With federal funds threatened, state looks for new ways to pay for transit

WASHINGTON–Gov. Dannel P. Malloy has asked his top transportation advisers to look at creative financing mechanisms, including setting up a state infrastructure bank, to fund critical highway and transit projects. The move comes as Malloy and other governors brace for an anticipated drop in federal transportation dollars.

It also comes as Congress gears up for a partisan clash over such infrastructure banks, which seek to use public funds to leverage private investment for high-priority, big-ticket projects.

President Barack Obama and other Democrats, including Rep. Rosa DeLauro, D-3rd District, have called for a generously-funded national bank to finance major infrastructure initiatives. But congressional Republicans have balked at the idea, saying it smacks of a second wasteful stimulus proposal.

The middle ground, some experts say, might be more federal funding for state-level infrastructure banks, an idea embraced by Rep. John Mica, R-Fla., the chairman of the House transportation committee. More than 30 states already have such entities–but Connecticut does not.

So it’s no wonder that today, Connecticut Transportation Commissioner James P. Redeker, Malloy’s Policy Director Elizabeth Donohue, and state Rep. Ed Jutila, an East Lyme Democrat and member of the transportation committee, are all in Washington to attend a conference on state infrastructure banks.

“It’s an idea we’re interested in, and we’re starting to explore,” said Donohue. While there’s still some uncertainty about how beneficial a bank would be and how best to structure one, “the one thing we can all agree on is we’re not going to have as much money coming in the same form as it has in the past.”

Indeed, Donohue and others breathed a sigh of relief last week when Congress approved a short-term bill that keeps federal funding for highway and transit programs at current levels until March 31. That stop-gap measure gives Congress an extra four months to find common ground on a longer-term bill. Right now, the divide is gaping: On one side is a House Republican plan that would slash federal transportation spending by nearly 34 percent over the next six years and on the other, a Senate Democratic proposal that would give states a small bump in funding for the next two years.

“Four months of level funding may be the best deal we can get right now,” said Donald Shubert, a spokesman for Keep CT Moving, a transportation advocacy coalition. “It’s far better than a 30 percent immediate cut. It’s far better than any kind of glitch in funding.”

And it will give Connecticut and other states more time to prepare for an altered landscape, which experts say will bring fewer federal dollars and a greater emphasis on public private partnerships. “I don’t know if we’re ready for that,” Shubert said. “If state infrastructure banks are going to be part of a proposal, then an extra four months… gives our state DOT, our state legislature, and the governor’s office an opportunity to compete for that funding.”

When Obama unveiled his jobs plan earlier this month, he called on Congress to create a national infrastructure bank, with $10 billion in federal funds available to leverage private capital for high-priority transportation projects. It’s a narrower version of a concept DeLauro has championed for years to create a large, new bank to fund everything from energy and broadband initiatives to transportation and water projects.

House Republicans and some Democrats have expressed skepticism about the need for a new federal entity. But they’ve embraced increased funding for a similar existing program, known as the Transportation Infrastructure Finance and Innovation Act (TIFIA), which doles out loans for projects of “regional and national significance.” It’s now funded at about $122 million a year; Mica, the GOP transportation committee chairman, has called for boosting that to $1 billion a year.

Mica has also called for providing states with additional federal dollars for their own infrastructure banks. Under his plan, states could use the federal money and a state contribution to leverage private investment. Currently, states can already devote 10 percent of their federal funds to a state infrastructure bank, but Mica wants to increase that to 15 percent. He also wants to devote a specific pot of money–he hasn’t said how much–that would automatically flow into a state infrastructure bank’s coffers.

Unlike a national infrastructure bank, House Republicans say such an approach would restrain federal bureaucracy and maximize states’ flexibility.

Donohue said the concept of a state infrastructure bank is appealing because it would provide a formal structure and incentive “to move public-private partnerships” in a way the state simply doesn’t do right now. Asked what kinds of projects it could help finance, she said it would probably be major priorities, such as the completion of Route 11.

DeLauro said state banks are a great vehicle to bolster support for key projects, and she cheered Connecticut’s move to examine the option. But she said that’s no substitute for a national bank, which would have greater leverage to win investments from the capital markets, including pension funds and other major investors.

“You don’t get the same heft in terms of leveraging the private dollars” with a state bank, DeLauro said. “It doesn’t give you the kinds of leverage to do these very big projects.”

While the prospects for a federal infrastructure bank remain uncertain, state level banks appear to be gaining in popularity. “What we’re seeing from states is they aren’t just sitting around waiting and worrying about what is going to happen in Washington,” said Sean Slone, senior transportation policy analyst at Council of State Governments and author of a June 2011 report on state infrastructure banks. “They’re exploring things like public-private partnerships, increased tolling and other mechanisms to generate additional revenue they know they’re likely to need in the years ahead to meet ever growing infrastructure needs.”

More than 30 states already have set up such entities since Congress granted them the authority to do so in 2005. “State infrastruc­ture banks already have clearly proven their worth in helping to finance key transportation projects around the country,” Slone’s report concludes.

South Carolina, for example, has one of the most active banks. It is capitalized with federal, state and private funds and has made more than $3 billion in loans since 1997. “If uncertainty about the future of the federal highway program continues, the role of the state infrastructure bank could grow in the years ahead as states seek additional tools to help them meet their infrastructure needs,” the CSG report states.

Slone said that states have experienced a “period of great uncertainty the last two years,” as Congress has repeatedly passed short-term extensions of highway and transit programs, instead of agreeing on a long-term policy plan. And states’ need to look elsewhere for transportation dollars is likely to grow, no matter how the infrastructure bank debate plays out.

“Whatever Congress decides, it’s likely to be a reduced federal commitment if they can’t come up with additional revenues from somewhere,” he said, noting that the gas tax doesn’t produce enough revenue to cover the current outlays for federal transportation.

Malloy’s policy director said that message has already been digested in Connecticut; the question is how best to respond. “The status quo is not going to be maintained and our list of infrastructure projects and our desire to do things is greater than what’s available to us,” said Donohue. “So we have to look at creative financing.”

Whether that means an infrastructure bank or some other avenue is still an open question, she said.