Oberstar bill mandates higher gas tax, more earmarks, less private investment (GUEST COLUMN)

by Payson R Peabody, Dykema       Members of Congress who believe in fiscal responsibility, tax fairness, and state autonomy should think twice about endorsing the highway reauthorization bill that began working its way through Congress on Wednesday. The bipartisan legislation crafted by House Transportation Committee Chairman James Oberstar (D-MN) severely restricts one of the most viable options

for avoiding a highly regressive and poorly timed increase in the federal excise tax on gasoline and diesel. It does so in a way that would unnecessarily interfere with states’ right to control their own destiny when it comes to infrastructure investment.

I am referring most directly to the proposal to create an “Office of Public Benefit” (OPB) whose grandiose mission is “to provide for the protection of the public interest” as it relates to state infrastructure financed by user fees and public-private partnerships (PPPs).

Through the OPB, the federal government would have veto power over state decisions to build new bridges, tunnels, and highway lanes, to finance the maintenance of existing infrastructure, and state decisions use private sector companies to build infrastructure and provide services under contract with the state, i.e. public-private partnerships (PPPs). 

And, in exercising its veto over user fees, OPB would assure that states have no option but to use general revenue or plead for earmarks in Washington if they want to build a bridge.

There is no doubt that law should provide for protecting the public interest whenever a user fee is imposed, and there are legitimate differences of opinion about how well the public interest has been protected in the past.  In some cases, it’s clear the public wasn’t protected, but there are more than a few federal examples to point to as well, e.g. a certain bridge in Alaska.

No one could argue that the public interest should not be carefully considered whenever the government enters into an expensive, long-term commitment that will impact millions of people for years to come.  The question is:  who should protect it?  And what makes Chairman Oberstar believe an unelected federal regulator in the Federal Highway Administration (FHWA) is better able to protect the public interest than the elected representatives of the State of Minnesota who built the roads in question?

The federal government is entitled to, and often does, attach conditions to the receipt of federal money allocated to states through the highway trust fund.  There is nothing inherently wrong with that if the conditions relate to the use of the money or if they implicate a federal transportation priority, such as road safety.

But, what is the legitimate federal interest in making sure that all user fees to pay for State infrastructure maintenance or improvements are “just” -  as the Oberstar bill requires? 

Isn’t that a consideration better handled by elected state officials?

Assault on states' contracting authority

And, what right does the federal government have to decide what is a “reasonable return on investment” in a transaction between the State and a private sector entity that assumes many incalculable risks in connection with an equity investment in infrastructure?  This provision comes close to removing entirely the States’ authority to contract with private sector entities, placing it in the hands of the FHWA. 

If it was not already abundantly clear that the true purpose of this legislation is to make states financially dependent on Washington by restricting a viable financing option, the Oberstar bill gives the OPB the power to determine in its sole discretion whether a state project has “negative impacts on interstate commerce or travel,” and requires states to “provide operational improvements and transit service sufficient, as determined by the Secretary, to accommodate any substantial amount of travel that is projected to be diverted” to avoid user fees.  While not entirely clear, this appears to mean that States will be required to build competing infrastructure, defeating the revenue raising purpose of the user fee at considerable expense.

Some have argued, optimistically, that having a federal regulator will create uniform standards that will accelerate the adoption of PPPs, but it is hard to see how adding several new and challenging hurdles to the existing approval process for PPP deals will have that effect.  If there is any acceleration, it will be a rush to close deals before federal legislation like this can be adopted.  Maybe that’s one reason we are reading about a new J.P. Morgan/Cintra deal in Tarrant County, Texas this week.

Ultimately, by restricting the viability of PPPs and user fee funding options on State highways as well as federal Interstates, the Oberstar bill makes it inevitable that taxpayers and Members of Congress will be presented with a false choice:  double the gas tax or make do with crumbling infrastructure.  With a more enlightened attitude, and one more tolerant of federalism, taxpayers could have better roads, faster, and more money to spend on the things that matter to them. END GUEST COLUMN

Editor - the author works out of the Washington DC office of Dykema (http://www.dykema.com) as part of the firm's Infrastructure and Project Finance Client Service Team, ppeabody@dykema.com

DJ Gribbin also sees downside to federal permitting for state concessions

Heightened risk for P3 concession projects in a federal approval process is mentioned in a paper written by DJ Gribbin, managing director, Macquarie Capital, New York and former chief counsel US Department of Transportation.

On the proposed federal Office of Public Benefit Gribbin writes:

"Section 1204 of the (STAA) Act creates a new Office of Public Benefit to ensure that the utilization of tolls and P3s 'enhances the nation’s surface transportation network and provides maximum benefits to the public.'  The Office is established within Federal Highways and is responsible for:

(1) developing best practices for protecting the public interest;

(2) reviewing and approving state plans for toll rates on federal-aid highways, methods for adjusting those tolls, plans to mitigate toll impacts, and monitory compliance with those plans;

(3) administer and monitor compliance with section 1504 PPP agreements;

(4) monitor compliance with section 1301 restrictions on the use of toll proceeds; and

(5) annually report to Congress.

"While this Office could perform a valuable function in compiling best practices and providing information to States interested in pursuing P3s, requiring all tolling and P3 agreements to be approved by the Office would severely limit the attractiveness of P3s to both states and the private sector. 

"Under this Act, P3 projects would be required to undergo a level of federal approval not required of any other federal aid project.  The time and expense of undergoing this process would significantly diminish the attractiveness of P3s. 

Catch 22 looms

"In addition, the requirement that the Office of Public Benefit (OPB) approve projects creates uncertainty over whether such an approval will be forthcoming.  As a practical matter, it is unclear how advanced a project must be in order to meet the transparency requirements.  If transparency requires a high level of certainty regarding the design and financing of the project, then that requirement could only be met late in the process, meaning that OPB approval could only be obtained late in the process. 

"As a result, the P3 proponents would be at risk of the OPB denying a P3 project after millions of dollars and years of effort were spent to develop it.  This puts P3 proponents in a catch-22.  OPB will only approve projects well developed, but no one will spend funds to advance a project to that stage unless the project has OPB approval." END QUOTES GRIBBIN

Gribbin's full paper on STAA 2009 from which we took the extract is here:

http://www.tollroadsnews.com/sites/default/files/Gribbin.DOC

TOLLROADSnews 2009-06-26