors such as the 

Davis-Bacon laws and Federal construction specifications increase 

the cost of highway construction. I agree with Governor Rendell, 

the environmental delays are crippling and very, very expensive, 

not just in highway construction, but in almost everything else 

where we try to utilize our lands better. 

Assuming a Federal role in highways financing was maintained, 

what could we do to use existing dollars more efficiently, and how 

would eliminating the Federal role in the funding of highways lead 

to more efficiency in highway spending? Of course, anybody else 

can answer that, too. Go ahead. 

Mr. ROTH. Well, it would improve the efficiency because the 

States who are closer to the projects have a better idea of what 

they want and of what they are prepared to pay for. Of course, they 

are encouraged to choose expensive projects, because under the 

present system they only have to pay a small proportion of the 

costs, so we get very wasteful projects that would never be financed 

if they had to be financed by the States alone. 

Now, I do not know how important transit is in Utah. 

Senator HATCH. It is important. 

17 

Mr. ROTH. But would it take up 20 percent of the money that 

local people would pay into a Utah Highway Trust Fund? I do not 

even know if there is a dedicated Highway Trust Fund in Utah, but 

certainly one could be established, and there would be no DavisBacon laws that need apply there. There would be no double administration from Washington and from the State. I suspect that 

the cost of providing highways could probably drop by anything on 

the order of 20, 30 percent. So I think there would be considerable 

economies from that side. 

Senator HATCH. Thank you. 

My time is up, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Burr, you are next. Welcome to the committee. I have 

just learned that Senator Nathaniel Macon, as a Crawford Republican from North Carolina, when he first ran for the Georgia House 

of Representatives, was a member of the Democratic Republican 

Party. So you, Senator, are potentially in a very good position to 

break down this partisanship that exists here by being the leader 

of the Democratic Republican Party and getting us to work together here. 

Thank you very much for joining this committee and choosing 

this committee. We are honored to have you here. 

Senator BURR. I thank the chair for his gracious acceptance of 

me to the committee and to Senator Hatch. I appreciate the history 

as it relates to North Carolina because the take-away from this 

hearing is, not only do we get gypped on the Highway Trust Fund, 

we have been gypped on representation from this committee for 

years from North Carolina. 

The CHAIRMAN. But you are making it up, Senator. We are glad 

to have you. 

Senator BURR. Mr. Chairman, I am reluctant to even ask the 

question at the first hearing, but as I understand the challenge before us, it is really a 2-fold problem. First, how should we fund 

projects in the future? And something that I think has gone unnoticed: how do we reduce the cost of the projects that are currently 

in the system? 

Let me ask, Governor Rendell, do you support the State Flexibility Act, which is legislation that is floating around right now? 

Governor RENDELL. Well, I have not seen it, Senator. I do generally support the concept of giving States more control and more 

flexibility, but I would never believe that flexibility is a goal worth 

obtaining at the cost of significantly reduced spending. 

When I hear flexibility here in Washington, it generally tends to 

be a little bit of a synonym for reduced spending. If we got the 

same amount of money and more flexibility, we could put it to better use and stretch it. Yes, I think there is no question about that. 

But as I said—and I know the situation in Georgia is very much 

the same—who is going to fix our bridges? I was probably as dedicated to spending money on infrastructure—I call it investing, Senator Hatch—as any Governor in the country. 

By the way, as a result Pennsylvania, from March to March, this 

year to last, was the third-highest State in job creation behind only 

California and Texas, and I think a lot of it was due to the fact 

that we did invest in our infrastructure significantly. But who is 

18 

going to take care of those 5,500 bridges? It cannot just come from 

giving us flexibility. The Amish build bridges in Pennsylvania. One 

county came in to me and said, Governor, we need more money for 

our covered bridge repair. I said, what do you need? They said, 

$75,000. I said, how many bridges do you have? They said 31. I 

said, how do you do 31 bridges on $75,000? They said, well, we let 

the Amish do it. So I immediately contacted my PennDOT secretary and said, are there enough Amish to take over the State 

highway program? [Laughter.] 

Unfortunately, there are not. 

Senator BURR. Well, I tend to believe that people lead with what 

they believe is the strongest statement that they are going to 

make, and you led with flexibility. You said when you were Governor there were things you could have done, and the Federal Government stood in the way of that. A lot of it dealt with tolling of 

I–80. 

Governor RENDELL. Oh, sure. 

Senator BURR. But I think it all wraps into the same thing: how 

much are we willing to let States play the role of decision making? 

More importantly, how much are we willing to empower them to 

make decisions as they relate to tolling? If so, then the question is, 

should the design of what we look at for the future not more resemble the flexibility that we are going to administer at the State 

level? 

Governor RENDELL. Sure. I think there is no question about it. 

But remember, infrastructure rarely stops at State lines. That 

freight project I talked about, there were six States. 

Senator BURR. True. 

Governor RENDELL. Georgia was part of it, the Crescent Corridor. 

We need something to do regional and national projects, projects of 

national and regional significance. Our airport system. It cannot be 

broken down State by State. Our ports. What happens in the Port 

of Philadelphia often affects seven or eight other States that feed 

in—— 

Senator BURR. Well, again, let me remind you, I have not talked 

about reduced funding. All I have addressed is the flexibility—— 

Governor RENDELL. I am all for more flexibility. 

Senator BURR. The Heritage Foundation reported that the DavisBacon Act increases the cost of federally funded construction 

projects by 9.9 percent. Repealing Davis-Bacon restrictions would 

allow the government to build more infrastructure, create 100,000 

more constructed-related jobs at the same cost to taxpayers, or save 

the Federal Government $9 billion in annual construction costs. 

Would you be in favor of—— 

Governor RENDELL. Repealing Davis-Bacon? 

Senator BURR. Yes. 

Governor RENDELL. No. But I will tell you why. One of the things 

that the Heritage Foundation study does not look at is the quality 

of the work, because I could reduce—when I was Mayor or Governor, I could reduce the cost of construction of anything—buildings, et cetera—by going strictly to a low bid and taking off any 

regulation or oversight. You need to do quality work, because you 

do not want to pay for it two, three, or four—— 

19 

Senator BURR. Davis-Bacon is only a mandate on what wage 

level you have to reimburse. It does not get into preference of who 

you award a contract to. 

Governor RENDELL. Wage-level reimbursement often is keyed 

into the training that individuals who build stuff have. We find, 

when we do not use Davis-Bacon, it is amazing how many illegals 

find their way into doing that construction work. 

Senator BURR. Mr. Roth, let me just ask you. My time has expired. Do you see any down side to placing the management planning and funding responsibilities with the States in the United 

States? 

Mr. ROTH. No. Obviously, some States are better than others, but 

looking back at history I noticed that, in the 19th century, Pennsylvania led the United States in the provision of roads, all of them 

privately financed, under incredibly difficult conditions, and they 

did better in the 19th century in terms of percentage of GDP than 

in the 20th century. So I think the proposition that roads cannot 

be privately provided just has no legs to stand on. 

The CHAIRMAN. Senator Cardin? 

Mr. ROTH. Incidentally, these were people who provided these 

roads either for profit or because they wanted roads in their areas. 

So people from Pennsylvania would finance those roads, and they 

were prepared to accept low returns for them. But I do not understand why Governor Rendell is prepared to accept no returns for 

his national infrastructure. Thank you. 

The CHAIRMAN. Senator Cardin? 

Senator CARDIN. Mr. Chairman, this is a very interesting discussion. A week ago I was out in Cumberland, MD celebrating the anniversary of the national highway, the first highway, which predates the automobile. It proved to be an economic engine for America. By the way, I understand it was an earmark that started the 

national highway system. [Laughter.] 

So I would just point out the fact that transportation projects 

have been critically important to the economic growth of America. 

Senator Burr, I welcome you to the committee. I have somebody 

I can look directly across to sitting on this side, so we might have 

a lot in common. 

Chairman Baucus, I just want to agree with your initial observations. That is, we are going to have to find creative ways to help 

finance our national infrastructure. This is critically important to 

our economy. This is about jobs. If we are going to be able to grow 

our economy, we have to figure out how we can finance the infrastructure growth of our transportation system. 

So traditionally, this has always been a bipartisan product. 

Democrats and Republicans have agreed that infrastructure development—roads, bridges, transit, ports—is critically important to 

America’s growth. So I look forward to working with all the members of this committee as to how we can have a robust infrastructure commitment to our Nation. 

Senator Hatch, I do not want to make this an ongoing issue, because I think at the last hearing I also took exception to one of 

your comments, because, as you know, I consider you to be one of 

the great members of the Senate and a very creative thinker as to 

how we can move together, Democrats and Republicans. 

20 

But I must tell you, multimodal transportation is critically important to this country. Transit saves us money, saves us highway 

money on road construction and repair. It provides a more sensible 

way for having the type of roads that we need but not building 

roads that we do not need because we have adequate public transit 

for the people of this Nation. 

Senator HATCH. I do not disagree with you, Senator. 

Senator CARDIN. Good. 

Senator HATCH. I think it is something—and I appreciate the 

comments, too. Very nice. Usually they are the other way around. 

Senator CARDIN. Never! Never with you, Senator Hatch. But I 

guess my point here is that, obviously I live in the State of Maryland and represent this great State, and I look at the congestion 

in the Washington area and know how it is critically important 

that we give the State of Maryland, the State of Virginia, and the 

District the flexibility to move forward with public transit. I will 

continue to fight for the flexibility that Senator Burr is talking 

about for our local governments to be able to develop the transit 

projects and transportation projects that they need for their economic growth. 

The last observation I would make is on the Federal role. I started with the national road that was built and how important that 

was to the economic growth of America when we were a very young 

country. The national highway system is very, very important; not 

just the interstates, because economic growth does not stop at a 

State border, but also the policies that we have been able to implement. 

I think about highway safety, the role that the Federal Government has played in highway safety. I doubt if that could have been 

done at the State level without the direction of a national uniform 

policy that we were able to implement through our transportation 

program issues. 

So, to Governor Rendell, let me just come back to you, if I might. 

I respect so much what you have done in Pennsylvania in developing the infrastructure issues. Where do you see the future as far 

as the Federal/State partnership? If we are going to be able to do 

as President Obama has pointed out, and that is to out-educate, 

out-innovate, and out-build our competitors, what type of partnership—how do you see federalism evolving as far as our transportation financing is concerned? 

Governor RENDELL. Well, Senator, let me go back. I certainly 

agree with what you said and what Senator Burr said about giving 

States flexibility. But as you said, we cannot build a transportation 

system one State at a time. That road you talked about, the first 

national highway, as I recall, it went from Maryland into Pennsylvania. 

Senator CARDIN. It did, yes. 

Governor RENDELL. It did. Everything we build, or almost everything we build, goes from one place to another. You do not build 

a road up to the Pennsylvania State line and then say, all right, 

Pennsylvania, you build the next leg of that road. Good Lord, that 

would be mass chaos! There has to be a close working relationship. 

However we slice it—however we slice it—we are going to have 

to invest more money in our infrastructure, or else those bridge colVerDate Nov 24 2008 16:45 Dec 04, 2012 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 R:\DOCS\76886.000 TIMD
21 

lapses, those levees breaking, the pipelines blowing up in California, we are going to see more and more of that. We are going 

to fall further behind economically. Metallurgical coal is mined in 

Australia and the U.S. Because Australia is a high labor cost country, it is the same cost to mine it but it costs us 8 times more 

money to get it from where we mine it in America to our port cities 

than it does in Australia because of our logistics breakdown. 

We have to find a way to invest. I know the problem confronting 

all of you, and we confronted it on a State level. I would suggest 

that we do need to find more money to invest. The United States— 

and I think you probably deserve some credit for this—has invested 

heavily in the Iraqi infrastructure and the Afghani infrastructure. 

We have invested heavily. 

As our troops are coming home, let us take that money, put it 

in an infrastructure fund, and then let us create a second GI bill. 

Because, when those troops come home, they are going to have 

trouble finding jobs. Let us train them and put them to work building back the American transportation system and—I would not 

stop there—the American infrastructure system as well. 

Let us say, what are we spending in Afghanistan? I think on 

your books, on the CBO’s books, we are spending $104 billion a 

year. My guess is, that is just a part of it. Let us take some of that 

money. It is all right to rebuild the Afghani and Iraqi infrastructure, but let us rebuild ours. Let us rebuild ours. Let us give those 

soldiers, sailors, and Marines a chance to have good, well-paying 

jobs, American jobs that cannot be outsourced. 

The CHAIRMAN. Thank you. 

Senator Coburn? 

Senator COBURN. Thank you, Mr. Chairman, and thank our witnesses for being here. 

The CBO testimony that we have shows an annual deficit of $13 

to $14 billion per year. Do you think it is reasonable for the States 

and Congress to assume a significant decrease in Federal transportation funding in the immediate future, given the rest of our problems? Just a yes or no, if you would, please. 

Dr. KILE. I am not sure I have a yes or no answer to that question. I am not trying to be evasive, but it is ultimately a judgment 

that the Congress would have to make on its own as to what is the 

right level of funding by the Federal Government. 

Senator COBURN. All right. 

Governor Rendell? 

Governor RENDELL. No, because I think, respectfully, the Federal 

Government has to find new sources of revenue, one of which is 

uncapping tolling that lets the States have the power to find some 

of those new sources of revenue. But I think you should look at it 

as well. Again, I do not know how, and I know the work you are 

doing trying to put together a realistic proposal to the deficit challenge, Senator, and I think all Americans applaud you. I do not 

know how the scale-down in Iraq and Afghanistan, how those dollars are figured in the plan. But I would submit that it would be 

a terrific idea to use some of those dollars to repair our infrastructure and put our people to work. 

Senator COBURN. Mr. Posner? 

22 

Mr. POSNER. I have to say I really do not have the figures in 

front of me. 

Senator COBURN. All right. 

Mr. Roth? 

Mr. ROTH. I do not understand the question. 

Senator COBURN. First of all, in the last 3 years we have borrowed $39 billion from the general fund to fund the Transportation 

Trust Fund. We have just transferred it. In other words, we have 

been subsidizing the trust fund because we have actually authorized more spending than what we have had money to do. 

Do you think it is realistic for us to expect to continue to do that? 

Mr. ROTH. I do not know whether it is realistic to expect that, 

but it sounds to me a very bad idea. If more money is needed in 

the trust fund, the proper thing to do would be to raise the fuel 

taxes that fund the trust fund and get the money from that source. 

The fact that the administration is not prepared to do that, to me, 

illustrates why this is not a job for the Federal Government. It 

should be left to the States who have a closer view of what is happening. Let them raise the charges. Let them impose tolls rather 

than the Federal Government. 

Senator COBURN. Governor Rendell, in your opening statement 

you have talked about the 64 percent of local bond issues and 

taxes. My evaluation of that is, the reason those passed is they 

were under the control of the people in the State or in the communities. They trust themselves. They do not trust us. 

When you look at the last significant funding bill for the Highway Trust Fund, almost a third of that did not go to build highways, bridges, or mass transit. So I think what you said is true. 

I think the American people are willing to invest in infrastructure, 

but they want to control it. They do not trust us to control it because of all the shenanigans that go on with the Highway Trust 

Fund. 

Governor RENDELL. Well, I agree with that. However, understand, most of the Federal money that goes into transportation infrastructure is dispensed by the States. 

Senator COBURN. Yes, it is. 

Governor RENDELL. You give us a block grant, we dispense it. 

The reason we know it goes to our rural parts of Pennsylvania, 

Senator Baucus, is because we have metropolitan planning organizations and rural development organizations that allocate the 

money in their district. 

Senator COBURN. But fully a fourth, close to a third, did not help 

you on any of those programs. 

Governor RENDELL. We should remedy that. 

Senator COBURN. That is right. 

Governor RENDELL. Right. 

Senator COBURN. We should remedy that. 

And the remedy for that is the State Flexibility Act, which allows 

you to have the flexibility for your priorities rather than a politician’s priorities. 

Governor RENDELL. Well, I am with Senator Burr. As long as it 

does not mean a reduction in the Federal commitment in terms of 

dollars, I am for flexibility. 

23 

Senator COBURN. The point being, the people of our States will 

do what is in their own best economic interest. That is why they 

voted for 64 percent of local bond issues. 

The other thing that I see as I look at transportation now, with 

about 13 years in Congress, is we do not really look at cost/benefit 

analysis. 

Governor RENDELL. Right. 

Senator COBURN. That is what we have to do. 

Governor RENDELL. No question. 

Senator COBURN. And the reason we do not is because we have 

other matrons we are waiting on. So the whole idea would be, with 

the State Highway Flexibility Act, to bring it back to a position 

where cost/benefit analysis can be done. In regard to the statement 

that Senator Burr made about Davis-Bacon, there is nothing that 

prohibits Davis-Bacon in the State Flexibility Act. You can still use 

Davis-Bacon. 

Governor RENDELL. Sure. On a State-by-State basis. 

Senator COBURN. And there is also a limitation of 2 years on an 

environmental impact study, which we have all the records on to 

show we are wasting money, wasting time, and have lost opportunities. The costs of the projects are going up as we dilly-dally with 

Federal Government rules that are not in the best interests of the 

citizens of your State or mine. 

The other point I would make is, Oklahoma beat you on deficient 

bridges. Our State highway director has told us, if we had the 

State Flexibility Act, we would be very low on that because our capability to spend these dollars would be much better. 

I have one other question for each of you. Do you think it is wise 

that we take and wall off 10 percent of all the highway trust fund 

money that has to be spent on enhancements when you have 5,700 

bridges that are in disrepair—— 

Governor RENDELL. It is 5,500. 

Senator COBURN [continuing]. And Oklahoma has close to 8,000? 

Do you think it is wise that we make things beautiful or we make 

things safe? 

Governor RENDELL. That is an area where I would leave it to the 

States to decide. Absolutely leave it to the States. 

Senator COBURN. So you would agree that we should rescind this 

mandate—— 

Governor RENDELL. The mandate on that, yes. 

Senator COBURN [continuing]. To let the States decide. If they 

want to spend it on beautification and enhancement, they can. 

Governor RENDELL. And in certain parts of Pennsylvania, the answer is, the public would. 

Senator COBURN. Yes. But let them decide. 

Governor RENDELL. Can I just say one quick other thing? Your 

arguments are a perfect argument for why we need an Infrastructure Bank: cost/benefit analysis, the ability to do these projects 

based on merit. It is why, gentlemen and ladies, this is an idea 

whose time has come. 

Senator COBURN. Thank you, Mr. Chairman. You were very gracious with the time. 

The CHAIRMAN. Senator Grassley? 

24 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, 

A U.S. SENATOR FROM IOWA 

Senator GRASSLEY. Yes. One of the main points regarding reauthorization of our surface transportation laws has been made clear 

by witnesses before this committee, both today and in previous 

hearings. It is that Congress should not focus only on how to pay 

the bill, but should make major reforms to transportation policy. 

Also in today’s hearing, and in previous hearings, we have heard 

that it is vital that Congress more clearly define the Federal role, 

the State role, and the local role in regard to policy. 

You have heard this morning from Dr. Kile, saying this: ‘‘Economic efficiency could be improved if the Federal Government limited its support to projects such as the interstate highways that 

offer significant multi-State benefits, leaving State and local governments to fund projects with more localized benefit. If the people 

who benefit from the project bear its cost, the likelihood is diminished that too large a project or too many projects will be undertaken or that too many infrastructure services will be consumed 

relative to resources needed to provide them.’’ 

Dr. Kile’s comments also bring up another important point that 

this committee has heard before. It is crucial that we more rigorously evaluate, analyze, and assess projects. When someone else is 

paying the bill, priorities get skewed. 

Should the need for a project or the availability of Federal funds 

drive our Nation’s transportation decisions, is the basic question. 

Much of the revenue collected from the gas tax, which is meant to 

be a user fee to pay for our Nation’s roads and bridges, is diverted 

to other projects or modes. While these projects or modes may have 

merit, should they be funded by the gas tax, which is paid for by 

the users of roads and bridges for their upkeep, safety, or improvement? 

As Mr. Roth pointed out, is it right that the driving public only 

receives 62 percent of what they pay into Federal Highway Trust 

Fund for general purpose road safety programs? Furthermore, I am 

concerned with recent talk of proposals from the administration 

and others that would tax drivers by mileage in addition to the current fuel tax. At a time of record gas prices and a recovering economy, the middle class cannot afford this proposal. 

It also disproportionately hurts rural and suburban Americans. 

This is another example of the administration trying to dictate 

where and how people live. Should that not be an individual decision and not directed by the Federal Government? 

So I look forward to the debate, Mr. Chairman, that we are going 

to have over the next several months on these crucial questions, as 

Congress continues to wrestle with the future of surface transportation in America and how we fund our roads, bridges, and transportation programs. It is my hope that Congress will act in a 

prompt and prudent manner to reauthorize the highway bill. 

I yield back the balance of my time. 

The CHAIRMAN. Thank you, Senator, very much. 

Senator Kerry? 

Senator KERRY. Maybe I can claim a moment of the balance of 

his time, Mr. Chairman. But thank you very much, and thanks for 

having this hearing. 

25 

Folks, Senator Grassley, we are not going to build anything in 

America right now. We are not building. We are falling behind almost every other country in the world. You fly to any airport almost outside of America, and they have better airports nowadays. 

They have better transit systems that get people from an airport 

to downtown. Go to Shanghai. Twelve minutes, 300 miles an hour 

from the airport to downtown. They are building 55,000 miles of 

that because they are putting 9 percent of their GDP into infrastructure. Europe puts 5 percent of its GDP into infrastructure. We 

are putting 2 percent or less. Two percent or less. 

I drove across the country a few years ago, and I was stunned 

by the state of our roads in so many States. Now, I have to tell you 

something: the Highway Trust Fund is not going to do it. It is not 

going to build high-speed rail, low-speed rail, light rail that we 

need in cities. 

With the cost of energy going up, you are already seeing more 

Americans starting to say, I have to find mass transit. We do not 

build it. There are not great building projects in America, many of 

them, right now. We have this effort to build out to Dulles Airport, 

but we are not going to appropriate it. 

Let us not kid ourselves. Nobody on that side of the aisle will 

vote for any increased revenue no matter where it might come 

from, apparently, so what are we going to build? Are we going to 

keep cutting everything? Then Americans are going to turn around 

and say, well, why does this not work? Why does my school not 

work? Why can’t we fill the potholes? It is just crazy, honestly. It 

really is crazy. We are in a crazy place right now. 

Now, here we have this Infrastructure Bank, which is completely 

independent from government, privately run by bankers. All we do 

is charter it. It will not even issue stock. It is not for profit, unlike 

Fannie Mae, Freddie Mac. It is completely different. Ten billion 

dollars can leverage maybe $650 billion of private sector investment that comes in to help build America. The Chinese right now 

would love to invest in building projects in America. There are 

other sovereign funds in various parts of the world that would invest if they were attracted into a deal where there was a revenue 

stream and the deal was attractive. 

So I just heard Governor Rendell, who is a champion of this, say 

it is an idea whose time has come. I think people who sit on the 

other side of the aisle and say, oh, no, we cannot do this, it is a 

Federal thing, or this or that, and Mr. Roth, this is not a Federal 

Government thing. But Eisenhower built the interstate highway 

system of our country—a Republican President. Nixon, Ford, 

Reagan, they were all committed to these kinds of things. America 

got strong because we did that. 

We have a second-rate air traffic system in America today because we are not managing our aircraft as effectively as we could 

with GPS and various alternatives. We could save flight fuel, save 

time, productivity, be more competitive. We do not do it because we 

are living by simplistic, silly little 6-word-slogan politics. Well, this 

is a different idea. 

Governor, I want to ask a question about this. I want you to talk 

to me, if you will, and to others listening about, one, here you have 

Governor Schwarzenneger of California, a Republican, you have 

26 

Mayor Bloomberg, an Independent, very successful business person. He has been a very successful mayor, running one of the biggest, most complex cities in the world. He is for it. Share with us, 

what is the vision here? How do we get un-stuck? Why is it so important that this be independent the way it is? What are the virtues of that? 

Governor RENDELL. Well, first of all, Senator, I agree with your 

statement. I think if we do not build our infrastructure we are 

headed towards becoming a second-rate economic power, no ifs, 

ands, or buts about it. If we were a corporation, there is no way 

we would not invest in our own growth. No corporate board, no corporate CEO would look at this situation and say we cannot invest. 

We have to find a way to invest. 

Before you got here, I suggested taking the money we are spend- ing in Afghanistan, $104 billion a year, as we phase out, take some 

of the Iraq money as we phase out, put it in a program of investment in our infrastructure, and let us hire those GIs and Marines 

coming home to help us to rebuild the American infrastructure. Let 

us do a new GI bill for doing it. 

But the Infrastructure Bank should appeal to everybody. I think 

Senator Coburn was agreeing with us. Look, one thing the Republican Party says that they deserve credit for is, we want to get 

away from earmarks. Senator Cardin pointed out that not all earmarks are bad, and they are not. But the American people have 

lost confidence in our ability to do this right because they read 

about the earmarks that are wasteful. The Infrastructure Bank 

solves so many of those problems, number one. 

Number two, it can, as Senator Kerry said, leverage all that 

money. Again, I wish that Felix Rohatyn—— 

Senator KERRY. Well, it all has to be paid back, right? 

Governor RENDELL. Right. It all has to be paid back. 

Senator KERRY. It is a loan, not a grant. 

Governor RENDELL. The European Infrastructure Bank makes 

money. It makes money. The California Infrastructure Bank makes 

money. It does not cost the Federal Government anything. And no 

offense to Dr. Kile, I have no idea how the CBO would score it, but 

it should be scored as a positive to the Federal budget, not a negative. It makes money, and we have to do it. Give the public confidence in it. It is not controlled—and I am a lifelong politician. I 

do not think politician is a dirty word. I think we have a lot of 

great politicians in this country. But it is controlled by people who 

are experts, who are bankers, who invest money, who are former 

DOT secretaries, retired DOT secretaries, people like that on the 

board. It could be an amazing thing. 

And yes, throw in some elected officials. I would like to see Senator Voinovitch, for example, be the chair or co-chair of the Infrastructure Bank, were I President. But I would love to appoint 

someone like Senator Voinovitch to chair it because he was a true 

transportation advocate. So I think it clears up so many of our 

problems, and it is cost-effective. 

I understand the problem you all are wrestling with. I would 

take that Afghanistan and Iraq money and stick it into rebuilding 

the American infrastructure. I would do the bond. Senator 

Wyden—before you got here—I think your bond proposal is an 

27 

excellent proposal. You pay for it. Those are the type of creative 

and innovative things that we desperately need, and I think we 

have to do them. 

The CHAIRMAN. Thank you very much. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. I want to thank all 

our witnesses. 

Governor, it has been great to work with you on this. Here is a 

little bit of the history of these Build America Bonds. For years and 

years—I think Senator Hatch and I have talked about it—this has 

been a bipartisan effort. We had Jim Talent involved, Liddy Dole, 

Roger Wicker, John Thune—a big group of Democrats and Republicans. As Chairman Baucus knows, he and I talk about it often in 

the Recovery Act; we added discussion about what would happen 

if we test it. We would experiment with it. 

I remember the day the chairman talked to me about it. I said, 

nobody has ever done this. Let us do a rough envelope kind of analysis. We talked about how it might do $6, $8, maybe even $10 billion worth of Build America Bonds. Well, at the end of the year, 

looking at infrastructure, it came in at $181 billion. That is, in effect, a very significant increase beyond anybody’s dreams, certainly 

beyond mine. 

The Treasury Department issued their final report on Build 

America Bonds yesterday, and they said that Build America Bonds 

issuers saved well over $20 billion in borrowing costs on a presentvalue basis as compared to tax-exempt bonds. So that alone is well 

beyond the cost of the program to the Federal Government. 

So I have just a couple of questions. The first is for you, Mr. 

Posner, with respect to the municipal bond market. I mean, my 

sense is that the municipal bond market has taken a real hit since 

the expiration of Build America Bonds. What can you say about 

sort of the appetite in terms of the marketplace for a similar tool? 

As you know, we are working on trying to possibly rebrand them, 

call them TRIP bonds, Transportation Regional Infrastructure Program bonds. But what is your sense about the market’s appetite for 

bringing a concept like this back? 

Mr. POSNER. Yes. This year has seen a dramatic drop in 

issuance, so that means that issuers are not utilizing the market 

for a variety of reasons. I mean, a large part of it has to do with 

the expiration of the Build America Bonds program, as well as our 

investor base has shrunk for a variety of different reasons. 

But I have seen a lot of different proposals regarding, sort of, tax 

credits. I have not seen any draft or anything, but from what I understand the idea is on a different scope than what we have seen 

in the past. I think that is a very good thing, because tax credit 

ideas in the past have not really been able to take hold because either they have been too small or they have not been made permanent. So this solution obviously, I think, accomplishes both of 

those. 

So our proposal to really help the market right now—which is, 

I think, not in dire straits, but, if we continue along where we are, 

we are going to be finding ourselves in a difficult situation—is to 

continue the tax-exempt market, because it does provide a need for 

certain capabilities, but also let us look at these taxable options. 

28 

Let us look at these direct subsidies, let us look at these tax 

credits. Let us get them going, build the base of investors, and let 

us better understand how much the cost of these really is. The underlying assumptions for a lot of these are not really understood. 

So I guess that is a long answer, but, yes, Congress should move 

forward with this idea. 

Senator WYDEN. Thank you. 

A quick question for you, Dr. Kile. You cannot score any specific 

proposal when you do not have all the details in front of you, but 

is it not correct that CBO has said on a number of occasions that 

narrowly tailored tax credit bonds are a more efficient and better 

deal for the American taxpayer than tax-exempt bonds? This was 

something Senator Hatch and I had talked about over the last few 

months, because clearly we want to use scarce resources in the 

most effective kind of way. But I just want to be clear for the 

record about what CBO’s position is. 

Dr. KILE. In my statement today and on other occasions, CBO 

has noted that tax credit bonds tend to be a more efficient way of 

transferring subsidies from the Federal Government to State and 

local governments than tax-exempt bonds would be. That is a statement about the tax credit bonds in general; CBO has not evaluated 

the particular experience with Build America Bonds. 

Senator WYDEN. Right. I understand. 

Governor, let me ask you a question, because you were one of the 

first users of Build America Bonds. The Pennsylvania Turnpike 

was one of the projects. As you know, in my home State we did a 

very large issue for our State. If you go to the website of the Treasurer of the State of Oregon, he said he saved 10 percent just on 

the particular issue that I am talking about. What do you think the 

potential is for this kind of approach for States that are big, like 

Pennsylvania, and smaller States like Oregon? Because, as far as 

I can tell, this kind of approach works for both States. 

Governor RENDELL. I agree. I think it absolutely works for both 

States. Before you joined us, in my testimony I talked about how, 

under Build America Bonds in the teeth of the recession, we have 

floated I think one of the largest municipal or State bond issues at 

a 3.1-percent interest rate, and 58 percent of that issue was backed 

by Build America Bonds. It was enormously successful. I think 

TRIPS is an improvement. I am speaking for myself, because BAF 

has not had a chance to totally analyze it, but I think TRIPS improves upon BABs, and I think we need it. 

I mean, I think what we need to come to grips with as a Congress and as a country is that we have to do something. Doing 

nothing is not a real option, or the American infrastructure will literally continue to crumble. 

Senator WYDEN. I know my time is up. Thank you, Mr. Chairman. 

Mr. POSNER. Mr. Chairman, can I just, because this is a bond 

issue, make one quick comment? 

The CHAIRMAN. Yes. Very briefly. Very briefly, please. 

Mr. POSNER. The underlying assumptions for the cost of a tax exemption are very unclear. I think, if we are going to talk about efficiency of whatever bond program we are going to enact, we need 

to better understand what is in this black box that decides the cost 

29 

of every bond program. Is an investor that is not buying a taxexempt bond buying a taxable bond? I think that is an important 

distinction to make and is outlined in my testimony as something 

I implore you guys to really start looking at and better understanding. 

The CHAIRMAN. Thank you. That is a valuable point. Thank you. 

Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. Number one, I 

want to thank you for holding what I think is an important hearing. I have seen the use of these bonds at work, and they make a 

real difference. I am thrilled to see Governor Rendell here, who is 

a big advocate of it. 

Last week, Senator Crapo and I joined to offer legislation to exclude private activity bonds for water and waste water projects 

from the federally imposed State volume caps. I understand that 

you advocated, Governor, just raising private activity bond caps 

across the spectrum. 

So in this one, we think that our legislation would generate 

about $50 billion in private capital investment and create or support about 1.4 million jobs, rebuilding water infrastructure in communities across America, generating billions in tax revenue at the 

Federal, State, and local levels. So it seems to me that creating private sector jobs to help ensure American families have access to 

clean water would be a win for the workers, the taxpayers, and our 

communities, at the end of the day. Is that the type of power that 

gets unlocked with the private activity bonds? 

Governor RENDELL. Yes, no question about that. You are correct, 

Senator. And again, we all focus on transportation because it is 

really the current challenge. But water, waste water, and other 

forms of the American infrastructure are equally as important. 

Senator MENENDEZ. Mr. Posner, you write in your testimony 

about a decline in the issuance of infrastructure projects due to 

troubles with financing in the municipal bond market. Particularly, 

there was a quote that I looked at: ‘‘Large issues over $1 billion are 

having difficulty coming to market in the current environment.’’ 

So, I look at my home State of New Jersey, which has large infrastructure needs. It is a corridor State. It also has the mega-port 

of the East Coast. It has a whole host of issues; it is densely populated. So for New Jersey families, large infrastructure projects, 

whether they are widening a well-used highway or creating a new 

parking garage by a transit village or looking at the reconstruction 

of turn-of-the-century schools—and not the century we just turned, 

the century before—are among many of the issues that we have. 

In your opinion, do you believe that the Build America Bonds 

were responsible for job creation and economic development that 

would not have happened in the depths of the recession if the program were never created? 

Mr. POSNER. The Build America Bonds program enabled larger 

issues, right? And the underlying concept there is that the taxable 

buyers want big deals, right? So the Build America Bonds program 

enabled that and allowed taxable investors to jump into the market, understand the market. They had zero exposure to it in the 

past, or very limited. 

30 

Yes, the Build America Bonds—we saw, I do not have the numbers in front of me, but a huge jump in issuance as a result of 

them. In the first quarter of 2008, before it was created, we estimated that about $100 billion worth of infrastructure projects had 

been postponed or delayed because they could not access the municipal market. 

One important element to really think about with BABs, though, 

is the subsidy level. The 35 percent was originally sort of intended 

to be a kick-start rate, and we believe, as the market develops and 

spreads tighten, that that rate should be lowered to a more 

revenue-neutral one which will, while still allowing taxable large 

infrastructure projects to get done, come at a lower cost to the government. 

Senator MENENDEZ. But it would be desirable, though? 

Mr. POSNER. Absolutely, yes. And we recommend that at a 

revenue-neutral rate. 

Senator MENENDEZ. All right. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Mr. Posner, how much lower than 35 percent do you think that 

might end up down to? 

Mr. POSNER. Yes. I mean, the real question here is, it goes back 

to understanding the true cost of a tax exemption. We do not understand—not knowing the underlying assumptions that go into 

that cost, makes it very difficult. That is square one, to really understand where you find a revenue-neutral rate. 

Our estimates are somewhere between 20 and 25 percent. But 

until we can really get a number—we do not want to get steeped 

in numbers and revenue and all that because the major point gets 

lost, but, if we can understand what goes into that box to make 

that number, then we can start to better come up with what is 

truly revenue-neutral. 

The CHAIRMAN. Governor Rendell, I would like you to just help 

us a little bit here. As Governor, you have a lot of experience in 

a major State, and you served in so many capacities, also as Mayor 

of Philadelphia. Here is the basic question. I think we start with 

the premise that we all need to dramatically address our infrastructure needs. That is almost a given. 

Not long ago when I was over in China, I got off the plane in 

Chongqing. It has a massive, brand-new airport. It just blew me 

away. Our local counsel over there from Chengdu came over, and 

he was just really irritated and angry and said, why are American 

companies, at least maybe the architectural engineering firms, 

being a part of this airport? These are Germans who came here 

and did all this. So I get in the car. There is a massive new 

interstate-like highway. Chongqing has a population of 30 million 

people. It rivals our interstate highways, it was so good. I just marveled at it. 

At the end of the day, I sat next to the mayor of Chengdu and 

said, where do you get all the money to pay for this? He kind of 

sheepishly looked at me and said, well, the Federal Government 

just gave it to them. The fact is, China has about $3 trillion in reserves, and we have a huge budget deficit. All the talk these days 

is how to get the budget deficit down as we approach the debt 

31 

limit, which expires, I guess, August 2, according to Secretary 

Geithner now. We are in a pickle. We have problems here as we 

try to cut spending to get the deficit and debts down and, at the 

same time, address infrastructure. 

So what would you do as a Governor? Let us say you were president, you are king. You have carte blanche to decide how we handle the basics here, and the basics being that we have debt and deficit, but at the same time we have huge infrastructure problems 

that have to be addressed. No one denies that. I mean, how do you 

kind of square that circle as Governor? 

Governor RENDELL. Well, I actually think that the Deficit Reduction Commission did a good job in addressing that issue. I am not 

sure that I agree, or anyone here would agree, with the 15-cent increase in the gas tax, but I think clearly we can invest in things 

that are crucial to us and that create jobs, both jobs on-site and 

jobs back in factories, at the same time as we are reducing deficits. 

We can do that, and we must do that. 

Again, I do not mean to sound like a broken record, but, if we 

are in fact phasing out of Afghanistan and Iraq, that money, I 

think, should be put into a significant infrastructure fund to get 

this job done. In the long term, I would have a Federal capital 

budget, but, in the short term, let us take that money. Almost all 

our competitor nations have, in fact—and you are right, it is done 

by the Federal Government—invested in 5-year or 10-year infrastructure revitalization programs. Many of them have done it already. Many of them are in the midst of doing it. It does not hurt 

their economies because they are spending or investing money. It 

helps their economies. 

Look at American manufacturing. We all know American manufacturing is teetering on the brink. What better way to revitalize 

American manufacturing than to go on a 10-year significant infrastructure repair program? I think if it was explained to the public 

well, if there were controls, if we speeded up all the delays, the environmental processes, et cetera, if we made sure that we were 

going to make major decisions by a cost/benefit analysis, I think 

you would find public support for it. I really believe that to be the 

case. I think the public understands this issue maybe better than 

we do. 

So I think we have to do it. I think there is no time to waste, 

because I think the point was made by a number of Senators today: 

when we delay, the expense goes up. There is no question, now is 

the time to do it. There cannot be something different between us 

and all the other developed nations in the world that have done 

this in the last decade, and we have to start because, as Senator 

Kerry said, I still believe we have the capacity to be the best and 

do good things and do bigger things. 

The CHAIRMAN. No question, this takes a little willpower and a 

little teamwork. We have to work together to get this done. 

Governor RENDELL. No question. And again, the point Senator 

Cardin made and Senator Hatch: this has always been an issue 

that cut across party lines. I remember when I was a fairly young 

Mayor, Republicans were the leaders in the desire to spend or invest money on infrastructure. It was sometimes Democrats who 

would say, no, no, we need to do it for social programs. Well, the 

32 

best social program in the world is a well-paying job, and that is 

the way to create well-paying jobs. 

The CHAIRMAN. In a very, very minor, minor way, it also might 

get a little bit at this unfortunate growing disparity of income in 

America. If you have a lot of infrastructure jobs, that means 

middle-class America is going to get a lot more jobs and get some 

income. 

Senator Hatch? 

Senator HATCH. Governor, I have enjoyed every word you have 

said here today. I agree with a number of the things that you have 

said. The Republicans are properly saying, let us restrain spending. 

For the fiscal year that we just finished, we spent 25.3 percent of 

the GDP, of our total economy, on Federal problems. The Senator 

from Massachusetts is correct that those on our side are arguing 

for restraint, no question about it. My experience with you is that 

you believe in restraint as well. 

Now, Senator Kerry is also correct that we resist raising taxes. 

We believe taxes, if they are not raised, will return to their historic 

levels of around 18 percent of GDP. Now, spending is 20 percent 

above its historical average, and that is not a 6-word political slogan, by the way. It is fiscal fact. All we are saying is, let us live 

within our means. 

Now, look. We are not against Build America Bonds without the 

direct payment. Let me just ask Dr. Kile this. I noticed in President Obama’s fiscal year 2012 budget that the President’s proposal 

for Build America Bonds resulted in an outlay of $60 billion, as 

well as $58 billion in tax increases—$59 billion, actually, I think 

it was. Outlays are defined as spending under the Congressional 

Budget Act. Therefore, the President’s Build America Bonds proposal would increase spending and taxes by about $60 billion. This 

would increase the size of the Federal Government by about $60 

billion. 

Now, do you agree that the President’s proposal increases outlays and taxes by about $60 billion, and do you agree that the President’s proposal increases the size of the Federal Government by 

about $60 billion? 

Dr. KILE. Well, on the specific numbers, I would have to get back 

to you for the record on that. 

Senator HATCH. Well, you know it is increasing. It would increase the Federal Government, no question about that. You agree 

with that? 

Dr. KILE. Well, I think the basic point of tax credit bonds is that, 

as we discussed earlier, they are efficient relative to tax-exempt 

bonds. What direct-pay bonds also do is draw to light the specific 

expenditures that go to that payment, and I think that that is what 

you are probably referring to. 

Senator HATCH. All right. Well, our analysis is, it is going to increase government by another $60 billion. We do not think you 

need to do that. 

Now, let me just go to my friend, Governor Rendell, whom I have 

admired. I have watched you on television many times. You always 

make a lot of common sense. Being from Pennsylvania, you have 

to be for the unions. But to be honest with you, there are a lot of 

great non-union contractors who do terrific work, too, at about 

33 

somewhere around 20 percent less. Some say 9 percent less, but 

that is still a big figure if you start talking about infrastructure. 

Let me just say this, Governor Rendell. In his written testimony 

today, Dr. Kile writes, ‘‘A Federal Infrastructure Bank could lower 

the cost of borrowing by providing credit assistance and thus attracting private financing; however, it would impose the cost of 

such credit assistance on Federal taxpayers.’’ 

Now, are you concerned that a Federal Infrastructure Bank 

would be a mechanism for providing corporate welfare at taxpayers’ 

expense? Why should Federal taxpayers subsidize infrastructure 

projects for the benefit of private capital that would not be engaged 

but for a subsidy provided at taxpayers’ expense? I think that is 

a legitimate question. 

Governor RENDELL. It is a legitimate question. But remember, 

we get a return on that investment. It has to be subsidized originally, but we get a return on the investment. The EIB, the European Infrastructure Bank, has invested $300 billion over the last 

couple of decades, and they have made money on that. The countries who contributed have gotten a return on their investment, not 

a big return, but a return on the investment, plus they have gotten 

all the work that is done and all the jobs that are created. I would 

say to you first of all, Senator, look at what Senator Baucus said 

about the decline in the percentage of our GDP. That is being spent 

on infrastructure. All we are saying is—— 

Senator HATCH. I agree with that. 

Governor Rendell [continuing]. Spend more of what we are going 

to spend on infrastructure because it is important, and it has so 

many other ramifications to it. That is number one. 

Number two, the American taxpayer, as concerned as they are 

about the deficit, and they are, but every poll shows they are more 

concerned about jobs. They are more concerned about jobs. If we 

can create jobs—and by the way, U.S. DOT is a little more conservative than the figure you quoted, Senator Baucus. U.S. DOT says 

25,000 jobs for $1 billion in infrastructure spending. But that is 

still an awful lot of jobs that come in at $50,000 to $60,000. That 

is a great thing for America. That is a great thing right now. 

So let us devote more of our spending. Let us get that money out 

of Afghanistan and Iraq, get it into America, spend it here, create 

those jobs. And again, I do not know if the Congress—I am sure 

you have—has given some thought to when those soldiers start 

coming home, where are they going to find jobs? 

Senator HATCH. That was a good suggestion. We all agree that 

we need to do a better job on infrastructure. The question is, are 

we going to restrain growth in other areas of the Federal Government? 

Governor RENDELL. We have to. 

Senator HATCH. If we do that, I do not think anybody is going 

to gripe about trying to fix our roads and our bridges and build better transportation facilities, whether they be light rail or whatever 

it is, for our people. You make a lot of sense in a lot of ways. But 

our problem is 25.3 percent spending of GDP. Frankly, we have to 

find some way of resolving that problem, and yet still accomplish 

what you and the other witnesses indicated we need to accomplish. 

I do not disagree. I would like to do it. 

34 

Governor RENDELL. Not an easy task. 

The CHAIRMAN. Governor, thanks so much. This has been a very 

constructive, helpful hearing. I think it has advanced the ball more 

than you might think. Thank you, each of the four of you, very 

much for taking the time to come. 

The hearing is adjourned. 

[Whereupon, at 11:53 p.m., the hearing was concluded.] 

(35) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD


76886001.eps
36 


76886.002
37 


76886.003
38 


76886.004
39 


76886.005
40 


76886.006
41 


76886.007
42 


76886.008
43 


76886.009
44 


76886.010
45 


76886.011
46 


76886.012
47 


76886013.eps
48 


76886.014
49 


76886.015
50 


76886.016
51 


76886.017
52 


76886.018
53 


76886.019
54 


76886.020
55 


76886.021
56 


76886.022
57 


76886.023
58 


76886.024
59 


76886.025
60 


76886.026
61 


76886.027
62 


76886.028
63 


76886.029
64 


76886.030
65 


76886.031
66 


76886.032
67 


76886.033
68 


76886.034
69 


76886.035
70 


76886.036
71 


76886.037
72 


76886.038
73 


76886.039
74 


76886.040
75 


76886.041
76 


76886.042
77 


76886.043
78 


76886.044
79 


76886.045
80 


76886.046
81 


76886.047
82 


76886.048
83 


76886049.eps
84 


76886.050
85 


76886.051
86 


76886052.eps
87 


76886053.eps
88 


76886.054
89 


76886.055
90 


76886.056
91 


76886.057
92 


76886.058
93 


76886.059
94 


76886.060
95 


76886.061
96 


76886.062
97 


76886.063
98 


76886.064
99 


76886.065
100 


76886.066
101 


76886.067
102 


76886.068
103 


76886.069
104 


76886.070
105 


76886.071
106 


76886.072
107 


76886.073
108 


76886.074
109 


76886.075
110 


76886.076
(111) 

COMMUNICATIONS


76886077.eps
112 


76886.078
113 


76886.079
114 


76886.080
115 


76886.081
116 


76886.082
117 

Æ 


76886083.eps