Infrastructure Insights: Issue #1

In this issue:
By: John Kennedy

• Early Developments but Still Few Details of Trump Infrastructure Plan
• Air Traffic Spinoff Finds Early Momentum
• Pennsylvania and Florida in Early Stages of Determining How to Spend a Portion of VW Settlement Funds
• Automated Vehicle Legislation Expected Early in Session in Harrisburg

Early Developments but Still Few Details of Trump Infrastructure Plan

The House Transportation and Infrastructure Committee recently held the first in what will almost certainly be many hearings on how to fix and modernize our roads, bridges and other public works. Chairman Bill Shuster (R-Pa.) called the hearing “to explore ideas and solutions to remain a leader in commerce and job creation tomorrow.”

Among the testifiers were Richard L. Trumka, President of the AFL-CIO, and Frederick W. Smith, Chairman and Chief Executive Officer of the FedEx Corporation.

In related news, House Speaker Paul Ryan (R-Wis.) recently revealed a few more details about a forthcoming massive infrastructure investment program often touted by President Donald Trump during the campaign.

Speaking on the Charlie Rose Show, Ryan said the package should have $40 of private-sector spending for every $1 of public spending.

“We want to leverage as much private-sector dollars as possible to maximize the fixing of our infrastructure,” Ryan said.

Along those lines, President Trump said that he has asked two New York-based real estate developers Richard LeFrak and Steven Roth to head up a new council he is creating to monitor spending on his proposed $1 trillion plan.

But the timing for unveiling more details of the plan remains unclear.

At her Senate confirmation hearing, Trump’s nominee for Secretary of Transportation Elaine Chao (confirmed by the Senate on January 31), shed little new light on specifics, but did say -- in a departure from candidate Trump’s comments on infrastructure -- that she envisioned the federal government would play some role in financing a plan.

Otherwise, Chao reiterated Trump’s vision of encouraging more private-public partnerships through tax breaks and other incentives that would generate up to $1 trillion in investment.

Chao told Florida Senator Bill Nelson, the top Democrat on the Committee on Commerce, Science and Transportation that she would try to have some details worked out within 30 days of being confirmed.

When the new administration does unveil the plan, it will likely take a back seat to other Congressional actions, the biggest being the repeal of the Affordable Care Act (ACA).

Initially, the Trump approach garnered some unlikely allies and opponents. It received a cool reception from some of the more conservative Republicans and a warm reception from some Democrats. But that early talk of support from Democrats appears to have shifted as Senate Democrats on January 24 announced a plan that relies on existing government programs and public spending, in contrast to a Trump effort that has emphasized increasing private investment, principally through a system of tax credits.

And last week Senator Deb Fischer (R-Neb.), chairwoman of the Senate’s surface transportation subcommittee, floated legislation that would temporarily take freight cargo and passenger revenue from Customs and Border Patrol and redirect it toward the Highway Trust Fund.

In the end, Congress could approach infrastructure investment in bits and pieces, and not all at once, Washington observers say. Part of that consideration will almost certainly come from funding solutions offered by associations representing the industries who will rebuild the roads, bridges, tunnels and other parts of the infrastructure.

Patrick D. Jones, Executive Director & CEO, International Bridge, Tunnel and Turnpike Association, recently encouraged members of the Committee for a Study of the Future Interstate Highway System to urge Congress to lift the prohibition on tolling interstate highways for the purposes of reconstruction.

“It’s not a mandate,” Jones said. “It would give the state the flexibility to choose the option to use tolls if it suits that individual state.”

Another group, the Associated General Contractors of America (AGC), also supports increased use of tolls and other user fees.

“We’re not against public-private partnerships,” said Brian Turmail, Senior Executive Director of Public Affairs for AGC. “They just can’t work in all instances. Where’s the return to the investor on an infrequently traveled rural highway?”

Other suggested tools from AGC include:

• Exempt construction from the Private Activity Bond Cap: a form of financing that allows private entities to partner with state or municipal governments to receive tax-exempt financing for private or publicly owned projects in the public’s interest.
• Reform and re-establish the Build America Bonds Program: allow state and local governments to obtain much-needed financing, at lower borrowing costs, for projects such as construction of schools, hospitals, transportation infrastructure and water and sewer upgrades.
• Encourage states to enact permissive and workable private partnership laws: establish a new Public-Private Partnership Innovation Fund using some of the proceeds from repatriated corporate tax revenue.

Most surface transportation infrastructure projects have traditionally been primarily funded by the Federal Highway Trust Fund, which is funded by federal gas and diesel tax revenues as well as a series of other fees related to highway use. The balance in the fund has dropped precipitously over the past two decades as the relative amount of revenue raised from the tax has dropped, in large part because of the substantial increase in mileage cars get per gallon used.

Over the past decade, Congress has had to approve several general fund transfers during the past decade to prevent the Trust Fund from hitting a zero balance.

Meanwhile, the American Society of Civil Engineers “Report Card for America’s Infrastructure” gives a D+ rating to the overall state of U.S. infrastructure. In particular, the Society’s most recent report notes that despite slight improvements to some types of infrastructure, the overall condition of the country’s public infrastructure is serving as a drag on economic growth.

Air Traffic Spin Off Finds Early Momentum

Congressman Bill Shuster (R-Pa.), Chairman of the Transportation and Infrastructure Committee, may have a new ally in his bid to spin off Air Traffic Control (ATC) from the Federal Aviation Administration (FAA) – President Donald Trump.

Shuster recently told “The Hill” that he approached candidate Trump several times on his plan to place the ATC administration with a non-profit corporation, and received positive feedback each time.

At the same time, Transportation Secretary Elaine Chao told members of the Committee on Commerce, Science and Transportation during her confirmation hearing that more extensive dialogue is needed before the new administration takes any firm position on the plan.

Separately, a spokesman for the committee said that subcommittee hearings on FAA reform will be scheduled in the near future.

Shuster and supporters of stripping ATC authority from the FAA maintain that the agency has fallen far behind in modernizing air traffic control, and that corporatization will get us to NextGen more efficiently.

What’s more, a recent report from the Department of Transportation’s inspector general shows that the FAA has struggled to implement its NextGen modernization program, which aims to establish a precise satellite-based surveillance system and digital data communications for air traffic controllers and pilots. The report also said the agency still isn’t prepared to handle major air traffic control outages despite promises to update plans.

The FAA has been working on new contingency plans since a fire at a control facility in the Chicago area in 2014 led to widespread flight cancellations and delays for more than two weeks.

“This report adds to the sea of evidence supporting the need for real reform in modernizing and managing air traffic services, and letting the FAA focus on its safety mission,” Shuster said.

Supporters of the spinoff remain hopeful the new administration will back the Shuster plan.

“He’s (Trump) been out front calling for more involvement of the private sector in helping getting things done, especially when it comes to infrastructure,” said Sharon L. Pinkerton, Senior Vice President, Legislative and Regulatory Policy, Airlines for America. “ATC is such a big part of that system.”

In the last session, an FAA reauthorization bill with the spinoff provision moved out of committee but never came up for a floor vote. The Senate approved a reauthorization bill, minus the ATC spinoff. That bill was never considered in the House. Congress instead adopted a measure that authorized the agency temporarily. This year, the FAA faces a September 30 deadline for reauthorization.

Pennsylvania and Florida in Early Stages of Determining How to Spend a Portion of VW Settlement Funds

Pennsylvania and Florida are in the very early stages of the necessary legal maneuvers to collect millions of dollars from the Volkswagen emissions settlement directed at NOx reduction, a byproduct of burning diesel fuel. Most states are in similar early stages of getting the right legal mechanisms in place needed to collect the money.

“Virginia has a pretty detailed plan up online and ready to go,” said Clint Woods, Executive Director, Association of Air Pollution Control Agencies, “but a lot of states are just coming around to doing what it takes to get the money, and determining how they will use it.”

The first step under the settlement is for the appointment of an independent trustee. That’s expected sometime this spring.

The states’ governors will then designate a lead agency (a beneficiary), and then 90 days later submit a plan to the trustee.

Pennsylvania is due to receive $110 million and Florida more than $152 million of the total $2.8 billion set aside in late October as part of a nearly $15 billion U.S. deal concerning Volkswagen Group’s diesel car emissions scandal.

Neither Pennsylvania nor Florida has, as yet, designated a lead agency, but environmental groups contacted in both states expect that the Departments of Environmental Protection in both will be named. Possible other selections there and in other states include energy departments, if they have them, or the state’s Attorney General.

Also unclear is whether Pennsylvania or Florida will gather stakeholders or hold hearings, or both, to determine how the money is spent. Officials in both states said they are still considering options. Under the terms of the settlement, the states are limited to the types of projects they can choose.

“States do not have carte blanche to select any projects they want,” said S. William Becker, Executive Director of the National Association of Clean Air Agencies. “They must select from a list.”

The list includes replacing or repowering large freight trucks, ferries and tugs, locomotive freight switches, airport ground support trucks and other vehicles. The terms also allow augmenting funding under the federal Diesel Emission Reduction Act (“DERA”), a statute with goals and structure similar to the mitigation outlined in the settlement. Investment in charging stations and other infrastructure projects for zero emission vehicles is also permitted.

In Pennsylvania, environmental groups have written Governor Tom Wolf asking him to consider funneling the money to the state’s DERA program. The signers include the Sierra Club, Clean Air Council and the Group Against Smog and Pollution.

“We understand that mitigation trust projects which meet DERA requirements are eligible as state matching funds under DERA,” the letter stated. “Such qualifying projects could increase the amount of money available to Pennsylvania for pollution reduction projects.”

A separate initiative in the settlement requires Volkswagen to invest $2 billion in infrastructure, including charging stations for zero emission vehicles (the National ZEV Investment Plan (“ZEV”)). Under the plan, Volkswagen controls how it spends the money, but is required to develop a National Outreach Plan and solicit input from state and local governments and federal agencies on that plan.

The ZEV investment parameters have raised some eyebrows among Republican members on the House Energy and Commerce Committee, who argued at a hearing in December that the deal would give Volkswagen an unfair leg up in the U.S. electric-car market.

Rep. Tim Murphy (R-Pa.), Chairman of the Subcommittee on Oversight and Investigations, said, “If someone has a violation of their individual car and they’re caught by local law enforcement or the state and says ‘we know you violated the law, but we’re going to let you choose your penalty and let us know when it’s done and you can supervise yourself and, by the way, ‘it’s OK to open a store and make money on the whole thing.’ It just doesn’t make sense to us.”

Automated Vehicle Legislation Expected Early in Session in Harrisburg

Legislation that authorizes the testing of highly automated vehicles or “HAVs” on Pennsylvania roads will soon be introduced in the state House of Representatives and Senate, according to the offices of the sponsors of the initiatives from last session.

Staff in the office of Sen. Randy Vulakovich (R-Allegheny), who sponsored the legislation last session, stated that “The aim is to have the law in place when the industry is ready, not after,” adding that the bill would be similar to SB 1412 from last session.

In the House, Rep. Jim Marshall’s office (R-Beaver) said that his initiative, similar to the Vulakovich bill, will be re-introduced with minor changes from last year.

Both offices are coordinating their efforts with the PA Department of Transportation’s Autonomous Vehicle Testing Policy Task Force (members include representatives of Federal Highways, AAA, Carnegie Mellon, General Motors). Public comments on the Task Force’s guidelines ended in January.

Last year, at the request of Pennsylvania lawmakers, provisions of the Pennsylvania legislation were incorporated into a set of federal rules and regulations released by the National Highway Traffic Safety Administration (NHTSA).

Even when the policy recommendations on the state level are final, legislation will be required to put the policies into action. Currently, state law that applies to self-driving vehicles requires only that a licensed driver be in the driver’s seat.

Meanwhile, David Richter, Uber's Vice President of Strategic Initiatives, recently told members of the Pittsburgh chapter of the Commercial Real Estate Developers Association (NAIOP), that the company would expand its investment in Pittsburgh.

“I think what’s great about Pittsburgh frankly is that talent base,” said Richter said.

He ranked Pittsburgh among the four or five best cities in the world with capabilities in robotics and artificial intelligence.

The office of Pittsburgh mayor Bill Paduto said that it expects Uber will increase the number of cars being tested to 100 over the next 18 months and hopes that the number of jobs directly supporting the project will grow to 1,000 this year.

In another recent development, the Pennsylvania Department of Transportation (PennDOT) has applied to a U.S. Department of Transportation solicitation to be designated as an Automated Vehicle Proving Ground Pilot to facilitate the safe and innovative development of these technologies. The proposal lists the city of Pittsburgh, Penn State University (which has a closed track) and Pocono Raceway as testing sites.

Finally, PennDOT and the Pennsylvania Turnpike Commission have formed the Smart Belt Coalition a first-of-its-kind collaboration with transportation agencies in Ohio and Michigan that will focus on automated and connected vehicle initiatives. The coalition, which includes transportation and academic partners, brings together leaders on these technologies to support research, testing, policy, funding pursuits and deployment, as well as share data and provide unique opportunities for private-sector testers.

Below are the highlights of the recommendations from PennDOT’s Task Force:

• PennDOT would have testing oversight in multiple ways, including a testing proposal and contract process requiring testers to notify PennDOT when changes are made to the vehicles and requiring testers to submit data, including data needed to investigate a crash.
• PennDOT and the Pennsylvania Turnpike Commission would be able to restrict routes used by the self-driving vehicles including restrictions that come at the request of municipalities.
• Vehicles must meet all federal and state safety standards and all PennDOT polices.
• The vehicles would also be required to have cybersecurity protections.