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House Ways & Means Committee on Infrastructure Financing

House Ways & Means Committee

“Paving the Way for Funding and Financing Infrastructure Investments”

Wednesday, January 29, 2020

Key Topics & Takeaways

  • The purpose of the hearing was for members of the House Ways & Means Commerce to review the current pathway for funding and financing of infrastructure investments.
  • Advanced Refunding: Reps. Terri Sewell (D-Ala) and Gwen Moore (D-Wis.) asked a question about reinstating advanced refunding of bonds. Fischer responded that advanced refunding is a primary source for state and local governments in the municipal market. He said this tool provides financing flexibility in municipal bond markets.
  • Private Activity Bonds (PABs): Reps. Brad Schneider (D-Ill.) and Dwight Evans (D-Pa.) asked about removing the PABS cap, locking in credit interest rates, and creating incentives for the municipal market. Laura Canter said the proposals would help create certainty without dependence on interest rates. Dr. Phillip Fischer added that certainty would reduce costs.
  • Build America Bonds (BABs): Reps. Richard Neal (D-Mass.) and Mike Thompson (D-Calif.) asked about BABs. Fischer said that as issuers get more latitude, the cost of capital is lower and the use of BABs is greater. He said BABs have produced a lot of capital in a short amount of time.
  • Bank Qualified Bonds: Fischer said bank qualified bonds offer a specialized market for small issuer financing. He recommended adjusting the issuer debt cap.
  • Infrastructure Investment Needs and Challenges: Dian Gutierrez-Scaccetti stated that the uncertainty for funding leads to state transportation departments being unable to properly plan their projects. Fischer reiterated the challenges of the municipal market for the use of taxpayer dollars. Joung Lee said that the lack of federal infrastructure investment would be felt by state and local governments, as the federal government is fundamental for raising revenue. DJ Gribbin noted that current projects are inefficient and that the federal government is not the major player in infrastructure. Gribbin added that PABs and the Transportation Infrastructure Finance and Innovation Act (TIFIA) program are two financing tools that the federal government could redesign. Lee and Gribbin suggested the need for funding stability as well as the efficient use of funds. Gribbin expressed the need to streamline the project approval process and the role of the federal government in interstate projects.

Witnesses

  • Joung Lee, Director of Policy and Government Relations, American Association of State Highway and Transportation Officials
  • Dr. Phillip Fischer, Founder, eBooleant Consulting LLC, and Former Head of Fixed Income and Municipal Bond Strategy, Global Banking & Markets, Bank of America Merrill Lynch
  • Laura L. Canter, Executive VP and Division Director of the Finance Programs Division, Massachusetts Development Finance Agency
  • Dian Gutierrez-Scaccetti, Commissioner, New Jersey Department of Transportation
  • DJ Gribbin, Founder, Madrus LLC

Opening Statements

Chairman Richard Neal (D-Mass.)

In his opening statement, Neal expressed concerns with the current status of infrastructure in the U.S. and stated his desire for the application of dynamic scoring for infrastructure investment. He opined that thoughtful robust investment could reduce emissions, increase jobs, and lead to overall economic growth. Neal encouraged the committee to expand broadband investment as well as consider how to best direct federal investment in infrastructure. Neal noted that there could potentially be a shortfall of $2 trillion in investments come 2025. He added that the Build America Bonds (BABs) program has been an efficient tool for states and local governments. Neal concluded by stating the need to help rural and urban communities alike through the use of low-income housing tax credits, historic tax credits, and new markets tax credits.

Ranking Member Kevin Brady (R-Texas.)

In his opening statement, Brady stated that he agreed with Neal’s support for the use of dynamic scoring and the potential economic benefits infrastructure investment can have. Brady recommended that Congress consider efficient and creative infrastructure projects. He commended the Trump administration’s approach to reducing paperwork and streamlining the approval process. Brady stated that the federal government possesses the tools for infrastructure investment through means such as private activity bonds (PABs) and opportunity zones.

Testimony

Joung Lee, Director of Policy and Government Relations, American Association of State Highway and Transportation Officials

In his testimony, Lee said that as the Fixing America’s Surface Transportation (FAST) Act nears expiration, the federal government must address structural deficiencies in the highway trust fund. He said there could be major impacts on the economy if the trust zeros out in 2022. Lee highlighted that since 1993, there has not been an adjustment to the gas tax, which has led to 39 states taking action to increase transportation revenues over the last seven years. However, Lee stated that state and local governments need support from the federal government. He made three recommendations: 1) to raise taxes or user fee rates of existing revenue streams; 2) to identify and create new revenue sources; and 3) to redirect current revenues into the highway trust fund. Lee said that most current financing tools are not a good fit for transportation investment.

Dr. Phillip Fischer, Founder, eBooleant Consulting LLC, and Former Head of Fixed Income and Municipal Bond Strategy, Global Banking & Markets, Bank of America Merrill Lynch

In his testimony, Fischer stated that state and local government infrastructure is currently underfunded and that the municipal and corporate bond markets are capable of absorbing the necessary lending for infrastructure proposals. Fischer noted that the municipal market has been shrinking over the last few years, while the number of corporate and Treasury bonds has increased. He said that the decline of the municipal market has been due to the elimination of advanced refunding, PABs restrictions, the sunset of BABs, as well as the fact that direct pay bonds are being traded in secondary markets and are therefore subject to sequestration. Fischer recommended that Congress restore tax-exempt advanced refunding, authorize BABs, expand PABs and public-private partnership (P3) activity, and reduce federal regulations.

Laura L. Canter, Executive VP and Division Director of the Finance Programs Division, Massachusetts Development Finance Agency

In her testimony, Canter expressed the importance of low-income housing tax credits, historic tax credits, and new markets tax credits to “pump” equity into private projects. She applauded the work of Sens. Roy Blunt (R-Mo.) and Ben Cardin (D-Md.) and Reps. Terri Sewell (D-Ala.) and Tom Reed (R-N.Y.) to extend the new market tax credit program. Canter outlined the types of low-income tax credits and the per-capita limitations for each type. She highlighted the impact of the historic tax credit program in terms of renovating and rehabilitating vacant buildings. She concluded by stating that these tax credits alone cannot fill the financing gaps in communities.

Dian Gutierrez-Scaccetti, Commissioner, New Jersey Department of Transportation

In her testimony, Gutierrez-Scaccetti stated that the partnership between New Jersey’s interstate highways system and the federal government is one that provides a consistent, high-quality experience for customers. Gutierrez-Scaccetti expressed that this network and other transportation networks are at risk due to the inability to secure long-term, predictable revenue under the federal highways trust fund. Gutierrez-Scaccetti added that P3 partnerships are an identified tool to help some, but not all, of the infrastructure investment shortfalls. She recommended not abandoning the gas tax and encouraged indexing of the tax. She concluded by re-stating the importance of the highway trust fund for state transportation departments.

DJ Gribbin, Founder, Madrus LLC

In his testimony, Gribbin commended the committee’s efforts to facilitate a dialogue and said that the public lacks trust in federal government infrastructure investments. He made three suggestions: 1) to consider how the needs of the U.S. have changed since the creation of the highway trust fund; 2) to ignore the “urban myth” that federal funds come at no costs to state and local taxpayers; and 3) to explore why infrastructure costs are so high. Gribbin noted that congestion and the lack of quality broadband are major problems in the U.S. Gribbin encouraged the use of incentives for public infrastructure projects to help build public trust.

Question & Answer

Infrastructure Investment Needs and Challenges

Reps. Mike Thompson (D-Calif.), Linda Sanchez (D-Calif.) Jimmy Gomez (D-Calif.), Steven Horsford (D-Nev.), Ron Estes (R-Kan.), Vern Buchanan (R-Fla.) George Holding (R-N.C.), Brady, and Neal asked the panel about current funding and financing challenges. Gutierrez-Scaccetti stated that funding uncertainty leads to state transportation departments being unable to properly plan their projects. Fischer reiterated the challenges of the municipal market. Gribbin noted that current projects are inefficient and that the federal government is not the major player in infrastructure. He said that state and local governments own most infrastructure financing and said that they should granted more flexibility in their use of taxpayer dollars. Lee said that the lack of federal infrastructure investment would be felt by state and local governments, as the federal government is fundamental for raising revenue. Gribbin added that PABs and the Transportation Infrastructure Finance and Innovation Act (TIFIA) program are two financing tools that the federal government could redesign.

Reps. John Larson (D-Conn.), Gwen Moore (D-Wis.), Dwight Evans (D-Pa.) Adrian Smith (D-Neb.) Kenny Marchant (R-Texas), Jodey Arrington (R-Texas), and Buchanan asked for recommendations concerning the proper role of Congress in improving infrastructure. Lee and Gribbin suggested the need for funding stability as well as the efficient use of funds. Gribbin disagreed with Lee’s fixation on the highway transit fund and expressed the need to streamline the project approval process as well as the role of the federal government in interstate projects. Gutierrez-Scaccetti said it is disingenuous to put the burden on state and local governments.

Advanced Refunding

Reps. Sewell and Moore asked about reinstating advanced refunding. Fischer said that this is a primary source for state and local governments in the municipal market. He noted that this tool provides financing flexibility in municipal bond markets.

Private Activity Bonds

Reps. Brad Schneider (D-Ill.) and Evans asked about removing the PABS cap, locking in credit interest rates, and creating incentives for the municipal market. Canter said the proposals would help create certainty without dependence on interest rates. Fischer added that certainty would reduce costs. He also said that the government should provide accurate information about uncertainties to allow markets to price bonds appropriately.

Build America Bonds

Reps. Neal and Thompson asked about BABs. Fischer said the as issuers get more latitude, the cost of capital is lower and the use of BABs is greater. He said BABs have produced a lot of capital in a short amount of time.

Private-Public Partnerships

Reps. Stephanie Murphy (D-Fla.), Don Beyer (D-Va.), Gomez, Horsford, and Neal asked about the suitability of P3s. Gutierrez-Scaccetti responded that they have a specific application, but added that they must correspond to dedicated revenue stream projects. Lee echoed the need for P3 projects to be linked with real revenue and funding. Fischer said the use of P3s is based on a project by project basis. He said the federal government could help improve the negotiation process.

Tax Credits

Reps. Suzan DelBene (D-Wash), Dan Kildee (D-Mich.), Brendan Boyle (D-Pa), Danny Davis (D-Ill.), Gomez, Sewell, Moore, Evans, Murphy, and Neal asked Canter to elaborate on the importance of the various tax credits. Canter said the housing tax credit is awarded based on project impact while also taking into consideration both oversight and accountability standards. She added that the tax credits are facile instruments for rehabilitation and renovation projects. Various members made recommendations to improve the various credits, such as the rehabilitation of old public schools. Canter stated that targeted rehabilitation would require the creation of new instruments and a review of specific statutes.

Gas Tax and Vehicle Mileage Tax

Reps. Tom Suozzi (D-Calif.), Judy Chu (D-Calif.), Jimmy Panetta (D-Calif.), Jackie Walorski (R-Ind.), Darin LaHood (R-Ill.), Davis, and Reed asked about the gas tax and the vehicle mileage tax. Each panelist expressed support for an adjustment to the gas tax. Gutierrez-Scaccetti cautioned against abandoning the gas tax. She added that a vehicle mileage tax requires a discussion about governance and disbursement structures. Lee said that 39 states have been active in raising their own revenue, pointing to the increase of state gas taxes. Lee added that the recommendations for long-term transitions to mileage-based user fees require further investigation.

Bank Qualified Bonds

Rep. Sewell asked about bank qualified bonds. Fischer stated that they offer a specialized market for small issuer financing. He recommended adjusting the issuer debt cap.

National Infrastructure Bank

Reps. Beyer and Horsford asked about a national infrastructure bank. Lee said that transportation is fortunate to have a robust set of financing options and that the challenges are the lack of sufficient revenue streams.

For more information about this hearing, click here.

For an archive of past SIFMA hearing coverage, please click here.