Doubling the federal cap on private activity bonds is among a number of steps lawmakers could take to efficiently finance high-speed rail service, one small part of an ambitious multi-trillion-dollar infrastructure investment that has become a priority for both Democrats in Congress and the Biden White House.
An increase to $30 billion from $15 billion on the PAB allotment overseen by the Department of Transportation was one suggestion a House panel heard during a Thursday hearing examining the challenges and opportunities of high-speed rail and emerging rail technologies. The expansion of high-speed rail represents a major opportunity to leverage the municipal market, but many stakeholders believe the effort can only succeed with robust federal partnership.
“PABs attract private lenders willing to accept lower rates on bonds because of their tax-exempt status and that lower rate reduces the cost of capital to the developer,” P. Michael Reininger, CEO of Brightline Holdings LLC said in his prepared testimony. “The savings on interest expense can be redirected into hard assets. Any deferred tax revenue is made up over time as the invested money is put to work in the economy.”
Brightline
“Our request is pretty simple: consider increasing the volume cap from the current $15 billion — which has already been exhausted — to a minimum of $30 billion to help finance projects,” Reininger told the panel.
The current $15 billion cap was established in 2005 under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which authorized a new type of tax-exempt private activity bonds that could be issued by state or local governments to finance qualified highway or surface freight transfer facilities.
The 2005 legislation designated DOT as the key agency for allocating these transportation PABs.
The transportation and freight PABs are among 22 eligible uses for PABs that are subject to varying federal rules, according to the nonpartisan Congressional Research Service.
Thirteen of the 22 activities are subject to annual state volume caps. Among them are multifamily housing bonds, single-family mortgage revenue bonds and qualified student loan bonds. Others include small issue bonds, redevelopment bonds, exempt facility bonds such as water and sewage facilities, hazardous waste facilities and other utility facilities.
Among the PABs not subject to volume caps are those financing airports, docks, wharves and projects for 501(c)(3) organizations.
As of April 2, the DOT has approved just over $13.5 billion of PABs already issued, including more than $3 billion for the Florida and California-Nevada Brightline projects. Another $1.1 billion of allocations have been approved already, meaning that there is less than $300 million remaining of PAB allowance.
Other ideas witnesses suggested included another advanced by Reininger to revamp the Railroad Rehabilitation and Improvement Financing (RRIF) loan program, which is authorized by federal law to provide up to $35 billion of loans with up to 35-year repayment periods. It has only loaned about $6.3 billion, however, with none of that supporting high-speed rail programs.
Reininger said high-speed projects are viewed as start-ups with limited credit history, subject to high upfront credit-risk premiums which defeat the intention of a low-interest loan. He suggested making credit risk premiums an eligible use of any DOT discretionary grant program.
“High-speed rail projects could then utilize grants to offset the initial costs of RRIF financing,” Reininger testified.
John Porcari, a former deputy secretary of transportation and two-time Maryland transportation secretary, urged Congress to create a passenger rail trust fund similar to the Highway Trust Fund that has long funded highways, albeit with diminishing effectiveness in recent years. Some states have used anticipated federal trust fund disbursements to back the issuance of tax-exempt bonds. Another federal trust fund supports airports.
“Providing real transportation choices at the local and state levels requires the establishment of a passenger rail trust fund on par with our highway trust fund and airport and airway trust fund” Porcari said. “For those of us who strongly believe that project choices should be made at the state and local level, the establishment of this third trust fund would for the first time enable local jurisdictions to advance projects that are truly their priorities for the future.”
Though enthusiastically embraced in Europe and Asia, high-speed rail has been divisive in the United States. A frequent flashpoint for this criticism is the
Rep. Peter DeFazio, D-Ore., who is chair of the full Transportation Committee, urged colleagues not to draw sweeping conclusions based on one project’s problems.
“When you invest nothing, you get nothing,” DeFazio said, adding that he would personally like to see even bigger investments than Biden is stumping for.
President Biden’s proposed $2.3 trillion American Jobs Plan includes an $80 billion carve-out for rail investment out of a $621 billion transportation ask. The plan is much more ambitious than Republicans in Congress appear ready to embrace, particularly because Biden proposes to pay for the plan in large part with a corporate tax increase to 28% from 21%.
Biden has signalled he is willing to negotiate on the funding for the Jobs Plan as long as it does not raise taxes on the middle class and below.
Muni advocates and most lawmakers are still at least publicly holding out hope of reaching a bipartisan agreement on infrastructure investment and reauthorization of federal highway spending due to expire Sept. 30, but it will likely take months of work to approach that point.
