Category Archives: public transportation

Infrastructure Funding and Financing: Another Trumpian Disaster in the Making

Let’s start with the ASCE’s report card on Nevada’s infrastructure.  The last report card on our kitchen table gives us an overall average C-.  Nevada’s two lowest grades (both D’s) are in categories for schools and dams. The claims from the current White House administration would imply that Nevada will see marvelous levels of investment in Job Creating Infrastructure Projects.  Not. So. Fast.

There are some questions related to projected infrastructure legislation which Nevada elected officials may want to consider very carefully.

#1. Does the infrastructure legislation address Nevada’s greatest needs?  The answer at present is “maybe not.” The commentary coming from the White House, and from members of Congress imply that most of the infrastructure plans are part of the Transportation budget.  [Hill] Again, roads and bridges are important, so are airports, but the greatest needs in this state are for projects and funding for upgrading schools and dams.

This past February a dam failed in Elko county, flooding farmland, homes, and stopping traffic on the Union Pacific RR. Obviously dams must eventually get their due. First, we should notice that the state of Nevada doesn’t keep a ranking of hazardous dams, most of which fall into the “earthen” category.  Secondly, it should be noted that a high hazard dam refers to the damage possible should the dam fail, not to the actual condition of the dams themselves.  Third, many dams in this state are privately owned.  About one third of our 650+ dams are constructed for flood control, another third for mining operations, and the remaining third fall into the amorphous category “anything else.” The state has been relying on 11 engineers to keep track of the 650+ dams, and Governor Sandoval’s budget proposal calls for three additional engineers in the Water Division for the next fiscal term. [LVRJ]

School facility upgrades and construction generally lie outside the common understanding of ‘infrastructure’ expenditures, being the province of local school districts, and based on the shifting sands of bond issues. Nothing signaled by the administration thus far would suggest expansion of federal interest in this category of infrastructure investment.

#2.  Will the legislation address Nevada’s needs for the construction and maintenance of roads and highways?  Maybe not.   The situation at present:

“The Nevada Department of Transportation maintains 5,300 miles of state highways, which includes many rural roadways within Nevada. Without an increase in the gas tax since 1992, the state funding levels have stagnated and Federal funding has remained at a similar level the past 5 years. Hence, the maintenance of the existing highway system has fallen behind and the state will need approximately $285 million annually for the next decade to catch up on the current backlog of highway maintenance. The current funding levels provide only 60% to 70% of the required funding to maintain the state highways. This has resulted in an increase in the number of lane miles requiring either an overlay or full rehabilitation from 28% two years ago to 38% currently.” [ASCE]

New construction is great, no one should argue against it where it’s needed to improve the flow and traffic and attendant commerce, however, when nearly 40% of the current roadways need overlays or full rehabilitation, the problem is focused on maintaining what we have at present not necessarily on new construction projects.

#3. Does the administration’s plan differentiate between financing and funding?  This is important.  A definition is in order:

“Infrastructure funding and financing are different concerns. Funding specifies how resources will be collected to pay for infrastructure construction, operations and maintenance, and repairs. Financing generally concerns how to raise the large upfront costs needed to build the infrastructure.” [EPI]

So, the administration has spoken of “a trillion dollars in infrastructure investment,” what does this mean?  For the administration is apparently means “leveraging private dollars.” Again, some translation is necessary.  What the administration is talking about is the financing of construction projects. And, we’re back to the difference between funding and financing — if states are facing the same questions posed back in 2015, when Republicans proposed that HTF projects be limited to the revenue accumulated from gasoline and diesel taxation, then many projects, especially of the improvement and maintenance variety will be put on hold. [BondBuyer] Infrastructure funding will be a function of how the administration budget addresses the issue of raising the money necessary to construct, operate, and maintain.  However, if the administration is speaking of “leveraging private funds,” then we should assume that the White House is referring to new construction.  And, now we enter the land of the P3.

A P3 is: “Public-private partnerships (P3s) are contractual agreements formed between a public agency and a private sector entity that allow for greater private sector participation in the delivery and financing of transportation projects.” [DOT]

Let’s put this question of infrastructure investment in purely financial terms:  Who benefits from P3 structuring?  Hint: It isn’t necessarily the state and local governments because bond yields for such things as school construction, road construction, and other large projects have been dropping since their “highs” around 1982 (13+%) to the current rates (3.5+%). [MuniBond]

Bluntly stated, it’s not the financing that’s a problem for state and local governments, they’re paying almost historic low yields (interest) on the bonds they’ve issued for major projects.  The administration is approaching the infrastructure investment issue from the wrong end of the stick — focusing on the financing and not the funding.

#4. Is the use of the P3 structure based on the needs and capacities of the states and municipalities or the desires of private investment?  Some attention is required because:

“In theory, they can(P3)  be effective—but they provide no free lunches. Funding must still be found for the projects—and ordinary households will end up paying the costs through taxes or user fees. In addition, the details of contract construction and oversight are daunting and require a competent, democratically accountable government to manage them. In short, P3s do not allow for simple outsourcing because they do not bypass the need to fund infrastructure or the need for competent public management.” [EPI]

Or, P3s don’t replace the more traditional methods of financing — local and state taxation is still required for paying project costs. There’s nothing ‘simple’ about these arrangements, and they require extensive oversight and management.  Before leaping into a P3 it should be revealed that these generally allow governments and investors to ignore the requirement of Davis-Bacon Act ‘prevailing wages.’ This may ‘create jobs’ but it doesn’t create ‘good paying jobs’ in the construction sector.

#5. Does the administration plan specify financing and funding of infrastructure projects or is it simply a “tax credit” giveaway to investors?  It certainly sounds like it at this point, but the administration, as is becoming more obvious every day, seems to be short on specifics, and the only solid at the moment is the “tax credit” portion of the pronouncements.  If this is a tax credit for projects already in the planning stage, then it’s hard to characterize this as a bright and shiny new proposal.

#6. Location, Location, Location?  Granted that Nevada is an urban state, with most of the population located in two counties, but the roads, bridges, and dams are aligned through predominantly rural areas. Investors, in P3 or other financing schemes, can clearly see the benefits of construction in urban areas (toll roads, toll bridges, etc.) Rural areas, not so much. Nor does the financing strategy address other infrastructure issues in urban areas — how, for example, does Clark County improve its public transportation facilities and components? Washoe County? Or, Douglas, Lyon counties, and Carson City?  How will investment be directed to poorer areas, or areas under served by current transportation systems? Stated more generally:

“The other problem is that Trump’s approach makes it less likely he’ll actually create new jobs. If the customer base can afford it, and they really need the infrastructure, then the project is almost certainly already profitable and private firms are already willing to do it. The tax credit just sweetens the deal on the margins. Where there’s demand, the private market can already create jobs. The less you’re willing to redistribute, the fewer new jobs you can create.” [TheWeek]

This is another point at which the magic hand of the Market fails on one side and succeeds on the other — where there is demand (and the capacity to meet that demand, the tax credits are minimally useful (except to investors) — where there is great need but little capacity to meet the demand, then the tax credits aren’t an inducement to job creation.

We need to take some care to observe whether the “infrastructure” plan is (1) truly about infrastructure needs in Nevada? (2) truly a job creating plan and not merely a way to get tax credit benefits to the investor class, or ignore the Davis Bacon Act requirements for American workers, (3) about getting the infrastructure investments where it is actually needed.

Caveat Emptor.

 

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Filed under Economy, Federal budget, Infrastructure, Nevada highways, Nevada politics, Politics, public transportation

The Wreck of the Penn Central: Conservatives want to replicate another financial debacle?

Rail logos Two days ago Fox News was happily promoting the privatization of Amtrak. [C&L]

“Gasparino went on to promote privatization. He said that the northeast corridor, between Washington and Boston, is a “very profitable service” and “there is no rationale why that service cannot be privatized. …If you put private management in there, it would probably be even more profitable and they could pay for even more upgrades.” “I’m not saying privatize the whole thing, at least not at first,” Gasparino said. But he insisted that privatization would make for “a Jet Blue of rail traffic.”

I admit to having “senior moments,” but I haven’t forgotten the fact that the reason Amtrak was created in 1971 was because of the FAILURE of private corporations to run the railroads.

A Bit of History

Once upon a time there was the Penn Central Transportation Company.

“The Penn Central merger was consummated on February 1, 1968, between the Pennsylvania Railroad and the New York Central Railroad. At the end of 1968, the New York New Haven & Hartford Railroad was merged into PC by order of the Interstate Commerce Commission.

Financial problems plagued the PC during its first couple years. Even though the merger had been planned for 10 years (on and off) before its inception, many problems faced the combined companies, such as incompatible computer systems and signaling systems.

Penn Central also invested in other companies, such as real estate, pipelines, and other ventures. The idea was to create a conglomerate corporation, with the railroad as one part of it. This diversification program, even 20 years later, is a point of debate over the fall of the PC, as some people say funds that were invested in other companies could have been used to run the railroad.” [PCRRHS]

Take a measure of mergers/acquisitions, add “diversification,” and … the world watched as the newly formed company created “dismal numbers.”  Enter the investment bankers. There were warnings.  One warning came before the big merger, in which it was noted that Penn Central had more than $1 billion in debt which would mature by 1982. When Penn Central finally went into bankruptcy it’s long term indebtedness, including obligations due in one year was an eye-popping $2.6 billion. $1 billion was due in five years; $228 million fell due in 1970; $156 million was due in 1971; $172 million came due in 1972; $270 million due in 1973, with another $160 million due in 1974. [Wreck of PCentral]

How this happened should sound eerily familiar:

“…economist Henry Kaufman says of this period in the late 1960s, “I watched with growing alarm as sources of corporate borrowers – in an effort to circumvent regulatory lending constraints – piled into the commercial market as issuers. The trend continued, and culminated in the collapse of the Penn Central Railroad.” [BuyHold]

And collapse it did, into the largest bankruptcy the nation had experienced up to that point, but not before:

“Penn Central’s subsidiaries were stripped of their treasuries in order to prop up PC’s own earnings. For example, New York Central Transport, a trucking subsidiary, had profits of only $4.2 million and yet paid $14.5 million in dividends to the parent. Despite this kind of maneuvering, the dividend on Penn Central common was slashed from $2.40 to $1.80 in 1969. Chairman Saunders vowed to hike it back up, soon. [It was later learned, however, that insiders at PC were unloading their company stock and bonds while all of this was going on.” [BuyHold]

We had a batch of corporate borrowers trying to get around regulations on lending, combined with a company fiddling the books trying to prop up its earnings reports, and taking on massive amounts of debt.  What could possibly go wrong?   The answer, of course, was “everything.”  June 21, 1970 the company declared bankruptcy.  What of the passengers?

“October, 1970, in an attempt to revive passenger rail service, congress passed the Rail Passenger Service Act. That Act created Amtrak, a private company which, on May 1, 1971 began managing a nation-wide rail system dedicated to passenger service.” [Amtrak]

Where was Wall Street?  Again, Wall Street didn’t appear to be all that helpful, except perhaps to themselves.  Goldman Sachs won “the opportunity” to underwrite Penn Central’s commercial paper in 1968.  We can almost guess what happened next:

“For large fees, Goldman sold the paper to its clients, including big companies such as American Express and Disney, and smaller ones such as Welch’s Foods, the grape-juice maker, and Younkers, a Des Moines retailer. Welch’s and Younkers, particularly, counted on the fact that Goldman told them that the Penn Central paper was safe and could be easily redeemed. Welch’s invested $1 million — some of it payroll cash — and Younkers invested $500,000, both at Goldman’s recommendation.” [TribLive]

After the Penn Central’s bankruptcy filing the SEC conducted an investigation.  This, too, is a bit too common for comfort:

After Penn Central filed for bankruptcy, an SEC investigation discovered that Goldman continued to sell the railroad’s debt to its clients at 100 cents on the dollar — even though, by the end of 1969, the firm knew that Penn Central’s finances were deteriorating rapidly.Not only was Goldman privy to Penn Central’s internal numbers, it also heard repeatedly from the railroad’s executives that it was rapidly running out of cash. [TribLive]

By February 1970 Goldman had about $10 million in Penn Central commercial paper on its books.  On February 5, 1970 Goldman Sachs demanded that the railroad buy back that $10 million inventory at 100 cents on the dollar even though it obviously wasn’t worth that much at that point. Goldman Sachs didn’t tell any of its clients about the offer, nor did it tell the customers that it had already taken care of its own interests before theirs.  Plus ca change, plus c’est la meme chose? [see also: WaPo 2102]

It doesn’t take too much imagination to see how (1) a boom in commercial paper – indebtedness; combined with (2) underlying debts incurred in operations, mergers, and acquisitions; abetted by (3) investors seeking ways around regulations; and (4) investment banking more interested in self preservation than best business practices combined to create a blockbuster bankruptcy. 

But yet, we have the Cato Institute, the bastion of conservative economic imagination pontificating:

“Budgetarily, Amtrak has become a runaway train, consuming huge subsidies and providing little or no return. Four decades of subsidies to passenger trains that are many times greater than subsidies to airlines and highways have failed to significantly alter American travel habits. Simple justice to Amtrak’s competitors as well as to taxpayers demands an end to those subsidies. The only real solution for Amtrak is privatization.”

The conservatives are missing several points.  The point may not be to “alter” travel habits – but to maintain services which people were already using for their commute to work, especially in the Northeast Corridor.  The rationale for the act included stabilizing services for passengers, the general public, and shippers. [RRA]

Going to Court

Amtrak is a private corporation, albeit one with some very special features.   If we want to get technical about  it, the official name is the National Railroad Passenger Corporation.  In fact, the point was driven home in a legal case two years ago in which the private nature of the NRP Corporation was pivotal:

“A three-judge panel of the U.S. Court of Appeals in Washington today said Congress had improperly delegated to Amtrak, a private corporation, the power to draft performance standards that affected companies whose tracks the passenger carrier uses. Amtrak trains have legal priority over freight.

“Though the federal government’s involvement in Amtrak is considerable, Congress has both designated it a private corporation and instructed that it be managed so as to maximize profit,” U.S. Circuit Judge Janice Rogers Brown said in the ruling.” [Skift]

The case got the attention of the U.S. Supreme Court. [FRAdvisor] Enter the “fish or fowl” phase.  Roger’s decision was “vacated and remanded” on a 9-0 decision.  Could Amtrak “metrics and standards” be set aside because the Congress unconstitutionally delegated power to a private corporation? And the Court said:

“No. Justice Anthony M. Kennedy delivered the opinion for the majority. The Court held that, for purposes of determining the validity of the metrics and standards, Amtrak is a governmental entity. The members of Amtrak’s Board of Directors are appointed by the President and confirmed by the Senate, and Amtrak is required by statute to pursue broad public objectives. Because of Amtrak’s significant ties to the government, Amtrak is not a private enterprise, and therefore, treating Amtrak as a governmental entity is consistent with the constitutional separation of powers.” [Oyez]

Therefore, what the Cato Institute and its allies are arguing is that the decision in DOT vs. Association of American Railroads (49 USC 24301) should be overturned and the railways should exist without any “regulations” imposed by Amtrak which would be applicable to freight haulers.   Extrapolating the Cato’s position to absurdity, under their reasoning we could revert to the wonderful old days of differing track gauges. 

Riding the Thin Rail

However, perhaps the most crucial point the conservatives are missing isn’t about the legislative and legal nature of the National Railroad Passenger Corporation, but why this entity was established in the first place.  Although a person might think we’d have learned something from the financial debacle of 2007-2008, the calls to privatize Amtrak have a remarkably familiar ring.

In a financial atmosphere in which commercial debt is treated as fodder for the creation of derivative financial products, and trading is barely regulated in the face of financialist opposition, and mergers and acquisitions generate incentives for corporate mismanagement, and there isn’t an old school investment bank left on the American landscape because of the casino mentality of Wall Street during the Housing Bubble, are we truly going to believe that privatization is the panacea for all that ails the passenger rail system in the United States?

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>Ensign Votes To Strip Over The Road Bus Security Funds

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The next time Senator John Ensign (R-NV) gives a speech during which he calls for “national vigilance,” or wants us to “engage in the war on terror,” someone needs to gently remind him about his vote on July 7, 2009 to eliminate the appropriations for the Over The Road Bus Security Assistance recommended by the Transportation Safety Administration. [roll call 218]

The McCain amendment (S.Amdt 1400 to S.Amdt 1373) would have stripped a program that funds the development of security plans for intercity and charter bus services, the development of vulnerability assessments, preparing security plans, implementing response training, training front-line personnel to be aware of potential security threats, providing live or simulated exercises for improving responses, launching public awareness programs, modifying over the road buses to improve security, installing cameras and surveillance equipment on buses, terminals, garages, and bus facilities.

A person would think that planning, training, and equipping to improve over the road bus security would be a priority after the terrorist attacks of 9/11, or are the Republican tired of the whole “security thing” now that they don’t control Congress or the White House?

Why else would they try to strip out funding for modifying terminals and facilities to improve security? Are they tired of issues like isolating and protecting bus drivers? Improving emergency communications systems linking the bus drivers to their operation’s centers? Are they all over being concerned about funding projects to detect chemical, biological, radiological, or explosive matter on buses? [TSA]

The American Bus Association reports that independent bus operators provide 631 million passenger trips each year; and more people travel by bus in a two week period than travel by train in a year. 2007 estimates for bus ridership were around 700 million total passenger trips. [ABA]

One can’t help but imagine that not so long ago the Republicans in the Senate would have been supporting the Over The Road program, and citing this admonition from the American Association of State Highway and Transportation Officials: “The nation’s public transportation systems are vulnerable to disruption from natural disasters and security-related incidents. Funding assistance from the Department of Homeland Security is needed to protect critical public transportation infrastructure from terrorists’ attack and to improve surveillance and detection. Inter-agency communications capabilities need to be improved. And a joint program involving police, fire and transportation agencies at the local and state level and justice, homeland security and transportation agencies at the Federal level needs to be developed to improve emergency response capabilities.” [AASHT]

But, perhaps, that was then and this is now?

desertbeacon.blogspot.com

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>Heller’s Provincialism Shines Through: Rural NV Rep. votes against public transportation

>Cross posted at Helluva Heller

Representative Dean Heller (R-NV2) was the only member of the Nevada congressional delegation to vote against H.R. 6052, the “Saving Energy Through Public Transportation Act, on June 26th. [vote 467] H.R. 6052 is a straight-forward enough bill, providing funding for public transportation authorities to receive grants for expanding and improving their services, or to reduce fares for their riders.

The Los Angeles Times reported that public transit systems recorded their highest ridership levels in the last 50 years, and during the first quarter of 2008 ridership on light rail increased 10% while vehicle miles traveled decreased 2.3%. The American Public Transport Association reports that Last year 10.3 billion trips were taken on U.S. public transportation – the highest number of trips taken in fifty years. In the first quarter of 2008, public transportation continued to climb and rose by 3.4 percent. [APTA]

“Rep. Frank D. Lucas (R-Okla.) complained that his constituents not only must pay higher gas prices, “but now they have to subsidize people in big cities with the luxury of access to public transportation.” [LAT] Evidently, it hasn’t occurred to Rep. Lucas that if more people in urban areas use less gasoline, the demand drops and by the free market standards he claims to uphold – if demand drops so do the prices.

Increasing the use of “the luxury” of public transportation (Perhaps Rep. Lucas hasn’t been on the Metro, MARTA, BART, or the T during rush hour?) also has the salutary effect of diminishing green house gas emissions. But, then, Rep. Lucas is from Oklahoma where global warming is a giant hoax. Unfortunately, it is with this kind of parochial provincialism that Representative Heller has chosen to associate himself. Perhaps it didn’t occur to Representative Heller, as it did to Representatives Berkley (D-NV1) and Porter (R-NV2) that a gallon of gas saved in Las Vegas or Reno (or Boston, New York, Chicago, or Atlanta) might be a gallon of gas just slightly cheaper in Winnemucca, Lovelock, and Elko?

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