Road to Nowhere?

Road to Nowhere?

Endless debate, little action on transportation bill has shippers worried about getting goods to market.



By Eric Kulisch

   The Obama administration finally plans to release its proposal for a surface transportation reauthorization bill in February when it issues its fiscal year 2012 budget proposal, Roy Kienitz, undersecretary for policy at the U.S. Department of Transportation, said after a Senate hearing in late September.

   The previous SAFETEA-LU plan expired Sept. 30, 2009, with DOT programs and state aid simply being funded at pre-existing levels through a series of short-term extensions. The Band-Aid approach has allowed the nation's infrastructure rot to fester because new money and plans to treat the situation have been deferred while the highway trust fund can't keep up with its obligations.

Oberstar

   The legislative landscape changed dramatically on Nov. 2 when Republicans took back control of the House in the upcoming session and Rep. James Oberstar, who closely controlled every bit of transportation-related legislation, was upset in his Minnesota district. The impact of the election on transportation issues is unclear at this early stage, but it arguably created the most conservative Congress since the Newt Gingrich revolution comprised of politicians who campaigned on shrinking the size and role of government.

   Passage of a six-year highway, rail and transit spending plan would come none too soon for shippers and transportation providers frustrated with the slow pace of transportation infrastructure maintenance and expansion they say is needed to help their businesses, and the economy, grow. One of the key ingredients they want in any transportation bill is support for the DOT's development of a national freight strategy to help prioritize spending.

   But the key stumbling block continues to be how to raise the billions of dollars required for such infrastructure, especially at a time when the economy is still limping out of a recession, the federal debt is ballooning and public pressure is increasing to reduce carbon and soot emissions, as well as use of foreign oil.

   'Our competitive advantage is going to be the velocity at which we move product and the relative costs compared to other places in the world,' Tom France, director of transportation and supply chain solutions for Caterpillar, said Sept. 29 during a panel discussion at the Council of Supply Chain Management Professionals' annual conference in San Diego.

   The Federal Highway Administration estimates that almost 18.6 billion tons of goods worth about $16.5 trillion were moved on the U.S. transportation network in 2007, before declining in 2008 and 2009. That equates to 51 million tons valued at more than $45 billion carried each day by all transportation modes. The agency expects tonnage to increase 1.6 percent per year and grow 61 percent, to 27.1 billion tons, by 2040.

   Infrastructure advocates need 'to convince people that we've slipped from No. 1, that we are at risk of continuing the downward slide if we don't get control of this,' said Dale Bonner, secretary of business, transportation and housing for California, at the CSCMP conference. He pointed to a recent World Economic Forum report that showed the U.S. economy is now ranked fourth in the world based on factors such as institutions and infrastructure that support competitiveness.

   The World Bank ranks the United States as 15th in the world in terms of logistics performance.

   Business owners should directly approach lawmakers and government officials about how transportation problems are impacting their profitability and not simply rely on trade associations that repeat well-worn legislative agendas, Bonner said.



Legislative Snapshot. On the positive side, lawmakers are increasingly focused on goods movement within the broader transportation debate. They are also more aware of the rapid pace of infrastructure investment in China, Europe's well-integrated transport system, and Mexico and Canada's recent efforts to develop intermodal freight corridors to serve U.S. markets. Nearly half of the $1.5 billion in competitive Transportation Investment Generating Economic Recovery (TIGER) grants created by the 2009 economic stimulus law went to freight-related projects.

'Our competitive advantage is going to be the velocity at which we move product and the relative cost compared to other places in the world.'

Tom France director of supply chain solutions, Caterpillar

   Initial stabs at setting the agenda for the reauthorization process have addressed multimodal freight transportation policy and funding. And consensus seems to be forming around consolidating 108 DOT programs into a handful, moving towards performance-based metrics on safety, pollution reduction, and capacity enhancement as a way to allocate funds, and creating a national infrastructure bank.

   Oberstar, the departing House Transportation and Infrastructure Committee chairman, last year offered a $500 billion bill to pay for infrastructure and safety programs, nearly double the size of SAFETEA-LU. It included:

   ' $25 billion for projects of national significance that support freight movement.

   ' $50 billion targeted to metropolitan congestion mitigation and transit.

   ' Establishment of a dedicated freight fund to direct federal aid to states for improving freight mobility on the national highway system and secondary freight routes.

   ' Creation of an Office of Intermodalism and a national infrastructure bank. It also would have reformed the DOT and insist that it develop for the first time a national intermodal transportation plan to coordinate projects by states and metropolitan planning organizations. Oberstar and committee colleagues also recommended streamlining DOT programs.

   He and other House members objected to the 18-month SAFETEA-LU extension that the Senate and administration backed to passage in 2009, saying the nation's transportation system had been neglected too long and that new money needed to be found to improve urban mobility, freight transportation, air quality and safety. The extension included a $20 billion handover of general treasury funds to the Highway Trust Fund, which became insolvent as project commitments outstripped fuel tax revenues in an era of more fuel-efficient vehicles.

   Oberstar advocated raising the gas and diesel tax to raise revenue for transportation programs, but his idea was backed neither by the White House nor most members of Congress.

   Rep. Laura Richardson, D-Calif., in late September introduced legislation that would generate funds for freight-related infrastructure projects by raising the diesel fuel tax on trucks by 12 cents per gallon and transferring $3 billion per year from the Treasury Department's General Fund into a dedicated Goods Movement Trust Fund.

   The Freight FOCUS (Freight is the Future of Commerce in the United States) Act of 2010, H.R. 6291, seeks to establish a new Office of Freight Policy, headed by an assistant secretary, within DOT. It would set up a mechanism for private sector input into the policy process, prioritize major goods movement corridors and choke points that would be funded, and provide funding to mitigate the impact of emissions on the environment.

   Gasoline and diesel taxes have not been raised since 1993 and inflation has eroded the spending power of the Highway Trust Fund to the tune of $16 billion to $18 billion per year. The Obama administration so far has been steadfast in its determination not to raise fuel taxes.

   The Freight FOCUS Act was endorsed by the American Trucking Associations, Retail Leaders Industry Association, the Waterfront Coalition, the Port of Long Beach, the International Union of Operating Engineers, and the United Brotherhood of Carpenters and Joiners.

   'The Freight FOCUS Act establishes a tangible process for freight planning that would strategically invest in the nation's transportation system. Sound investments will enhance the efficiency of goods movement internationally and domestically allowing the U.S. to alleviate freight congestion, increase productivity and better compete in the global economy,' RILA said in a statement.

   Shippers and transportation experts have complained for years that the government can't do a good job of addressing freight transportation needs without a national freight policy.

   The Transportation and Commerce departments have been cooperating since last year to develop a national freight policy. They recently conducted outreach sessions in Atlanta, Chicago and Seattle to gather input from shippers, carriers and other freight stakeholders.

   In a Labor Day speech, President Obama foreshadowed the administration's position on reauthorization by outlining an ambitious six-year agenda for investing in transportation infrastructure as a stimulus measure.

   The president called for:

   ' Rebuilding 150,000 miles of roads.

   ' Laying or repairing 4,000 miles of rail lines.

   ' Restoring 150 miles of runways.

   ' Funding the Next Generation Air Traffic Control System, which would allow more planes to fly in congested airspace while improving safety.

   ' Investing more in high-speed rail.

   ' Creating an infrastructure bank to help seed private investment and target support to the most economically beneficial projects.

   ' Reorganizing the DOT.

   Obama, without going into specifics, said the plan would be fully paid for over time. A significant portion of the new investments ' $50 billion ' would be front-loaded in the first year. Spending and programs would be collapsed together and coordinated to achieve safety, environmental, economic competitiveness and livable community goals. Rail improvements would be targeted at transit, high-speed rail and Amtrak.

   Obama met on Oct. 11 with DOT Secretary Ray LaHood, Treasury Secretary Tim Geithner, Pennsylvania Gov. Ed Rendell, Los Angeles Mayor Antonio Villaraigosa, former transportation secretaries Samuel Skinner and Norman Mineta, several economists and engineers to discuss the nation's infrastructure challenges.

   Rendell has been a loud proponent of infrastructure investment and Villaraigosa represents the largest port in the United States. Skinner and Mineta helped produce a report from the University of Virginia's Miller Center of Public Affairs that outlined 10 recommendations for overhauling transportation policy, including greater emphasis on goods movement and intermodalism during the planning process.

   In a Rose Garden address afterwards, the president urged action on his proposal, saying years of neglect have been a drag on economic growth, contributed to congestion that costs Americans billions of dollars in lost productivity and jeopardizes safety.

   The United States' competitive edge is eroding, Obama warned, as Russia, China and Europe all invest much more in highway, transit, rail and airport infrastructure. Some of the disparity can be attributed to the fact that other countries are still building out their systems versus maintaining mature ones.

   'There is no reason why we can't do this. There is no reason why the world's best infrastructure should lie beyond our borders. This is America. We've always had the best infrastructure. This is work that needs to be done. There are workers who are ready to do it. All we need is the political will,' Obama said, trying to rally bipartisan support for passing the $50 billion installment during the lame duck session of Congress late this year.

   The 2009 American Recovery and Reinvestment Act pumped more than $41 billion into highway, transit and airport improvement projects, creating or preserving hundreds of thousands of construction jobs in the process. The spending law also created a discretionary program for doling out $1.5 billion in grants for multimodal projects with a demonstrated regional or national significance.

   The so-called TIGER grant funds were split among 51 projects, more than $700 million of which went to freight-related investments. On Oct. 20 the DOT announced $600 million in TIGER II grants for 75 projects, with more than half the money devoted to freight transportation infrastructure. Both grant rounds were hugely oversubscribed, demonstrating how fierce the competition was for a small pot of money.

   But the amounts in the stimulus bill, and Obama's latest proposal, pale in comparison to the infrastructure commitment of other nations and to the trillions of dollars necessary to get the transport system into a state of good repair, as well as enhance its capabilities. Estimates for the gap between current sources of funding and needs during the next 25 years range between $134 billion to $262 billion across all levels of government, according to various studies. Underfunding for the federal share of transportation is expected to reach $400 billion between 2010 and 2015.

   The Treasury Department and White House Council of Economic Advisers suggested in a recent report that the government should double-down on infrastructure investment, even during difficult budget times, because labor, material and borrowing costs are much lower than several years ago. Stimulus funding for highways and airports, for example, went about 20 percent to 30 percent further than expected because projects came in under their estimated cost, according to state and federal transportation officials.

   Shippers and air carriers are also concerned about the three-year delay in passing a Federal Aviation Administration reauthorization bill, which would start work on the Next Generation air traffic control system that is expected to markedly improve the safety and efficiency of the aviation sector.

   Countering those who argue that the infrastructure spending would only add to the ballooning national debt, Larry Summers, outgoing chairman of the National Economic Council, said: 'You run a deficit both when you borrow money and when you defer maintenance that needs to be done. Either way, you're imposing a cost on future generations.'

   The University of Virginia report said Congress should quickly implement stop-gap measures, such as increasing fuel taxes, imposing user fees and tapping the general fund, to halt further degradation of the transportation system. A moratorium on capacity expansion should be observed until a financial system is in place to maintain existing systems, it added.

   The report also endorsed the National Surface Transportation Infrastructure Financing Commission's 2009 recommendation to transition away from fuel-based user fees to one based on the number of miles a vehicle travels. It echoed calls for a federal capital budget to distinguish between short-term spending and investments, but said a quick improvement would be for the Office of Management and Budget to factor in long-term investment returns to help prioritize projects. And it encouraged lawmakers to open the door to more private sector investment in tolled facilities.



Leadership Change. Political observers note that the Obama administration may have to adjust its surface transportation proposal to obtain passage since Republicans will be in charge of the House and Rep. John Mica of Florida, who has been critical of the way stimulus money was spent on infrastructure, is to helm the Transportation and Infrastructure Committee.

Mica

   Mica favors investment in infrastructure, but as a fiscal conservative harshly criticized the stimulus bill for waste and said Obama's $50 billion spending plan is unnecessary at a time when more than 60 percent of stimulus infrastructure dollars remain unspent. One of his concerns was that stimulus money for transportation was heavily weighted toward quick repaving projects instead of major projects that could provide construction jobs over the long term.

   He has proposed a fast-track process for getting infrastructure projects completed, modeled on the streamlined regulatory approval process that allowed the Interstate 35 bridge that collapsed in Minneapolis in 2007 to be rebuilt in 437 days instead of seven or eight years under a normal permitting and construction schedule.

   During that period the political situation, funding sources and decision-makers can change, causing further delays, he noted in an address last spring to the Coalition for America's Gateways & Trade Corridors (CAGTC).

   Reviews should be done concurrently rather than consecutively to speed the process up without skirting environmental mandates, he said.

   'Infrastructure funds need to be invested more quickly. States need more flexibility in how they are allowed to spend money, and there must be more transparency in the process when the federal government is spending taxpayers' hard-earned dollars ' something on which the Obama Administration has failed miserably,' he said in a statement Sept. 7.

   The Obama administration and congressional Democrats 'hijacked the $862 billion so-called stimulus, leaving less than 7 percent in the bill for infrastructure, and they failed to ensure that even this small percentage of funds would be spent expeditiously. Then the administration undermined their Democrat House Transportation and Infrastructure Committee chairman and killed any chance for a six-year transportation reauthorization bill,' he added.

   The administration's priority should be to get the money in the stimulus bill spent by eliminating red tape, Mica said.

   But a report issued by Oberstar in mid-October showed that 93 percent of the $38 billion in Recovery Act money available for 'shovel-ready' highway, transit and wastewater infrastructure through normal formula programs had been put out to bid by states as of Sept. 30. Within that total, 91 percent of projects are under contract and work has begun on 90 percent of them. Of the 19,678 funded projects, work has been completed on 9,789.

   Mica has been a strong opponent of increasing the gas tax to pay for infrastructure, and said Congress needs to find financing alternatives for the reauthorization bill.

   'If selected by my peers to chair the Transportation and Infrastructure Committee in the next Congress, my primary focus will be improving employment and expanding economic opportunities, doing more with less, cutting red tape and removing impediments to creating jobs, speeding up the process by which infrastructure projects are approved, and freeing up any infrastructure funding that's been sitting idle,' Mica said the day after the election.

   His top objectives include passing the highway and transit, and FAA reauthorization bills, and finding ways to save money in programs under the committee's jurisdiction, including how money is being directed for high-speed passenger rail.

   Congress has a five- to six-month window in 2011 to get a surface transportation bill completed before the next presidential campaign cycle begins and politicians shy away from potentially controversial decisions, Mica told the pro-freight CAGTC audience.

   He proposed doing away with the gas tax in favor of a sales tax on fuel to stabilize the Highway Trust Fund, as is done in several states. The tax could fluctuate within a predetermined range based on the total purchase price rather than on a per gallon basis, which is unsustainable as vehicles become more fuel efficient, he suggested.

   Mica said any bill must do more to maximize existing revenues by utilizing financing methods such as bonds and public-private partnerships.

   Oberstar was skeptical of state deals to lease public highways to private consortiums that turn them into toll roads. In his transportation bill he proposed the creation of an Office of Public Benefit to oversee financial arrangements between states and private companies, as well as state plans to increase tolls on federally funded highways.

   Mica also mocked a Democratic proposal to provide $25 billion over five years for a national infrastructure bank that would underwrite risk to attract private capital and make loans for infrastructure projects. President Obama's fiscal year 2011 budget only included $4 billion to capitalize a national infrastructure bank.

   That 'is peanut-brain thinking' given the magnitude of the problem, he said. Three transit projects in New York City alone could suck up all the money, he said.

   'I need a robust infrastructure bank that will build our ports, that will build our infrastructure,' Mica said, suggesting something on the order of $250 billion as a more appropriate figure.

DeFazio

   But fellow T&I Committee member Rep. Peter DeFazio, D-Ore., said Mica is the one who is being unrealistic if he refused to consider some kind of tax increase. DeFazio favors taxing every barrel of oil upstream from the pump.

   'To talk about somehow magically becoming more efficient, by having places where you can borrow money which you don't have the cash flow to repay is just not realistic. It sounds great, but it's just not going to get the job done,' he said.



Recommendations. Richard Steinke, executive director of the Port of Long Beach, said at the CSCMP conference that transportation nodes and arteries that carry the largest amount of freight should receive priority funding in the surface transportation bill.

   The San Pedro Bay ports of Los Angeles and Long Beach, for example, handle 40 percent of all the international container traffic in the United States.

   'East Coast port directors, with the exception of Savannah, don't want to hear that because everybody wants to be the next big container port because it creates economic opportunity for those communities,' Steinke said. 'My great fear is that there is going to be too many ports vying for civil works dollars looking to dredge ports, and are going to be pouring billions of dollars into their own infrastructure, and then carriers and shippers are going to decide what works best for them. And that's going to be major load centers, connected to major railroads, with good distribution centers and all those things that are going to get consumer goods to market more efficiently.

   'And we will have wasted, if everybody gets a little bit and nobody gets enough, lots of money' without improving the freight system.

   'So I think any national freight plan has got to pick winners and losers. A lot of people don't like to hear that because it means that they're going to have to determine what they do best and it may not be containers. It may be project cargo or other types of niche cargoes,' he said.

   Southern California is a good example where ports are pursuing compatible strategies, Steinke said, pointing to the fact that the Port of San Diego and Port Hueneme ' which together specialize in breakbulk, liquid bulk, automobiles and fresh produce, and project cargo ' don't compete with the ports of Los Angeles and Long Beach for container business.

Rose

   Customs fees, which correspond to freight flows, should be redirected from the general fund to port cities in which they are generated to help mitigate the impact of freight movement, said Matt Rose, chairman and chief executive officer of BNSF Railway. Otherwise, local citizens will get fed up with pollution or delays at rail crossings and put pressure on the state legislature to pass a freight fee, which will cause shippers to divert their cargo to ports that are cheaper to utilize.

   'The value that L.A.-Long Beach provides this country is phenomenal, yet people in Yorba Linda don't get the value because all they're seeing is a bunch of train traffic' carrying goods to inland destinations, Rose said in support of greater funding for key international gateways.

   Rose, who served on the National Surface Transportation Policy and Revenue Commission that in 2009 recommended a 25-cent to 40-cent increase in the fuel tax over five years and gradual transition to distance-based revenue raising, said the pay-as-you-go system of funding infrastructure through fuel taxes is broken.

   He said the only other viable option to a fully funded federal program is to index the fuel tax to inflation to get it back to the 18.5-cent equivalent purchasing power of 18 years ago, and then target the money to states that meet performance standards and need help improving freight flows.

   The ongoing funding uncertainty for surface transportation infrastructure leaves investment at the mercy of lawmakers who could choose to end bailouts of the Highway Trust Fund, potentially leading to the shutdown of highway programs across the country, Rose said. States and localities also don't know whether funding will be available to sustain projects once they are started, transportation officials say.

   The transfer of $35 billon to the Highway Trust Fund during the past two years also amounts to an 'unfair tax' on railroads because taxpayers are subsidizing heavy commercial trucks to operate on the highways. Railroads are less likely to invest in new capacity when the tax system puts them at a modal disadvantage, Rose said.

   The dean of major railroads has maintained for years that he doesn't have a problem with allowing larger, heavier trucks on the road to help maximize efficiency as long as motor carriers pay an appropriate share for their wear and tear on roads.

   Moving cargo quickly and inexpensively is critical today because supply chain costs have supplanted labor and overhead as the primary expenses for manufacturers, especially those exporting from U.S. plants to the rest of the world, Caterpillar's France said.

   The heavy equipment maker is one of the largest shippers in the world by weight, with average in-transit inventory on any given day of about $500 million. In 2008, the company spent $2.4 billion for freight transportation and will approach that high-water mark again this year. It ships products to 200 countries, using 4,000 origin-destination pairs.

   'So if you can't get those (costs) to be competitive today, you can't sell your product. And if you can't move your product with velocity you won't be competitive,' he said.

   Shipping delays are anathema to a gold mine operation, for example, that has to move one ton of dirt to retrieve one to two ounces of precious metal and can't afford idle time.

   'If you can't get a machine when you need it, you'll buy it from a competitor,' France said.

'There is no reason why the world's best infrastructure should lie beyond our borders.This is America.We've always had the best infrastructure. This is work that needs to be done.There are workers who are ready to do it. All we need is the political will.'

President Barack Obama

   The lack of automation at U.S. ports has forced Caterpillar to ship 40 percent of its products in and out of Canadian ports. Half of its European imports arrive in Halifax, he said.

   'I can get three days more velocity by shipping out of Montreal or Halifax than I can out of an East Coast port. Every day is worth $500 million to Caterpillar. That's a lot of money in cash flow.

   'We'll kill for a day of velocity and I think there are a lot of other shippers that would do the same,' France said.

   Concepts such as velocity need to be better defined because otherwise government entities will spend a long time trying to capture data upon which to base investment decisions, as special interests try to influence the meaning of performance measures for their benefit, Bonner said at CSCMP.

   Basing decisions on averages can be dangerous, France cautioned.

   'The average body temperature is 98.6 degrees, but if you stick your head in a fire and your feet in a freezer on average your body temperature is 98.6. How do you feel? Not so good.

   'Variability kills you. We're maniacal about it. So when we (the country) do an infrastructure improvement it has to be systemic. So you can't just improve a road or a port. It has to be systemically linked. When you develop a port strategy, that's great, but you have to dredge it and have the infrastructure there and it has to be linked back to rail and road networks to get the velocity that you need and reduce the variability so you can have something that's viable.'