Mayor Villaraigosa’s testimony to federal transportation hearing

Below is the written testimony submitted to the Congressional transportation funding hearing this morning by Los Angeles Mayor and Metro Board Member Antonio Villaraigosa.

I think it’s worth noting that both Mayor Villaraigosa and Supervisor Don Knabe — here is his testimony — emphasized that changes in federal law sought by Metro could help many local transit agencies that have passed sales taxes or bonds that could be used to repay low-interest federal loans.

In Metro’s case, the idea is to use federal loans and other financing to quickly build Measure R projects and then repay the loans with Measure R revenues, which flow into local coffers over many years. It’s called the 30/10 Initiative, although that name is specific to L.A. — the effort underway is actually much broader and could help many regions get transportation projects built now, not later.

Joint Field Hearing before the House Committee on Transportation and
Infrastructure and the Senate Committee on Environment and Public Works

Written Testimony of Los Angeles Mayor Antonio R. Villaraigosa
February 23, 2011

Thank you Chairman Boxer, Chairman Mica, Ranking Member Inhofe, Ranking Member
Rahall, and members of this joint committee for the opportunity to provide testimony at
the “Improving and Reforming our Nation’s Surface Transportation Programs to Support
Job Creation and the Economy” hearing.

America continues to suffer from high unemployment, and unemployment here in Los
Angeles is even higher. Simply put: Americans need jobs and cities and states across
the nation need a federal partnership to help us put people back to work, which can be
done through smart, innovative investments in our transportation infrastructure.
Los Angeles continues to be an economic engine for the U.S. The ports of Los Angeles
and Long Beach handle 40% of the sea-borne containers entering the U.S. These
goods are then moved to all 50 states via rail and truck. The gross domestic product of
Los Angeles County alone is $718 billion, higher than all but four states (CA, TX, NY,
and FL) and 5.5% of the nation’s GDP.

Unfortunately, Los Angeles continues to lead the country in overall delay related to
traffic congestion. This costs the local economy an estimated $12 billion in delay,
wasted fuel, and truck congestion. Truck congestion alone accounts for $3.2 billion of
the $12 billion cost. (“The 2010 Urban Mobility Report”, Texas Transportation Institute,
December 2010).
But like many cities and states across America, we are doing something about it. We
are leading the nation with our investment in operational treatments to reduce traffic
congestion on our streets and freeways. And we rank fourth (behind only New York,
Chicago, and Washington, DC) in avoided delay associated with our growing
investment in public transportation (ibid.).

We have done this with the support of the federal government and the state of
California, but we also have made a massive local commitment to transportation
infrastructure. Three times the voters of Los Angeles County have supported taxing
themselves through a half-cent transportation sales tax (1.5% aggregate), most recently
in 2008 through Measure R. In the current fiscal year (2010-2011), our voter-approved
taxes will generate $1.8 billion in revenue that we are using to build, operate, and
maintain a multi-modal transportation system, including robust investments in both
highways and public transit.

As you can see from our local commitment, we believe that one of the best ways to
support job creation and the economy is through investment in transportation
infrastructure. For example, soon after Measure R passed, we broke ground on a new
busway extension, creating 2,300 new jobs. We then accelerated construction of one of
our new light rail lines, creating another 6,900 jobs. Over the next two years, we will
start construction on four more major rail lines, creating thousands more jobs.

With financing assistance we and other jurisdictions could accelerate our construction
programs and create more jobs that both would stimulate the economy directly and
create a more competitive national transportation infrastructure that would position the
U.S. to prosper in the 21st century global economy.

We think this can be achieved through the creation of a National Innovative Finance
Program for Transportation Infrastructure that creates jobs, brings in federal tax
revenue, and leverage federal dollars through the construction of transportation
infrastructure. Such a program would provide financing assistance to jurisdictions
seeking to create jobs and build new highway, rail, and transit projects.

Part of proposal is an expansion and enhancement of the Transportation Infrastructure
Finance and Innovation Act (TIFIA) program. We are proposing six key changes to the
current program that we believe will create jobs by leveraging federal dollars and getting
more local and private investment in transportation infrastructure.

1. Increase annual funding from $122 million (SAFETEA-LU authorization) to
$375 million/year. This would leverage up to $3.8 billion in loans annually and $7
billion in investment each year. It also could provide funding for partial interest rate
subsidies (see below). Obviously, higher annual funding levels would leverage even
more investment and job creation, which we would support.

2. Increase the maximum TIFIA share from 33% to 49%. While this reduces the
leverage, it broadens the appeal of the program and makes it easier for more
jurisdictions to participate.

3. Broaden eligibility to include programs of related projects. This lets
jurisdictions engage in comprehensive, multi-modal planning and project delivery.

4. Authorize USDOT to make upfront contingent credit commitments for certain
large projects or programs. This would mitigate financing risk for project sponsors
while enabling the federal government to establish rigorous criteria for what types of
projects would qualify for upfront contingent credit commitments. The commitments
and performance requirements could be memorialized in a “master credit
agreement”. By reducing risk, it will be easier to attract private capital and

5. Authorize USDOT to offer a limited interest rate hedge to a project sponsor
receiving an upfront contingent credit commitment. This also would mitigate
financing risk, especially for programs with multiple projects and phased
construction. Since an actual loan cannot be executed until all federal
environmental work is complete, interest rates may rise between the time a master
credit agreement is signed and the loan is executed. Again, by reducing risk, it will
be easier to attract private capital and investment.

6. Authorize USDOT to provide a loan with a fully subordinate lien on pledged
revenues if certain conditions are met. This would address a challenge with the
current program whereby subordinate TIFIA loans “spring” to parity with other senior
debt if there is a bankruptcy-related event. It is difficult or impossible to getting such
a feature into a bond indenture. This is a barrier to getting private capital invested
into projects through bonds.

Our proposal has multiple benefits to the federal government and meets many policy
goals articulated by Congress.

•We can create real jobs for Americans. A national program will generate almost one
million new jobs in the U.S. and $51 billion in income (“Federal Programs to
Accelerate Highway and Transit Improvements”, Los Angeles Economic
Development Corporation, February 15, 2011). At a time of continuing high
unemployment, nothing could be more important than putting Americans back to

•We will stimulate the economy. Our proposal will generate $158 billion in total
economic output. Direct activity will be in the construction and professional,
scientific, and technical services, but we also will see significant boosts to many
sectors, including retail trade and manufacturing (ibid.).

•We will increase federal tax revenue by $10.6 billion and state tax revenue by $5.8
billion (ibid.). While the current federal scoring methodology does not consider new
tax revenue, we argue that it should. At a minimum, Congress should recognize that
by stimulating economic activity federal tax revenue also will grow. In effect, there
will be a direct return on federal investment.

•Financing programs are not earmarks. They are tools that help jurisdictions seeking
to create jobs and build their infrastructure do so faster. To make sure that
nationally and regionally significant projects move forward, Congress can establish
funding criteria to make sure that the best projects get help. Of course, direct
federal investment and grant programs are still important and need to be continued.

•The program creates the conditions to bring private sector capital and investment to
transportation infrastructure. Bond programs are advantageous to the federal
government because 100% of the up-front money comes from private investors, not
the U.S. Treasury. This means no appropriations or up-front cost to the federal
government. This feature addresses near-term budgetary and spending challenges
facing Congress today.

•The program also would create incentives for jurisdictions to raise their own
revenue. Creating a program that requires a significant local match or repayment
from a non-federal source encourages the development of local and state revenue
sources. The federal government remains an important investment partner, but is
not the principal investor.

•The program could be beneficial to jurisdictions with existing, funded long-term
infrastructure programs. While there is an incentive to raise local revenue, even
existing plans could be accelerated. Projects could be built sooner and Americans
put back to work.

•Combining significant local revenue with federal investment results in more overall
investment in the nation’s transportation infrastructure. This means more jobs and
better transportation systems to support business and commerce.

Our proposal has garnered growing support from a wide range of business, labor, and
environmental leaders and groups. This includes support from national leaders such as
Thomas Donohue, President and CEO of the U.S. Chamber of Commerce, and Richard
Trumka, President of the American Federation of Labor and Congress of Industrial
Organizations. Creating jobs and building transportation infrastructure can and should
be a bipartisan issue.

Local jurisdictions also are supporting the call for a new federal partnership. The U.S.
Conference of Mayors has adopted a support position on innovative financing and over
60 mayors – including both Republicans and Democrats – have signed on to a support
letter for a national program.

We think the time is now for Congress to enact a National Innovative Finance Program
for Transportation Infrastructure. It would be ideal if these ideas could be incorporated
into reauthorization, but Congress should pursue stand alone legislation if
reauthorization does not occur this year.

Finally, I want to express my thanks to Chairman Boxer and Chairman Mica for your
interest and commitment to creating jobs and helping America build its transportation
infrastructure. Your passion and leadership on these issues is just what America
 needs. We think that a National Innovative Finance Program for Transportation
Infrastructure would be transformative for our nation and hope that Congress can
establish such a program this year. I look forward to working with you both and your
respective committees and am available to assist in any way that is helpful.

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