Dr. Mark Zandi, chief economist for Moody’s Analytics says, “Arguably nothing the government spends money on produces a higher long-run return than infrastructure.”

Why should the federal government and local governments see the America Fast Forward innovative financing program — which includes the TIFIA direct low-interest loan program adopted last year in MAP-21 as well as a proposed qualified tax-credit bond program — as creating breakthrough opportunities?

From the federal government’s point of view, what are the advantages of the America Fast Forward innovative financing program?

• A robust federal transportation financing program secured by local funding streams together with existing grant programs would stretch limited federal dollars and leverage more local dollars for badly needed investments in transportation infrastructure across the country. This is especially important as revenues in the Highway Trust Fund drop to new lows.
• Such a program would accelerate completion of local transportation projects and accelerate their benefits, including a more efficient and robust economy, enhanced job creation, enhanced federal tax revenues, energy conservation, improved public safety and public health, and reductions in air pollution and greenhouse gas emissions.
• With a financing program, the federal government would get paid back, reducing the burden on the federal budget and the program’s contribution to the federal deficit.
• Such a program effectively leverages local money. For every $1 billion in capitalization, which serves as a loss reserve, the federal government can make ten $1 billion loans to ten communities and support up to $30 billion in transportation infrastructure investment.
• Such a program will mobilize more widespread local infrastructure investments. Because communities can see a greater prospect for success with a financing program, it is reasonable to expect more communities will get active and submit applications.
• The local level is where the really big money is. In the aggregate, there is more capital available at the local level than at the federal level. And voters have more trust in local government and tend to be more willing to authorize local governments to spend local money on local projects.
• The timing is good for these investments. Interest rates are at an all-time low, as are construction costs, while unemployment rates in many states are still very high.
• If structured to include, as the TIFIA low-interest loan program does, a Master Credit Agreement (analogous to a line of credit), this program will promote local multi-project system planning, rather than one project at a time, further improving efficiencies.
• More communities will be able to plan and implement with federal help more system-wide infrastructure investment programs and realize them on an accelerated basis.
That’s the “secret sauce” for this program!

From the local and regional government’s point of view, what are the advantages of the America Fast Forward innovative financing program?

• Innovative low-interest federal financing will enable local governments to accelerate project delivery much earlier while reducing costs by saving years of inflation.
• The timing is good for infrastructure investments. The need is great and interest rates are at an all-time low, as are construction costs, while unemployment rates in many states are still very high – and these investments are major job creators.
• Accelerating transportation projects also accelerates the benefits that will result. These benefits include a more efficient and robust economy, good new jobs, encouraging private investment, enhanced public safety and improved public health, energy conservation, and environmental benefits such as reductions in air pollution and greenhouse gas emissions.
• A robust federal financing program, in tandem with federal grant programs, will enable many more local and regional community winners. A loan program capitalized at $1 billion will enable $10 billion in loans and potentially ten times as many winners as a grant program capitalized at $1 billion. Because local/regional governments have a greater chance of success, the program is likely to generate more interest and more applicants.
• The Master Credit Agreement will enable communities to begin planning for multiple projects, thus creating the opportunity for systemwide planning instead of merely planning line by line. This also enables communities to plan more holistically – for TOD, for example, and for bike and pedestrian improvements – and to accelerate the benefits that will be achieved.
• The prospect of moving forward with multiple projects on an accelerated basis will make it easier to build the necessary county and metropolitan-area-wide coalitions and create broader support for investment programs: The politics are easier because the competition is much less intense when the wait for project completion is much shorter. Localities that are waiting for “their” project in a queue that will last only 10 years are far more likely to be collaborative than if they must wait in a 30-year queue. This will reduce regional tensions and political rivalries over priorities.
This more efficacious environment for resolving local priorities and building local coalitions may be the “secret sauce” for this program on the local level.

Declining federal gas tax revenues pose a fundamental dilemma for Congress and for policymakers: At the very time that we need to both repair and replace aging transportation infrastructure and make new investments for a growing population, the revenue source on which these investments depend — the 18.4 cent per gallon excise tax on gas — is shrinking as cars become more fuel efficient and per capita VMT (vehicle miles traveled) continues to decline.

The federal gas tax hasn’t been raised since 1993, under President Clinton, when Congress increased it 4.4 cents. The prospect that this Congress will increase it — or even just index it to keep up with inflation — seems dim at best, especially since the 2010 election brought to Washington DC many new members elected on an anti-tax platform.

But it’s hard to accept that we are investing less in transportation infrastructure at a time when other countries, including China and India, are making significant investments, especially in high-speed rail. Some argue we are setting the country on a downhill slide because without an effective transportation system we can’t hope to maintain our standing as the world’s premier economy.

Others make the case that we could change the way the gas tax is structured, basing it not on the amount of fuel consumed but on the vehicle miles traveled (VMT) — using, for example, a VMT fee. There has been considerable pushback on this idea, however, mostly because a VMT fee would require some kind of monitoring device, such as an onboard GPS unit to record the distance traveled, assign it to the appropriate taxing jurisdiction, and calculate the amount owed. This has raised concerns about privacy.

Moreover, there is a tendency to resist any kind of change, especially when it involves a cost as substantial as driving. But perhaps the fatal flaw — as discussed in a recent analysis by the Rand Corporation — is that implementing a VMT fee could run as high as 5-6 percent of the revenue received, which contrasts with the 1 percent cost of implementing the current gas tax.

This suggests that the cost of this fee could outweigh the benefits of collecting it, or to put it another way, in order to implement a mileage-based fee that would generate equivalent revenue for transportation purposes, the federal government would have to set the fee at 5-6 percent more than the current rate. This begs the question: Why not just raise the gas tax?

Questions such as these prompted John Horsley, who late last year retired as director of the American Association of State Highway and Transportation officials (AASHTO), a powerful industry group in Washington DC, to suggest replacing the excise tax on fuel with a national sales tax on fuel.

Horsley pointed out that when the gas tax was set at 18.4 cents in 1993 it represented 17 percent of the price of a gallon of gas. But today, since gas prices have increased dramatically but the gas tax remains fixed at 18.4 cents, the percentage of tax collected has fallen to 5 percent. Meantime the revenues in the Highway Trust Fund have dwindled to the point that it has been kept solvent only through large infusions of revenue from the General Fund — $8 billion in 2008, $7 billion in 2009, and $19.5 billion in 2010.

Horsley proposed that a gas sales tax should be set at a level that would restore solvency to the Highway Trust Fund, though he didn’t say how much. Because a sales tax on gas would not be fixed but rather set as a percentage of the cost, it would provide increasing revenues as the price of gas increases, offsetting most, perhaps all, of the eventual decline in gas consumption.

The criticism usually leveled against this idea is that the revenues from a sales tax on gasoline would be unpredictable because sales tax revenues fluctuate with the economy and would also rise and fall with the price of gas. For this reason, it is argued, a sales tax on gas may not provide the certainty needed to give transportation agencies and their contractors the confidence to move forward with investment programs.

It seems pretty clear, however, that over the long term gas prices are trending up, as evidenced by the fact that gas prices are rising now as they do every spring, but earlier than usual this year, despite the fact that the U.S. is about to overtake Saudi Arabia as the world’s largest oil producer. This is because oil is sold in an international market and prices are a function of both supply and demand — China’s oil consumption is booming and the world economy is growing again, increasing demand even as we are increasing the fuel efficiency of cars.

The absence of a national transportation funding fix — which a national gas sales tax could provide — creates a devil’s bargain for Congress: Should members continue to provide General Fund subsidies, or simply cut back on infrastructure investment — the default choice — or increase the gas tax, a non-starter with this Congress.

In our view cutting back on national infrastructure investment is a prescription for decline unless the federal government takes steps to incentivize increased local investments. That is exactly what the America Fast Forward program that has been championed by LA Mayor Antonio Villaraigosa and LA Metro would do — first with the TIFIA low-interest loan program adopted by Congress last year, and now with the tax-credit bond program being considered by Congress.

Both programs incentivize local voters and local governments to step up and tax themselves to provide a revenue stream for transportation infrastructure that can be bonded against or used to secure a TIFIA loan, thereby increasing local revenues to counteract the decline in federal revenues.

A combination of this shift toward local taxes and an expansion of innovative financing strategies such as the America Fast Forward loan and bond program can yield an increasing aggregate of investment for transportation. Even if the federal government no longer has the revenues required to be a big spender it can help make up the loss by becoming a smart lender!

Paul Krugman, in his NYT blog "Conscience of a Liberal," apologizes for not writing more about the real cost of driving, and cites a new paper on the benefits of increased rail service, saying that it’s good work that backs up our intuition on the subject. He adds, “We know, as surely as we know anything in economics, that there are huge market failures here – that every time an individual chooses to drive during rush hour he or she is imposing huge costs on other drivers, on people who breathe the air, and more.”

The paper he cites is posted on Vox, a blog on “research-based policy analysis and commentary from leading economists." The paper’s conclusion: “In sum, recent empirical evidence on public-transport improvements confirms expectations of beneficial effects on road safety and environmental quality. Moreover, conservative back-of-the-envelope calculations that do not take reductions in congestion, noise and greenhouse gases into account suggest that public-transport improvements offer good value for money. Improvements in rail service frequency reduce external traffic costs worth as much as the costs associated with their implementation.”

Good reading from the economic POV: Krugman, and Vox.

Move LA is going to Washington DC for the LA Chamber of Commerce’s annual “Los Angeles on the Hill" event, and funding transportation is once again the key topic for many of the 175 people in attendance. There's a briefing at the White House and meetings with US Transportation Secretary Ray LaHood and California Senators Barbara Boxer and Dianne Feinstein, and with Senator Max Baucus (D-MT, head of Senate Finance), Senator Orrin Hatch (R-UT, ranking member of Senate Finance), and U.S. Rep. Janice Hahn (D-CA, on House Committee on Transportation and Infrastructure Subcommittee)— all of whom could play a role in advancing the America Fast Forward bond program, which gives LA another shot at accelerating construction of its transit program.

THE BOND PROGRAM WAS ALWAYS PLAN A
The bond program was always Plan A for moving forward. These qualified tax-credit bonds could be issued by state, local or other eligible issuers — in this case LA County and LA Metro — and the federal government would subsidize 70 to 100 percent of the interest by granting investors annual tax credits in lieu of interest payments. The bond program would be authorized in the amount of $4.5 billion annually from 2013-2023 for a total of $45 billion, with a cost to the federal government of about $7.5 billion.

To date Congress has authorized qualified tax credit bond programs in excess of $36 billion for forestry conservation, renewable energy projects, energy conservation, qualified zone academies (to encourage schools and businesses to cooperate in innovative ways to expand learning opportunities and prepare students with skills employers need) and new school construction. But there is no tax credit bond program for large-scale transportation projects.

JOBS, LOW INTEREST RATES, LOW CONSTRUCTION COSTS, HIGH UNEMPLOYMENT
The goal, besides accelerating construction, is to help create private sector jobs by borrowing capital on favorable terms — doing it now takes advantage of historically competitive pricing on construction projects, low interest rates and high unemployment. The bond program is projected to create more than 500,000 jobs nationally and would serve as an important incentive for states, cities and transportation agencies to invest their own funds — as LA County is doing with the proceeds of the Measure R sales tax for transportation — in the construction of major transportation infrastructure projects.

Dr. Mark Zandi, chief economist for Moody’s Analytics, puts it this way in LA Metro’s America Fast Forward bond brochure: “Arguably nothing the government spends money on produces a higher long-run return than infrastructure (except perhaps defense). Nearly any infrastructure project seriously being considered today will return more than the 2% the U.S. Treasury is paying on 10-year bonds. As with any business that borrows to invest in machine tools or computers, or a household that borrows to purchase a home or car, it makes sense for government to borrow to invest in an infrastructure asset that will provide returns for years.”

A SMART LENDER NOT JUST A BIG SPENDER
Federal financing — and not just funding — of transportation projects is especially critical at this juncture because the Highway Trust Fund is running out of money. Trust Fund revenues have dwindled to the point that it has been kept solvent only through large infusions of revenue from the General Fund — $8 billion in 2008, $7 billion in 2009, and $19.5 billion in 2010. This is in part because the gas tax, which is the fund’s revenue source, was fixed at 18.4 cents per gallon in 1993, the last time it was raised, and because cars have become more fuel efficient and people are driving less. The number of miles traveled per capita has been in decline for eight straight years. In this period of declining per capita VMT total VMT has declined three years and increased five — because of population growth — for a net decrease of 0.9%.

The issue of how to address the problem of declining revenues will be a focus again this year because Congress will be once again be taking up reauthorization of the federal transportation bill. Last year the federal bill, MAP-21, was reauthorized as a 2-year bill instead of a 6-year bill, which is normal, because Congress could not reach agreement — the bill had to be extended 12 times.

INCENTIVIZE LOCAL FUNDS TO MAKE UP FOR LACK OF FEDERAL FUNDS
It is believed that the America Fast Forward bonds would be a major boon to the growth of public-private partnerships in the U.S. and that the program's business-oriented approach could attract bipartisan support. Like the TIFIA low-interest loan program that Congress approved in MAP-21 last year, the bond program would help stretch federal dollars by providing incentives that stimulate and leverage local sources of funds to make up for declining federal sources.

Statistics compiled by LA Metro show the extent to which transportation infrastructure investing in this country is falling behind: While Brazil spends 2% of its GDP on transportation infrastructure, Mexico spends 2.3%, and the U.S. spends 2.4%, Western Europe is spending 5%, and China is spending 9%.

It is hoped that the bonds would be a major boon to the growth of public-private partnerships in the U.S. and that the program’s business-oriented approach could attract bipartisan support. A key figure in advancing the AFF bonds will be U.S. Rep. Bill Shuster (R-PA), who is in his first few months as chair of the House Committee on Transportation and Infrastructure.

READ MORE: LA METRO's AFF BOND BROCHURE.

Janet Sadik-Khan, the NYC Transportation Commissioner who has become an international hero for taking back some of the city's streets from cars and turning them into public spaces for pedestrians, bicyclists and loungers, was at UCLA last week to talk about her success.

Particularly interesting were the stats she provided on bike usage, an increase in taxi speeds, public safety and public support:
• Bike commuting grew by 8% from 2010 to 2011, more than doubled from 2007 to 2011, and nearly quadrupled in the last decade.
• Taxi speeds increased 7 percent.
• Safety was dramatically improved at Times and Herald Squares with a 63% reduction in injuries to motorists and passengers and a 35% reduction in pedestrian injuries.
• Public support has been overwhelming: 76% of all New Yorkers and 68 percent of all retain managers in Times and Herald Squares said that improvements in these places should be made permanent.

LA Times architecture critic Christopher Hawthorne advises the next mayor to mend the biggest holes in the city's urban fabric, which include the LA River, Pershing Square, Grand Avenue, and two long-awaited transportation projects, according to Hawthorne. The transportation projects are:

A rail line to LAX: What outrages him (and many LA County residents) is the fact that the city is still not planning to build a rail line to the airport — neither the Green Line nor the Crenshaw Line are likely to go all the way in to the airport because of the complication and expense. Instead there are plans to build a "people mover" from the Crenshaw Line station at Century and Aviation.

A subway along Wilshire: A spur was built to Western Avenue in the 1990s when it was stopped because of worries about tunneling in an area with seismic activity and pockets of methane gas. Financing was secured by the Measure R sales tax, but obstacles remain including continued opposition in Beverly Hills.

Read Hawthorne's piece here.

Legislation introduced in the House Committee on Appropriations to fund the U.S. government through September 30 would not fund transportation programs at levels authorized in MAP-21, the federal transportation bill signed into law last year. The legislation reduces federal funding for a number of key programs ranging from safety to New Starts. U.S. Senator Barbara Boxer protested in a letter to House Speaker John Boehner that "Congress made a commitment to the American people that we were going to invest in our nation's infrastructure at a time when our economy needs it the most."

Read more on The Source.

Imagine that! Since 1997 Amtrak ridership has grown 55%, faster than the general population, and GDP, and air travel, and driving — faster than any other mode of transportation! Even in a difficult political environment! Almost two-thirds of Amtrak's total ridership comes from just ten metro areas — mostly big cities in California and the Northeast Corridor.

Read more on DC Streetsblog.

"If you are looking for a strategy to seriously undermine a civilization, just make sure there's not enough affordable housing," Denny Zane tells writer Jeremy Rosenberg on KCET's "The Laws That Shaped LA" blog. Denny tells Jeremy about his concerns about the Ellis Act, which passed in 1985 and allowed landlords to evict tenants in order to "go out of business" and remove their buildings from the rental market and demolish them in order to turn them into condos or to build new apartments or condos or — according to some advocates — sometimes escape rent control laws.

In the past decade more than 20,000 units have been “Ellised” in four California cities with rent control ordinances, including Los Angeles, San Francisco, Santa Monica and Berkeley, and the records show that this number increases as the market becomes more active. Tenants rights activists say the number of Ellis Act evictions is already increasing as the real estate market begins to recover — tenants in at least 17 buildings in San Francisco’s Mission District, for example, were given eviction notices at the end of 2012.

In Los Angeles, where passage of the Measure R local sales tax has provided for the build-out of 12 new rail lines — new transit construction also tends to stimulate the market — there is concern about the increasing number of buildings that have been purchased in urban core neighborhoods where many transit riders and low income residents currently live. A recent study for the Los Angeles Housing Department expressed concerns about the effect of new transit lines on affordable housing in transit-rich neighborhoods, which currently house a high percentage of low- and moderate-income workers and their families — in Hollywood, Koreatown, downtown LA and Venice Boulevard to the south. The LAHD study is on our website here.

Read more on the KCET blog here.

Zipcar's third annual Millennial survey shows that cars are still the most highly prized "piece of technology" among every age group but the under-35ers. When these Millennials were asked which piece of technology they could not live without, only 28% said their cars, compared to 30% who said their mobile phones, and 35% who said their computers.

In case you are interested . . .