Department Of Transportation

INTRODUCTION

240, Adam Smith recognized that connections were a bedrock of society because they stimulate specialization, innovation, and capital investment.

In the following decades, America’s growth was made possible by transportation—first ports and transatlantic shipping, then roads, canals, and eventually railroads pushing westward to create the nation we call home. Access to transportation is part of what made our country great.

The U.S. Department of Transportation (DOT), with a requested fiscal year (FY) 2023 budget of $142 billion,1 was originally intended simply to provide a policy framework for transportation safety, rulemaking, and regulation. However, it has evolved to believe that its role is “to deliver the world’s leading transportation system”2—that is, to select individual projects and allocate taxpayer funds in the actual planning, developing, and building of transportation assets. Such a role is held more appropriately by transportation asset owners: primarily states, munic- ipalities, and the private sector.

In addition to providing a safety and regulatory framework through its 11 subcomponents, known as modes, the department has become a de facto grantmaking and lending organization. DOT provides approximately $50 billion in discretionary and formula grants, known as obligations, annually in areas ranging from transit systems to road construction to universities and has lent or subsidized more than $60 billion since the Transportation Infrastructure Finance and Innovation Act (TIFIA) program,3 now managed by the Build America Bureau, was created in 1998.

This evolved role as a major, and often primary, funding and financing source is far from the department’s original policy framework. It also removes incentives for state and local officials to ensure that investments are worthwhile, because federal money removes the need to get public buy-in to build and maintain infrastructure projects as funding becomes “someone else’s money.”

Despite the department’s tremendous resources, congressional mandates and funding priorities have made it difficult for DOT to focus on the pressing trans- portation challenges that most directly affect average Americans, such as the high cost of personal automobiles, especially in an era of high inflation; unpredictable and expensive commercial shipping by rail, air, and sea; and infrastructure spend- ing that does not match the types of transportation that most Americans prefer. Transforming the department to address the varied needs of all Americans more effectively remains a central challenge.

DOT is particularly difficult to manage because its 11 major components—nine modal administrations, the Office of the Secretary, and the Office of the Inspector General—all have their own sets of personnel including administrators, deputy administrators, chiefs of staff, and general counsels. Most grants flow through the modes, such as the Federal Highway Administration, Federal Transit Administra- tion, and Federal Aviation Administration.

The Office of the Secretary contains its own grantmaking operation that funds research and some special grants, as well as a major lending operation, the Build America Bureau, that functions as an infrastructure bank. The Office of the Sec- retary has department-wide offices for such functions as Budget and Financial Management, the General Counsel, Policy, the Office of Research and Technology, Government Affairs, Administration, the Office of the Chief Information Officer, Small and Disadvantaged Business Utilization, Public Affairs, Drug and Alcohol Policy and Compliance, and Civil Rights. The modal administrations include the:

lFederal Aviation Administration (FAA); lFederal Highway Administration (FHWA); lFederal Railroad Administration (FRA); lNational Highway Traffic Safety Administration (NHTSA); lFederal Transit Administration (FTA); lGreat Lakes St. Lawrence Seaway Development Corporation (GLS); lMaritime Administration (MARAD);

lFederal Motor Carrier Safety Administration (FMCSA); and lPipeline and Hazardous Materials Safety Administration (PHMSA). DOT’s fundamental problem is that instead of being able to focus on providing Americans with affordable and abundant transportation, it has become saddled with congressional requirements that reduce the department to a de facto grant- making organization. Yet there is little need for much of this grantmaking, for two reasons:

If funding must be federal, it would be more efficient for the U.S. Congress to send transportation grants to each of the 50 states and allow each state to purchase the transportation services that it thinks are best. Such an approach would enable states to prioritize different types of transportation according to the needs of their citizens. States that rely more on automotive transportation, for example, could use their funding to meet those needs. Meanwhile, many Americans continue to confront serious challenges with their day-to-day transportation, including costs that have increased dramatically in recent years. DOT in its current form is insufficiently equipped to address those problems. DOT’s discretionary grant-making processes should be abolished, and funding should be focused on formulaic distributions to the states, which know best their transportation needs and are incentivized to think of the

New technology enables private companies to charge for transportation in many areas, which could transform how innovation is financed. It is vital to consider the role of user fees and other pricing innovations with regard to transportation infrastructure. Airport landing fees for aircraft, toll charges on roads and bridges, and per-gallon taxes on gasoline and diesel fuel are all examples of user charges that affect the decisions of transportation system users. These changes could shift our nation’s transportation away from being a top–down system that is misaligned with the needs of so many Americans. Increasing private-sector financing could revolutionize travel and increase everyday mobility to its greatest potential in a way that Americans prefer. Doing so would keep transportation decisions out of the hands of bureaucrats in Washington, D.C., who are far removed from local problems and preferences.

long-term maintenance costs. At a bare minimum, the number of grants should be consolidated.

DOT would also reduce unnecessary burdens by returning to the Trump Admin- istration’s “rule on rules” approach to regulations, implemented in late 2019 as RIN 2105-AE84.4 This rule strengthened the Administration’s effort to remove outdated regulations, find cost-saving reforms, and clarify that guidance documents are in fact guidance rather than mandatory impositions. The Biden Administration unwisely moved away from this reform, and the next Administration should revive it without delay.

BUILD AMERICA BUREAU

The Build America Bureau (BAB) resides within the Office of the Secretary and describes itself as “responsible for driving transportation infrastructure develop- ment projects in the United States.”5 This lofty-sounding goal in practice means that the Bureau serves as the point of contact for distributing funds for transpor- tation projects in the form of subsidized 30-year loans. For higher-quality projects and in certain circumstances, these government loans may disintermediate the private sector from providing similar financing, albeit at higher costs. At certain times in the economic cycle, and for many lower-quality projects with more dubious economic return, similar loans from the private sector are simply not available. Should the BAB continue to exist and potentially disintermediate the private financing sector, it must maintain underwriting discipline and continue best practices of requiring rigorous financial modeling and cushion for repayment of loans in a variety of economic scenarios. In addition:

The BAB should ensure that these loans do not become grants in another form by maintaining the requirement that all project borrowers be rated at least investment grade by the major ratings agencies and that project sponsors remain liable to ensure that all financing is repaid, even in periods of financial stress and economic downturns. Project sponsors should be required to show that projects have positive economic value to taxpayers, and sponsors should guarantee that all federal financing will be repaid through properly structured loan terms, including a minimum equity commitment from all project sponsors.

All projects should also be required to show repayment ability in various interest rate environments, and the BAB should ensure that long-term loans are structured appropriately with regard to the fixing of interest rates and hedging of interest rate risk on the part of the borrowers to avoid financial stress or default driven solely by rising interest rates.

Policymakers should maintain awareness and promote transparency regarding the continued existence of this loan program and whether private financiers are being disintermediated by the subsidized BAB lending that the private sector simply cannot match.

A cost-benefit analysis of the federal government’s potential replacement and disintermediation of the private financing sector regarding infrastructure loans, which is not currently performed, should be conducted on a regular basis.

PUBLIC–PRIVATE PARTNERSHIPS

Provide access to some of the world’s best talent with vast experience in delivering infrastructure, Create incentives for innovation and creativity, Shift unique project risks to companies that are familiar with those risks, and

Much infrastructure could be funded through public–private partnerships (P3s), a procurement method that uses private financing to construct infrastructure. In exchange for providing the financing, the private partner typically retains the right to operate the asset under requirements specified by the government in a contract called a concession agreement. In addition, the private partner is given the right either to collect fees from the users of the asset or to receive a periodic payment from the government conditioned on the asset’s availability: If a highway is not open to traffic when it should be, for example, the government’s payment to the private concessionaire is reduced.

The best practice for a government that is interested in using a P3 to deliver a project is for the government first to perform a value-for-money study, which compares the costs and benefits of procuring the asset under a typical procurement against the costs and benefits of utilizing a P3. Since private equity is involved, the financing costs for P3s are higher, but they also are frequently more than offset by the private sector’s ability to generate efficiencies and cost savings in the design, construction, maintenance, and operation of the asset. If the value-for-money study finds that the efficiencies of a P3 and the value of risk shifted to the private sector exceed the additional financing costs, then utilizing a P3 is good public policy because Americans have better infrastructure at a lower cost. As well as providing better transportation facilities for Americans, P3s offer a number of benefits to governments. Specifically, they:

Allow designers, contractors, and maintenance teams to work together through the delivery of the process to focus on lifecycle costs as opposed to just initial design and construction costs. It should be noted that project funding and P3s are not synonymous. Policy- makers and government leaders frequently mistake the financing that P3s provide for funding. A P3 allows the government to obtain equity from the private sector, but that equity has to be paid back with interest. Like a loan, a P3 can be used to accelerate revenues and provide needed capital to help pay the upfront costs of a project, but also like a loan, the private P3 investors must be paid back for investors to realize a financial return.

Some mistakenly think that using a P3 would allow a road or bridge to be deliv- ered without increases in tolls or taxes. It is important to remember that all funding for governmental infrastructure comes from either taxes or user fees. P3 financing can be used to make those funding sources more efficient, but it cannot replace the need for taxes or user fees to provide the funding for the project. In addition, a poorly managed P3 procurement process (the process govern- ment uses to identify the best private P3 partner) can result in excessive consultant costs and years-long delays in delivery. While P3s can offer efficiencies in delivering the project, the P3 procurement process itself can be significantly longer and more expensive than traditional procurement processes.

Finally, and possibly most important, a P3 gives a private party the ability to collect fees or payments over decades (a period well beyond the length of the careers of the political appointees who sign contracts with private parties). Thus, P3s create an opportunity for current governmental leaders to obtain a higher upfront payment from the private party in exchange for greater user fees paid by future generations who will use the asset. In other words, a governmental CEO (governor, mayor, head of an authority) can use a P3 to impose unnecessarily high costs on users decades in the future in exchange for upfront cash. It is important that contracts be transparent in order to minimize this possibility. A P3’s greatest public value is realized when the procurement model is used for a project that is unusually risky or a type of project with which the government has limited experience such as a tunnel or light rail line. P3s are an excellent tool for transferring risk from the public sector to the private sector and can create considerable value for the taxpaying public. However, a high degree of expertise is required to ensure that the risk transfer warrants the higher financing and pro- curement costs that P3s impose.

EMERGING TECHNOLOGIES

As private companies develop a future of new, emerging technologies, one role for DOT is driving clarity in the government’s role and setting standards for safety, — 624 —Department of Transportation

security, and privacy without hampering innovation. DOT can oversee the testing and deployment of a wide variety of new technologies, allowing communities and individuals to choose what best fits their needs. It is the role of the private sector, not the government, to pick winners and losers in technology development. If a technology underperforms, the private sector should be liable, not the government. The department should ensure a tech-neutral approach to addressing any emerging transportation technology while keeping safety as the number one priority. As part of this, it should work to facilitate the safe and full integration of automated vehicles into the national transportation system. Over time, these advanced technologies can save lives, transform personal mobility, and provide additional transportation opportunities—including for people with disabili- ties, aging populations, and communities where car ownership is expensive or impractical.

NHTSA’s and FMCSA’s current regulations were written before the advent of automated vehicles and driving systems. Both operating administrations have issued Advance Notices of Proposed Rulemakings (ANPRMs) that begin the pro- cess of updating their regulations to reflect this new technology. However, these regulations have stalled under the Biden Administration, which has chosen to use the department’s tools to get people to take transit and drive electric vehicles instead of helping people to choose the transportation options that suit them best.

NHTSA should work to remove regulatory barriers by focusing on updating vehicle standards as well as publishing performance-based rules for the operations of automated vehicles (AVs). FMCSA should work to clarify the regulations to align with DOT’s AV 3.0 guidance, which would allow the drivers to be safely removed from the operations of a commercial motor vehicle.

From a nonregulatory point of view, DOT has pivoted from a successful focus on the voluntary sharing of data to improve safety outcomes to adoption of a more compulsory and antagonistic approach to mandating data collection and publica- tion through a Standing General Order related to automated vehicles. This needs to be reversed.

Many of these new and innovative technologies rely on wireless communica- tions that depend on the availability and purchase of radio frequency spectrum, a trend that is consistent with what we see in connectivity in our everyday lives. There is a role for DOT in ensuring that in the fight over spectrum, transportation gets its fair share.

For technologies to work in transportation, and in particular to work for transportation safety, they have to meet the unique needs of a transportation environment. They need to account for rapidly moving and out-of-line-of-sight vehicles as well as pedestrians, bicyclists, and other road users. They should account for the potential for radio interference, and they should address security. This is why in 1999, in response to a request from Congress, the Federal Com- munications Commission allocated the 5.9 GHz band of spectrum to traffic safety and intelligent transportation systems (ITS). In 2020, the FCC took away 45 MHz of the 75 MHz it had added, leaving only 30 MHz for transportation safety and ITS. DOT needs to represent the transportation community and make the case for needed spectrum to the public and Congress.