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President Obama's FY 2014 budget request includes $77 billion for the Department of Transportation and an additional $50 billion  "for immediate transportation investments." His next transportation bill to follow the current MAP-21, calls for a 25 percent increase in funding over current levels and assumes a transfer of $214 billion to the trust fund over six years "to maintain trust fund solvency and pay for increased outlays." To offset this spending, the Administration proposes using the "savings" or "peace dividend" from winding down the war in Afganistan. 

House T&I Committee Chairman Bill Shuster (R-PA) was not impressed.  "The President's budget," he said,  "repeats his call to increase spending without identifying a viable means to pay for it. .... You can't just keep on spending money that you don't have."  "A proposal we have seen three times before," observed Rep. Tom Latham (R-IA), House Transportation Appropriation Subcommittee chairman referring to the $50 billion request. With massive stimulus spending politically out of fashion, the Administration is repackaging it as "transportation investment." Bill Graves, president of the American Trucking Association, spoke for many stakeholders when he remarked, "For five years, we've waited for President Obama to clearly state how we should pay for these critical needs and, I'm sad to say, we continue to get lip service about the importance of roads and bridges with no real road map to real funding solutions." As for the "peace dividend," the idea has been dismissed as "budgetary gimmickry"  by congressional Democrats and  Republicans alike.

In sum, a large segment of congressional and public opinion has pronounced the White House proposals variously as "vague", "repetitive," "unrealistic," "implausible" and "politically unachievable." Even the President's most loyal supporters in the transportation community, the liberal advocacy groups, seemed disappointed and circumspect in their comments.  

This said, no one disputes President Obama's and the infrastructure advocates’ claim that some of America’s transportation facilities are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50 billion federal crash program as proposed in the President's budget message, or the expenditure of more than $100 billion per year as recommended by the American Society of Civil Engineers (ASCE) in its latest "Report Card."

Instead, as we have argued in recent columns, the challenge can be met if each state did its part to progressively bring up its transportation facilities (including its Interstate highway segments) to a "state of good repair," using its own tax revenues and its formula allocation of the Highway Trust fund dollars (which are expected to total $38-41 billion per year over the next decade.)  As numerous news dispatches attest, that's precisely what is happening (see below). A large number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction and modernization of their aging facilities and to maintain their transportation systems in good working condition. "Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back," an association executive who is familiar with the thinking of senior-level state officials, told us.

What about large-scale reconstruction and system-expansion projects that require billions of dollars---transportation investments that are beyond the states' fiscal capacity to fund on a pay-as-you-go basis out of annual cash flow? Those investments,  provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue),  will be mostly financed through long-term credit instruments  and public-private partnerships. The future of capital-intensive infrastructure projects is intimately tied to the financial involvement of the private sector and to a wider use of  tolling, "availability payments,"  and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us. We list below some of the transportation megaprojects that are being financed (or are planned to be financed) largely with public and private credit rather than with federal dollars out of congressional appropriations.

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Lending credibility to the above funding scenario and hastening its adoption are the new realities underlying the federal role in transportation today. Those realities include: (1) a federal program that no longer has a clearly defined mission or purpose and many of whose functions are properly a state and local responsibility;  (2) a  Highway Trust Fund that has lost its capacity to support large-scale transportation investments and that has come to depend for its solvency on periodic injections of  general funds;  (3) a bipartisan absence of political will to raise the federal gas tax and (4) continued inability to identify another credible revenue source  to supplement or replace the gas tax.  

In sum, having the states assume financial responsibility for fixing their aging transportation facilities and for preserving them in a state of good repair,  while employing public and private financing for major capital-intensive infrastructure investments, offers the best solution to the current  federal funding dilemma.

NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and  Maryland (broad transportation funding overhaul  that includes a dedicated sales tax applied to the wholesale price of gasoline.  A sales tax, it has been argued, is no less a "user fee" than the gas tax since every consumer who pays a sales tax also is served by or "uses"  the highway system for goods delivery );  Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years);  Illinois (six-year $12.6 billion statewide construction program to improve roads and bridges);  Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal) Michigan ( $1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain);  Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements);  Pennsylvania ($2.5 billion Senate transportation funding plan; House approval uncertain); Texas (statewide tolling);  Wisconsin ($824-million boost to the state transportation fund);  Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange). In addition, several states which derive significant revenue from their tollroads have raised toll rates. See also, "State Transportation Funding Proposals,  AASHTO Center for Excellence in Project Finance, April 2013

Recent major transportation infrastructure projects largely financed,or to be financed, with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York's Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing;  the Highway 520 floating bridge and the Alaskan Way Viaduct in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA; East End Crossing over the Ohio River near Louisville; and the PortMiami Tunnel. Please note that, except for the California High-Speed Rail venture, there are no transportation megaprojects currently being planned whose construction would depend primarily on federal appropriations.

California's Governor Jerry Brown and an entourage of public officials and corporate executives has spent much of the last week traveling around China trying to drum up business for the state. One of his principal objectives is to entice Chinese investors to take a stake in the California high-speed rail project. From the Governor's perspective, this makes all sense in the world.

California's high-speed rail program may be the current holder of the largest projected funding deficit of any infrastructure in the world, at approximately $50 billion. (That's after shaving $30 billion off the project and losing the support of former California High Speed Rail Authority Chairman, former state Senator Quentin Kopp, who charges that the line is no longer "genuine high speed rail").

As Governor Brown concludes his trip to the Orient, word comes from The San Francisco Chronicle that "A $1.7 billion deal with China Development Corp., the Chinese national railway and Lennar Corp. to construct 12,500 homes on the former Hunters Point Naval Shipyard in San Francisco and a string of high-rises on Treasure Island has collapsed." The project was to be built over up to three decades and would have housed 20,000 people. The deal is said to have fallen apart over not allowing the Chinese investors sufficient control and "unresolved tax issues."

The now defunct deal may have been the largest serious Chinese investment proposal in California.

There are important lessons for proponents of the high-speed rail system, who sometimes fantasize about China as the bailout investor of last resort. The Chinese, like the other investors who have found better things to do with their money are not likely to be swayed by the line's excessively high cost or its modest ridership potential. Nor will the Chinese bear gifts to California.

These issues are described in detail in the new Reason Foundation Updated Due Diligence report by Joseph Vranich and me.

During his March 29 visit to the privately built and financed PortMiami tunnel project, President Obama unveiled a new infrastructure plan. His latest proposal---costing $21 billion--- includes a renewed call for a National Infrastructure Bank capitalized at $10 billion,  a  $7 billion  "America Fast Forward Bonds" program modeled after the former Build America Bonds;  and a sum of $4 billion in direct loans and loan guarantees. The White House announcement did not make it clear whether  this latest infrastructure initiative --- " to encourage private investment in America's infrastructure" ---replaces or is in addition to the $50 billion "fix-it-first" infrastructure plan that the President announced in his State-of-the-Union address less than two months ago (see, "Infrastructure Advocacy and Public Credibility," InnoBrief, Vol. 24, No. 2, February 20).

Decidedly, infrastructure investment remains on the President's mind. It also continues to generate headlines. Just a week earlier, the American Society of Civil Engineers (ASCE) released its latest  "report card" giving the nation a D for highways and estimating the investment needs in surface transportation to the year 2020 to amount to a staggering $1.723 trillion. With expected funding during the same period amounting only to $877 billion, the funding gap comes out to be an astronomical sum of $846 billion--- more than $100 billion per year. As if to reinforce the ASCE conclusions, the Washington Post came out with a front-page story about the deteriorating state of the Capital Beltway, "a politically iconic and locally vital highway... dying beneath your turning wheels"  (Beneath the Surface, the Beltway Crumbles, March 31, 2013)

What kind of an impact the President's repeated pleas, combined with the ASCE report card and alarming press stories of "crumbling " infrastructure, will have on public opinion and congressional attitudes remains to be seen. As we have noted earlier, they come at a time of severe budget pressures and intense Republican efforts to curb excessive discretionary spending. To be successful,  pro-infrastructure advocates must explain to the skeptical lawmakers where the money would come from.  "At some point somebody  has to pay the bill," House Speaker John Boehner pointedly remarked in reaction to Obama's latest infrastructure proposal. The advocates also must persuade fiscally conservative House members that there are urgent and compeling reasons to boost spending on public works that override the imperative to reduce the deficit and get the nation's fiscal house in order. 

Second, the nation's taxpayers must become convinced that spending more on transportation will make a difference in practical terms such as easing congestion and improving the lot of  commuters, and that the money will not be wasted on questionable projects that have little to do with improving mobility. "The Bridge to Nowhere" as a symbol of wasteful spending still lives in the collective public consciousness. 

Third, infrastructure alarmists must contend with the upbeat conclusions of a Reason Foundation study, "Are Highways Crumbling?" That study has found that  America's highways and bridges are in a far better condition today than they were 20 years ago. "There are still plenty of problems to fix, but our roads and bridges aren't crumbling," said David Hartgen, lead author of the Reason study. "The overall condition of the public road system is getting better and you can actually make the case that it has never been in better shape." The study affirms what the traveling public experiences every day ---- that  the nation's highways and bridges not only are not "crumbling" but in most places are holding up pretty well. "Should I believe the pundits or my own eyes," asked Charles Lane, a Washington Post editorial writer, in a much-quoted column after having traveled thousands of miles "without actually seeing any crumbling roads."  (The U.S. Infrastructure Argument that Crumbles Upon Examination, October 31, 2012). 

Fourth, as one highly knowledgeable reader of ours (a civil engineer) has observed, "we must get an objective, precise and quantifiable assessment of bridge conditions  before launching full bore into repair or replacement actions" costing billions of dollars. "Today," he wrote, " no one, and I mean no one  has an objective, clear and precise understanding of the actual condition of America's bridges." Before asking taxpayers for billions of dollars to fix a problem based on subjective visual assessments of bridge conditions,  we want to be very sure that we have accurate data to back up our position, our reader concluded. His remarks about bridges could equally well be applied to the condition of the nation's roads.

Lastly, infrastructure advocates must overcome a cynical perception, common among the public, that pressures to increase federal funding for transportation are nothing more than special interest pleadings by interest groups that stand to profit from higher levels of public spending (ASCE is one of them, raising questions as to its objectivity, several observers have noted). 

As one transportation advocate at a recent conference observed, "there is an enormous disconnect between us and the American public" --- a disconnect that may not be easy to overcome.

States Are Acting on their Own

As we have argued in recent columns, no one disputes the infrastructure advocates’ claim that some of America’s transportation facilities, such as the Capital Beltway, are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50-70 billion federal crash program as proposed by the President, or the expenditure of more than $100 billion per year as recommended by ASCE.

Instead, the challenge can be met if each state did its part to incrementally, over a period of years, bring its transportation facilities up to a "state of good repair" using its own gas tax revenues  and its formula allocation of the Highway Trust fund dollars. As numerous news dispatches attest, that is precisely what's happening (see below). A growing number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction of their aging facilities-- "one lane at a time" if necessary---and keep their transportation systems in good working condition. "Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back," an association executive who is familiar with the thinking of senior-level state officials, told us.

What about  large-scale reconstruction and capacity-expansion projects that require billions of dollars---transportation  investments that are beyond the states'  fiscal capacity to fund on a pay-as-you-go basis? Those investments,  provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue),  will be mostly financed through long-term credit instruments  and public-private partnerships. The future of infrastructure megaprojects is intimately tied to the financial involvement of the private sector and to a wider use of  tolling, "availability payments,"  and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us. " President Obama was right to have shined a spotlight on the PortMiami tunnel project and drawn attention to the importance of private investment in major transportation infrastructure. The Highway Trust Fund no longer can serve that purpose."

The scenario we have suggested above---i.e., having states assume financial responsibility for fixing their aging transportation systems, while relying on debt financing for major facility reconstruction and system expansion---makes practical sense in view of the uncertain future level of  federal transportation funding.  It also may constitute a way to save the Highway Trust Fund from insolvency and provide a lasting solution to the federal transportation funding dilemma.

NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and  Maryland (broad transportation funding overhaul  that includes a dedicated sales tax applied to the wholesale price of gasoline.  A sales tax, it has been argued, is no less a "user fee" than the gas tax since every consumer who pays a sales tax also is served by or "uses"  the highway system for goods delivery );  Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years); Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal);  Michigan ($1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain);  Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements); Texas (statewide tolling);  Wisconsin ($824-million boost to the state transportation fund);  Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange).

Recent major transportation infrastructure projects largely financed with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York's Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing;  the Highway 520 floating bridge in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA, East End Crossing over the Ohio River, and the PortMiami Tunnel.

Here we go again! Another ranking of the “best” places to live. I wonder how many of those there are.  They just pop up on your computer screen like unwanted ads. Perhaps there are so many “best” cities rankings that at some point most cities end up winning or being in the top 10. Mayors and chambers of commerce know it, just like car companies. If you don’t win the top prize you will simply pick a category and exploit it to death to sell your product. It could be safety, trunk size, fuel efficiency, resale value. In the case of cities, it can be average house price, commuting time, unemployment rate, safety and the pièce de resistance, the vaguest criteria of all, the one that makes rankings such subjective tool: amenities.

What does it mean for MoneySense to be the best? A look at the methodology shows that the criteria are quite typical of most rankings: crime, amenities, commuting, heath, housing etc.  Also, the number of points given to each criterion varies from one to another and are totally based on the mood of those who design the ranking. If you think that dry weather is important then you will give it more points. If you dislike bike paths you give it less point. If professional sport teams seem unimportant, you simply don’t use it as a criterion.

One big mistake that those guys do is to mess up distinctions between metropolitan areas and suburbs. Too often, they only include the boundaries of municipalities and break up larger cities into pieces even though they are really parts of greater metropolitan areas.  For example, The Greater Toronto Area (GTA) has close to 6 million residents. The Municipality (or City) of Toronto has about 2.5 million people. Mississauga, a populous suburb of the GTA, but has its own place  in the very same ranking. How can this be? This is major flaw, a very common one.

So let’s take look at the ranking. We indicate when a city was part of a Census Metropolitan area):

It would be hard to end up with a more flawed ranking. There is a mix of small cities (Lethbridge), the mid-size city of Ottawa, with suburbs that have been amalgamated into one unified City of Ottawa, without taking account that the Census Metropolitan Area includes the City of Gatineau, across the Ottawa River, in the Province of Québec. It is simply impossible to judge a suburb or a city that is part of a metropolitan area and ignore the fact that its amenities, transportation system, jobs, highways etc. are all linked. How would Mississauga’s economy perform if it wasn’t of Toronto, or its airport, (located in Mississauga!)? How would Ottawa do if they didn’t have its pool Gatineau and its pool of 75,000 civil servants living in its more affordable houses, commuting by across the Ottawa River by one of its 5 bridges?

I am not pro-gentrification nor a big fan of downtown living, at least not until my kids will live at home. I myself live in an Ontario suburb of Ottawa, while commuting by train to Montreal a few times a month. However, I am fully aware that my suburb would not exist if not for downtown Ottawa. When 75% of the labour force living in my suburb commutes to downtown Ottawa each day to go to work, if the city had not been amalgamated in 2000, I would have laughed at any ranking that would have considered my suburb as a stand- alone city.

Please guys, you do not rank cities like you rank sports teams.

The Province in Vancouver reports (in "15% of downtown Vancouver condos sit empty, turning areas into ghost towns: Study") that "much of the downtown core is starting to look like B.C.’s ghost towns — with apartments languishing empty, businesses closing down and residents not feeling the sense of community they bought into." The study, by University of British Columbia (UBC) planning professor Andy Yan, indicates that the problem is most pronounced outside the long-established high-rise district of the West End. He notes that in Coal Harbour, well located adjacent to the downtown area along Burrard Inlet, approximately 25% of the condominium units are unoccupied.

UBC economics professor Tour Somerville suggests that the number may even be higher, at 65% vacant, including both unsold units and units that have been purchased but not occupied by their owners. Vancouver has had an unusual amount of investment from mainland China, especially as that nation has substantially limited the purchase of condominium units for investment purposes.

Reporter Mike Reptis of The Province notes the difficulties for businesses in the area, indicating that "it’s a problem to local small business owners and residents — especially in Coal Harbour — who have bought into the neighbourhood expecting more of a community, and more business."

A long time convenience store manager complained that “foot traffic has slowed" and "local people can’t afford (to live here)," concluding that "small grocery stores are closing up" and "A lot of small companies are closing up.”