Mapping the Future of Transit in America: Opportunities and Challenges For Federal and Private Stakeholders


02-13-08

REMARKS FOR
JAMES S. SIMPSON
ADMINISTRATOR
FEDERAL TRANSIT ADMINISTRATION

MAPPING THE FUTURE OF TRANSIT IN AMERICA:
OPPORTUNITIES AND CHALLENGES FOR FEDERAL
AND PRIVATE STAKEHOLDERS

NATIONAL TRANSIT FORUM
OTTAWA, ONTARIO
FEBRUARY 13, 2008

On behalf of President Bush and U.S. Transportation Secretary Mary Peters, I’m pleased to be here today with Canada’s transportation leaders and policymakers to discuss the state of transit in the United States. . . describe our challenges. . . and share lessons we’ve learned about helping transit succeed. 

To begin, I want to point out that while our two countries are different in many ways, we also face similar hurdles. 
In a nutshell:

How do we finance, design, build, and maintain the best transit systems in the world . . . take more vehicles off the road. . . reduce our dependence on oil. . . and help people enjoy the benefits and convenience of public transportation? . . .  How do we do this, when competition for a slice of the federal pie  --  in the U.S. and Canada  --   is more intense than ever . . .  Our infrastructure needs are enormous . . .  Construction and labor costs are soaring. . .    And taxpayers may be reluctant to help foot the bill?

Perhaps you’ve heard the ancient Chinese curse:

“May you live in interesting times.”

We certainly do.

I commend the Canadian Government, Transport Minister Cannon, and the Canadian Urban Transit Association for taking a bold and visionary step to begin addressing these challenges. Putting a plan to work requires skillful negotiations between federal and provincial leaders. . . and a commitment to building consensus on priorities.

Bringing transit to this banquet table is obviously a key challenge. According to CUTA’s own estimates, the country needs more than 40 billion dollars in transit funding over the next 4 years to keep up with growing ridership, maintenance, and expansion.

I understand you’re wrestling right now with the funding question. No matter how you decide to meet this challenge, I expect you’ll be exploring some very creative long-term financing, partnership, and incentive options.

So, you’d like to know, ‘How do transit deals get done in the United States?’

I’m very proud of the Bush Administration’s record on funding major capital transit projects that benefit millions of Americans every day.
And I think that on the whole, we have a successful federal framework in place.

But like Canada, we face enormous funding challenges, structural challenges, and political challenges.

And I won’t stand here and pretend that we have all the answers. . . .

But I will share with you some thoughts on where we’ve been, where we’re going  --  and how our thinking has begun to change on the best ways to plan, build, and maintain transit systems for the future.

First, a little history is in order.

The Federal Aid Highway Act of 1956, signed into law by President Dwight Eisenhower, had nothing to do with public transit.  But it lay the groundwork for hundreds of transit systems built in the United States over the last half-century.

The Highway Act envisioned a 40,000 mile interstate highway system across America. To pay for it, Congress created the Highway Trust Fund. The fund’s revenues came from a 3-cent gas tax (it’s now 18.4 cents) --  plus tax increases on automobiles, trucks, and tires.

(Incidentally: President Eisenhower wanted to use self-financing toll highways to get the Interstate built  --  but he lost that battle. We’re having this debate again now.)

A key feature of the Interstate project was that the federal government agreed to pay for 90 percent of the total enterprise. The states financed the other 10 percent through bonds, tolls, and other means. And they oversaw construction and maintenance.

The highway model has been a template for many major transportation and infrastructure projects over the years. . . .

But what about transit?

By 1973, many states and cities wanted to use their share of federal highway funds for other purposes  --  such as transit. . .

The highways were largely built by that point, the automobile was king, and not surprisingly, transit investments had languished. So the feds agreed to use the highway program to fund transit projects.

But that was just the beginning. As the years passed, our highways lost some of their luster. Traffic congestion grew worse. Our oldest and biggest urban transit systems, like the New York and Chicago subway systems, were aging fast  --  and paying for their upkeep became more difficult.  A fairly deep recession in the late 1970s accelerated these problems.

And so, in 1981, Congress agreed to dedicate --  to transit  --  nearly 10 percent of the gas tax revenues collected in the Highway Trust Fund.

This marked the beginning of a dedicated source of federal funding for transit projects in the United States.

In effect, we got highway users to begin paying for transit.  . . .  Ironically, America’s love affair with the automobile has paid dividends for bus and rail riders. . . . Over the last 10 years, the Highway Trust Fund has covered roughly 80 percent of federal transit investments.

The FTA, guided by Congress, uses these trust fund revenues  --  plus additional general funds  --  to award annual formula grants to states, and build new transit capital infrastructure. The states, in turn, decide how to spend the money.

In addition, FTA makes grants from discretionary funds. States and localities must compete for this money.

The split between FTA’s formula and discretionary grants is about 75/25. The FTA administers both types of programs.  

Now, who pays for what?

By law, FTA’s contribution is up to 80 percent. But we encourage our grantees to contribute at least 50 percent on their own. This leaves more money for us to invest elsewhere.

I’m enormously proud of the record the FTA has compiled over the years.

Let me share some of our accomplishments:
• Over the last 25 years, the FTA has approved more than 80 billion dollars for transit projects all over the country.
• Over the last 7 years alone, the Bush Administration has approved 62 billion dollars for capital transportation projects, including heavy and light rail, rapid bus transit, and other surface modes.
• Our fiscal 2009 budget included more than 10 billion dollars for public transportation  --  an all-time high  --  with increases provided for most transit programs.
• The number of grants awarded, and their dollar value, has steadily increased since 2001.
• And transit ridership has risen nearly 25 percent over the last 10 years, with more than 45 billion transit passenger miles traveled.  . .

A growing portion of the riders we’ve assisted are low-income individuals who must rely on transit to reach jobs. . . along with older adults and people with disabilities in rural and urban areas.

FTA has accomplished all this, and more, without morphing into a bloated bureaucracy. 

It was Laurence Peter  --  a Canadian who invented  the Peter Principle  -- who said, “Bureaucracy defends the status quo long past the time when the ‘quo’ has lost its ‘status.’”

I’m a big believer in making government as entrepreneurial and un-bureaucratic as possible  --  efficient, responsive, and results-driven.

I’m proud to report that our agency manages more dollars per employee than any other agency in the U.S. Department of Transportation   --   even though the number of programs we manage has doubled over the last 15 years or so. Our administrative expenses are less than 1 percent of our total budget.   And our flagship capital investment program for discretionary transit projects, called New Starts, manages costs to within 5 percent of baseline grant levels. I think that’s quite an achievement.

To give you an idea of the impact our investments have on the nation’s transportation landscape, I’ll describe a couple of long-term projects we’re involved in  --  some of the largest in our history.

The New York metropolitan area is the most densely populated region in the country  --  and depends heavily on transit. The FTA has made a historic, strategic commitment to enhance rail systems in Manhattan and surrounding areas for years to come.

First, we have committed roughly 1.3 billion dollars to the first phase of a 20-year, 7.5 billion project to extend subway service on the East side of Manhattan by more than 8 miles. Our contribution funds about a third of the first phase. This is the first major new subway construction in New York in many decades.

Second, we’re contributing 2.8 billion dollars toward a 7.3 billion dollar expansion of commuter rail service between Long Island  --  just east of Manhattan  --  and Grand Central Station, in Manhattan’s mid-town business district.

And third, we’re investing in a nearly 8 billion dollar project called Access to the Region’s Core. This major project will improve commuter rail service between New York and New Jersey. It involves constructing the first rail tunnel under the Hudson River. It’s a massive and historic project.

These projects are partially funded through our competitive New Starts program. They will benefit hundreds of thousands of commuters, relieve traffic congestion, and stimulate economic development in key neighborhoods.

We’re also helping to transform the transit landscape in Seattle, Washington—in the Pacific Northwest. We’re investing 500 million dollars in the first leg of Seattle’s new 2.4 billion dollar, 14-mile light rail system, which will ultimately connect downtown Seattle with SeaTac Airport. 

Separately, we’re investing in a 1.6 billion dollar project to extend light rail in the Seattle area’s most densely developed residential and employment area. This is an all-tunnel extension project, and it’s enormously challenging.

Adding transit capacity to the Seattle region is enormously important  --  not just for daily commuters, but also for the large number of visitors coming to watch the Olympics in 2010.  

Now I’ve shared some of the good news. So let me be frank about some of our challenges.

In my view, the United States is at a critical crossroads, in planning for the future of transit. On the one hand, there is widespread recognition across the country   --   and the political spectrum  --  that traffic congestion on many of our federal and state highways has grown intolerable  --  or soon will. 

On the other hand, there’s a healthy debate right now over the best ways to finance new and existing transit systems.  One big question:

What is the proper role of the federal government, relative to the states and the private sector?

We’ve done all right, up to now.  But conditions are changing.  For one thing, our cash cow   --  the Highway Trust Fund   --  is drying up. The fund’s balance is shrinking. By the end of 2009, the fund’s deficit will be more than 3 billion dollars. The mass transit portion of the fund is expected to have a negative balance by 2012.

There are many reasons for this – including legislative intent. But also, gas tax revenues will decline in the coming decades as people drive more fuel efficient cars . . . and as driving growth levels off.

The truth is, we’re victims of our success. We’ve built so much, over such a long period, that we’re hard-pressed to maintain it all  --  let alone afford anything new.

In fact, we’re not keeping up with what we’ve got.

For example, the Department of Transportation calculates that we need roughly 22 billion dollars a year, on average, to improve the condition and operation of our nation’s transit systems through 2024. That level is 70 percent higher than all transit capital spending in 2004—the last year we have figures for. So we have quite a shortfall to make up for, somehow.

Now let’s put that in context with other infrastructure needs.

The American Society of Civil Engineers estimates that over the next 5 years, the U.S. will need to spend 1.6 trillion dollars   –   that’s “trillion” with a “t”   --  to restore the nation’s massive infrastructure --  highways, railways, waterways, airports, power plants, etc.  --  to a state of good repair. . . .

I’m reminded of something that Joseph Giglio, a transportation guru and my friend, wrote in his book, Driving Questions:
 “Government transportation agencies tend to regard the nation’s standardized, publicly owned system of roads, bridges, and tunnels as a God-given oil field to be pumped dry with little concern for the future.” 

You can add public transit to the list, when you factor in maintenance and modernization.

There are other serious cost pressures as well.

The price of oil is through the roof. And we’re facing critical shortages  --  and rising prices  --  for commodities like copper, iron, and zinc, as China, India, and other countries drive up global demand.

So . . . it’s going to take a tremendous amount of capital, over many years, to keep our transit systems and other critical infrastructure safe, effective, and efficient   --  while also expanding transit options to keep people mobile wherever they live and work.

It’s also going to take a fair amount of political will for this to happen. In the U.S., opinion polls show that people are generally in favor of building more transit. They’re tired of sitting in traffic and spending a fortune on gas.  And they want a cleaner, greener environment.

But who’s going to pay for it?

We simply can’t continue to borrow from the future. The FTA has finite resources to invest in transit  –  and we must live within our means. . .

So if we want to help preserve our legacy systems  --  and help build new transit  -- we’ve got to ensure that we invest in the projects most likely to succeed.

This means we’ve really got to be careful when we weigh the costs and benefits of projects seeking federal investment. 

We’re working hard to do just that, and I think we’re making excellent progress.

I’ll talk first about managing risk. If you can’t do this well, everything else flies out the window.

On big public works projects  --  we call them “mega-projects”  --  planners routinely over-estimate the benefits and under-estimate the costs. 

Look at the Chunnel  --  the Eurotunnel connecting England and France. It ran into massive cost overruns almost as soon as it began.

And this is a private-sector venture!  Revenues have not covered costs.  .  . The long-term fiscal viability of the whole project is in question. And investors have no idea if they’ll ever see a Euro.

You have to wonder, what happened to the risk assessment on this mega-project?
Look at Boston, Massachusetts. . .  where the legendary Big Dig depressed and expanded the city’s interstate highway.

The project suffered from very high expectations that were not offset by a realistic or comprehensive risk analysis beforehand. It took more than a decade, cost nearly 15 billion dollars, and was plagued by serious engineering, financial, and political problems. 

There’s an old saying: "Good judgment comes from experience. . . and experience, well, that comes from bad  judgment."
Brent Flyvbjerg, a brilliant transportation analyst, wrote about this in his book, Megaprojects and Risk. He said:

“We must find ways of institutionally embedding risk and accountability in the decision making process for mega-projects.”

We take this very seriously at FTA.

We scrutinize the risks on every major capital transit project that comes to us for funding. 

First, we look to see whether the project sponsors have the right mix of management, technical, and financial capacity to handle a mega-project  --  and see it through over the years. Have they done this type of project before? Do they know how to structure the best type of contract for the project? Is their local funding secure and stable?

Now, this may all seem rather subjective. After all, some of these issues relate to behavior; you can’t necessarily monetize them. But our track record on hundreds of complex, major capital transit infrastructure projects gives us a robust business model. We’ve been there. . . done that. . . and we know what to look for. Our staff at FTA has gotten really good at detecting the risk factors that could lead to significant cost overruns.

We also have come up with new ways to quantify and mitigate risk. Our goal is to manage risk better  --  not eliminate it. We sometimes misfired on projects. We over-estimated benefits, and under-estimated costs. This has real consequences for us. When costs rise unexpectedly, Congress comes to us for an explanation.

We recognized that risks should be assessed earlier in our projects, and re-assessed at key milestones.

The problem was that our cost forecasting models on transit mega-projects looked only at the short-term  --  maybe 3 to 6 months ahead. Yet these projects take years to build.

Think of a chessboard: If your view of half the board is blocked, you can’t possibly make good decisions about where to go. And if you don’t have enough information to make good decisions, then your risk of failing goes up.

So we developed new cost forecasting models that help us make more accurate predictions about a project’s actual costs versus the estimates.

Instead of looking at a 6-month horizon, our cost models analyze 10 years of options about building materials, contractors, conditions, and everything else.

Suppose you’re digging a 150-foot tunnel for a rail line, and uncover a buried stream that must be drained and filled. Or you discover methane gas or a sinkhole – as happened in Los Angeles. Unanticipated discoveries like these could delay the project and add enormously to the cost.

If your forecasting cost model is robust enough, you can factor in sufficient contingencies to take such things in stride.

This approach is especially important for our New Starts projects, which in some cases receive upwards of a billion dollars or more from FTA .

What’s the bottom line here?

We’ve gotten much better at stripping away the hype and the guesswork, and looking ahead to the real costs of a project  --  and comparing that with benefits.

And most important of all, this approach helps us to ensure that the projects we fund are completed on time, and on budget.

All in all, we think this makes us a pretty responsible steward of taxpayer dollars.

Look at it this way: If a transit agency, or other project sponsor, wants a billion dollars or more from the FTA for a lengthy, complex capital transit infrastructure project, we’d better be very sure about our ability to look into the crystal ball and see whether trouble --  like massive cost-overruns  -- lies ahead on such a project. 
 
So, we’re getting a better handle on how to control costs on transit mega-projects. We very much want to avoid the possibility of a Boston Big Dig transit project.

But that’s only the beginning.

Even the best cost-forecasting system in the world won’t allow us to invest in every worthy transit project that comes along.

And forecasts don’t ensure that projects will be managed efficiently.

So we’re looking to states, our grantees, and the private sector to participate financially and creatively.
 
We’re looking at ways to reward high-performing transit agencies that meet ridership and cost-saving goals.

We’re encouraging local transit agencies to lease or sell federally financed land to private developers, as a way to spur economic development near transit hubs.

And we’re supporting public-private partnerships that can finance transit needs for future generations.

This is all about putting new wine in an old bottle.

A century ago, it was typical for the public sector to finance and own a large public asset. . . while private industry built it, operated it, and kept any profits.

That’s how the New York City subway got built, initially. . . through the use of so-called dual contracts, involving the public sector and two private contractors.

In recent years, this approach, in one form or another, has been very successful for highways. . . and we’re committed to seeing it succeed for transit as well.

Public-private partnerships have the potential to combine the best of both worlds to effectively and efficiently lower costs. . . spread risk. . . and decrease build times for transit systems.

Since 2000, 11 of our New Starts projects have entailed public-private partnerships, worth more than 10 billion dollars altogether.

One success story is the Hudson-Bergen Light Rail Transit Line, in New Jersey. It’s over 20 miles long, with 30 stations, and runs through densely populated neighborhoods. FTA invested more than a $1 billion in this project. A private contractor designed it, built it, operates it, and maintains it. It’s been a catalyst to redevelopment along New Jersey’s Hudson River waterfront and economically depressed areas in the region.

Another way we invest in these projects is through our Public-Private Partnership Pilot Program, known as Penta-P.  Penta-P allows us to select pilot projects, based on competitive criteria, and study them to learn what works.

In Denver, for example, we’re looking at how private contractors can best participate in designing, building, and/or maintaining two separate rail corridors and related parking facilities  —  one of which will connect downtown Denver with the airport.

The accounting firm Ernst & Young has concluded that public-private partnerships are here to stay and may well be the only viable way for governments to reach their infrastructure development goals.

State and local leaders have an important role to play here. They understand that Uncle Sam is not going to solve all their problems. So they’re finding creative ways to do their own financing deals – and get the projects they need, built faster.

For example, Governor Arnold Schwarzenegger of California has publicly advocated for more public-private partnerships to build, operate, and maintain public works  --  including transit.

More and more states are also privatizing state roads – selling or leasing them to private operators, in exchange for revenues that can be used, in part, to underwrite transit.

We’re also encouraging local governments to explore congestion pricing on their roadways, as a potential revenue source for transit. This is a controversial idea in the U.S.  --  but it’s gaining support in cities like New York.

We simply must ask citizens who use our roadways, bridges, and other transportation assets to begin paying their fair share. Our Urban Partnership pilot program looks for innovative ways to do that. We’ve invested nearly a billion dollars in five pilot projects in cities around the country. These cities are pursuing innovative plans to actually reduce congestion  --  not simply to slow its growth   --  by charging drivers a variable fee to use certain roadways, depending on the time of day and other factors. A portion of the user fees generated would help to fund transit projects. We hope to add cities to this program in FY09.

Look, if we can’t afford to invest a lot more federal dollars in our transportation infrastructure, then we’ve got to learn to invest smarter.

That’s what all these initiatives are about.

There’s no reason why local governments, transit agencies, and the federal government can’t be innovative and entrepreneurial about this.

We need market-based solutions as well as government leadership.

We need to focus less on how much things cost, and more on our return on investment.

In his book, The Transit Metropolis, Robert Cervero writes that that the strongest transit regions in the world reflect    “a calculated process of making change by investing, reinvesting, organizing, reorganizing, inventing, and reinventing.” 

That’s what we’ve all got to do  --  learn to change, adapt, reinvent, and think outside the box.

I’ve often said that transportation is the circulatory system of our nation’s economy  --  and the world’s. We simply cannot function without it.

And so we’ve got to pledge to current and future generations, that we’re going to find ways to make it better. . . make it sustainable. . . make it possible for our citizens to have the mobility and freedom they need to be happy and productive. . . and. . . to help the United States maintain its position as a fierce competitor in the global economy.

Thank you.