APTA Annual Remarks - San Diego, CA


10-06-08

REMARKS FOR

JAMES S. SIMPSON
ADMINISTRATOR
FEDERAL TRANSIT ADMINISTRATION

APTA ANNUAL CONFERENCE
SAN DIEGO, CALIFORNIA
OCTOBER 6, 2008
 
On behalf of President Bush and Transportation Secretary Mary Peters, I’m delighted to come before the APTA membership once more, to discuss the opportunities and challenges that lie ahead for transit – and to offer a vision of the federal role going forward.

It has been a privilege and an honor to work with this organization, and I greatly appreciate your dedication to serving the American public.

I especially wish to thank Bill Millar for his leadership, the APTA Executive Committee, the APTA Board of Governors, and all APTA members for your great work, and for keeping FTA on its toes.

I also want to thank Harry Mathis and Paul Jablonsky of the San Diego Metro Transit System for their outstanding work to make this beautiful city a truly mobile one, through transit.

As Charles Dickens famously wrote: “It was the best of times, it was the worst of times”:

Our industry is now front-page news on a regular basis. Ridership is at its highest level in 50 years – up 11% in July 2008 over the prior year.

And transit is on the Congressional radar.

And yet, the richest nation on Earth can’t find the capital to fix a transportation infrastructure that’s increasingly outmoded and in
disrepair!

APTA’s own headline tells the story:

“With Rail Leading, America's Transit Ridership Soars – But After Years of Underfunding, Agencies Plunge Into Crisis”
Years of disinvestment in transportation infrastructure are evident. Roughly $65 billion is needed to bring all of the nation’s bridges into a state of good repair. And we’ve identified a $30 billion reinvestment backlog among transit agencies.

I recently toured a substation that’s part of Philadelphia’s SEPTA transit system. . . This substation is actually eligible for the National Register of Historic Places – and its original components are still in operation. Many of the substation’s control boards and breaker systems date from 1930 – and there are no spare parts to be had.

Philadelphia offers a fantastic and convenient commuter hub network  --  but the opportunity to capitalize on this configuration and bring these assets into the modern age is unrealized.

Now, public transportation in Europe and Asia is by no means perfect – but there is much we can learn from what’s taking place.

Massive EU, European Economic Community (EEC) investments in transportation are being made – resulting in efficient high-speed rail connecting major cities and airports.

In England, for example, the 16 billion pound Crossrail project, to which the government is contributing roughly a third of the cost, links major urban transit hubs. . . . This project is considered the key to the next 20 years of economic development of London.

In Poland  –  a country still emerging from the grip of Communism  --  there is a plan for about a $14 billion, 500 kilometer high speed rail line from Warsaw, to be funded by domestic, European, and private sources.

And China, as you may know, is investing almost $200 billion in rail infrastructure between now and 2010. This marks the beginning of the largest expansion of railway capacity undertaken anywhere since the 19th century.

It is important to note that emerging economies’ share of global output (including China, Brazil, India, etc.) are likely to catch up to the G-7 for the first time in history within 20 years. The U.S. must invest in its infrastructure to remain competitive in this environment.

Indeed, we cannot afford to fail.

Now, the good news is, we are a wealthy nation  -- despite the current financial crisis  --  and we have the resources we need to do a better job. . .

It’s all about our priorities and how we choose to allocate resources.

As journalist Tom Friedman says,

“We are the flood, we are the asteroid. We had better learn how to be the ark.” 

To address these issues, we need, above all, vision, leadership, and successes we can build on.

Let’s talk about what we all need to do to make this happen  -- from the federal government to state and local governments, the private sector, and citizens around the country.

The first thing we must do is change the financing paradigm for major transportation projects.

There’s an old Pentagon saying:

“A vision without resources is a hallucination.”

Congress recently approved an $8 billion infusion for the federal Highway Trust Fund, which is running a serious deficit. This is only a stop-gap measure, not a solution.

The truth is that the gas-tax revenues that have traditionally funded the Trust Fund will not sustain federal commitments to transportation in the future. The 18.4 cents per gallon that is collected is simply not going to generate sufficient revenue for our purposes.

Even if we indexed gas tax to inflation, we’d be unlikely over the next 15 to 20 years to capture enough revenue as consumption declines and expenses – such as capital construction costs – rise in response to global demand for concrete, aluminum, and other commodities.

And so we must move away from our dependence on gas taxes and develop alternative and sustainable funding sources . . .

How?

By leveraging more private sector resources. . . managing demand for transportation. . . and  asking consumers to begin paying for “free” roads.

The U.S. Department of Transportation has laid a number of options on the table, to help us change the financing paradigm. . .

One very promising tool is the public-private partnership, or PPP.

Enrolling private developers and contractors in the design, construction, operation, and maintenance of publicly sponsored transportation projects is a good way to attract private capital and innovation  -- and share some of the costs and risks.

PPPs are not a substitute for public investments in infrastructure – but rather an approach to realizing complex projects that federal, state, and local governments may not be equipped to develop on their own.

If PPPs could take up even just 10% of capital costs for transportation, that would make a huge difference  --  and allow the federal government, in particular, to focus investments on transportation projects with the greatest regional and national significance.

PPPs work in Europe and they can work here!

For example, the Hudson-Bergen Light Rail system in New Jersey – which may have been the first design/build/operate/maintain PPP contract in the U.S.  – is a terrific success. This $570 million project went from construction to revenue operations in 40 months, thanks to a streamlined schedule. . . And the private sector takes on performance and cost risks. Performance incentives were built into the operations and maintenance contract – spurring efficiency and innovation. Altogether, this was a win-win for the citizens of New Jersey and the private operators.

Denver is another example of a successful PPP.

Colorado state and regional transportation authorities engaged a private consortium to design and build almost every highway and transit element in the Denver region’s $1.7 billion multi-modal project. It was completed under budget, ahead of schedule.

The value of transit-oriented PPPs is recognized as never before. In fact, Gov. David Paterson of New York recently stated that a major makeover of Penn Station into Moynihan Station would not go forward unless this public-private project coordinated with other major capital transit projects under way in the New York region.

The bottom line is that PPPs are the wave of the future  --  and transit agencies need to take advantage of these arrangements.

You know, in times of economic uncertainty and turmoil, it is tempting to circle the wagons and pull up the reins.  But when it comes to investing – and reinvesting  -- in our transportation infrastructure, I believe we should take a contrarian view.

Now more than ever, we need to explore bold and innovative approaches to financing, constructing, and operating new and expanded transportation systems.

The turmoil in our capital markets presents both a challenge and an opportunity. . .

The challenge, in the short run, is to regain confidence in our finance sector and credit markets. . .

The opportunity is that investments in physical infrastructure offer a very appealing alternative to things like “derivatives,” which I don’t think many of us understand too well. . .

Infrastructure investments come with a reasonably known set of risks and when structured properly, can offer predictable, long-term returns on investment.

Another tool we should turn to, to change the financing paradigm, is toll-road concessions. These are controversial  -- but signs point to success in raising money for state transportation needs.

For example, Indiana’s decision to lease its toll road to a private consortium was criticized a few years ago as “giving away the store.”

But the state has gotten a $3.8 billion infusion for transportation projects as a result of this deal. . .  And Standard and Poor’s recently upgraded the state’s bond rating to triple-A, saving taxpayers money in the long run.

More of these deals are on the horizon, as states recognize this approach as a legitimate financing tool.
As public transportation professionals, we know the value of achieving a more balanced mix of driving and transit. We need to be proponents of this approach  -- and articulate the benefits of road pricing and its demonstrated role in a rational transit strategy.

In addition, we must fight congestion by looking at the demand side of the equation. Congestion pricing and high-speed tolling are reasonable approaches to raising capital to supplement tax revenues – while changing driving behaviors to reduce gridlock.
New York’s decision to turn down a congestion pricing plan for Manhattan forfeited upwards of $500 million a year in potential transportation revenues, and more than $400 million from the FTA. And the state is now left with a $1 billion capital shortfall for transportation projects – with no clear source of sustainable funding in sight.

One avenue to consider is to charge for vehicle miles traveled. Oregon has been piloting such a program. Drivers pay a per-mile fee based on-peak/off-peak travel. The result is that 22% of drivers drove less during the most costly peak periods, and 90% said they preferred this approach to an increase in the gas tax.  This approach has long-term potential.

I believe this goes to show that citizens do respond to incentives that lead them to act in their own interests – if given a chance to do so.

Including vehicle miles traveled in our mix of transportation policies deserves exploration, though we may not realize the benefits for at least a decade.

Now the second thing we must do to strengthen transportation is to eliminate congressional earmarks for pet projects that may not benefit all that many taxpayers.  Transportation earmarks siphon federal funds away from the most meritorious projects.

This is an old battle: Thomas Jefferson warned James Madison in 1796:

Allowing Congress to spend federal money for local projects would set off “a scene of scramble among the members for who can get the most money wasted in their state.”

The third thing we must do is subject federally funded transportation projects – regardless of mode  --  to a stringent cost-benefit analysis. We must invest in projects with most promising outcomes, and ensure we can get the best bang for the buck to improve mobility.

Now the fourth thing we must do is streamline the federal investment process to give locals more control so they may pursue the right mix of transportation projects.

We recognize that federal programs have become too ‘stovepiped,’ and may, to some degree, be undermining opportunities for strategic innovation.  Believe me, we want to encourage our grantees and other stakeholders to think strategically, regionally, and intermodally.

And we want to make it easier for state and local officials to make investments based on what works – and what gets people where they need to be  -- regardless of mode.

FTA today has 32 separate programs with annual appropriations. This is overly complex, stretches your resources, and constrains your flexibility.

The fifth thing we must do is call on Congress to include all of these ideas, and much more, in comprehensive new authorizing legislation for federal surface transportation programs, when SAFETEA-LU expires in 2009.

This is all part of a recognition, by us and others, that our current federal surface transportation program, with roots in the 1950s, is woefully out of date.

Reauthorization is clearly an opportunity to start fresh  --  and we must seize that opportunity as best we can.

Now I want to talk more specifically about FTA, and some of the successes we have achieved, which makes us a stronger and more responsive agency  -- and better prepared than ever to face up to all of today’s challenges.

First and foremost, we see ourselves as part of the solution -- forward-looking, innovative, willing to experiment, and take the right kinds of risks.

I want to leave the agency in better shape than I found it  -- and that’s what our leadership team has tried to do.

I believe that FTA is a good steward of taxpayer dollars.

We’re responsive to the nation’s demands for transit projects that improve mobility. For example, our commitment authority for New
Starts discretionary investments is fully leveraged. . .  We are overseeing 14 Full Funding Grant Agreements, with 2 additional agreements pending for fiscal 2009.

With these commitments, FTA has approximately $1.1 billion remaining until SAFETEA-LU expires.

We will spend it all  -- funding those projects ready to advance first.

I also want to emphasize that FTA supports bus and BRT projects. We’ve provided funding over the last three years to APTA to develop industry-wide standards — including performance, service, safety, and security standards for bus and rail equipment. And we’ve brought back funding for much-needed bus projects.

We have also committed to new procurement standards to encourage bus manufacturers and ensure quality and consistency.

Another achievement I’m proud of at FTA is our commitment to advanced risk modeling tools to ensure accountability on megaprojects.

Our robust risk management analysis is helping the industry to improve cost and ridership forecasts, and develop better contingencies.

This is an area where we have come a long, long way in the last few years – and our risk analysis methodology has been recognized as one of the best in government.

You simply cannot manage projects well – or assure their completion -- if you cannot manage their costs

We’re also improving project forecasting methods. With our assistance, the transit industry’s ability to accurately predict ridership is almost twice as good now as in 1990.  Our before-and-after data on New Starts projects helps project sponsors make realistic
projections about long-term cost and ridership factors.

As a result of these efforts, FTA is better than ever at investing the right amount in the most promising projects – and there are fewer unanticipated surprises.

I also want to mention an area we have worked hard to energize – research.  FTA is investing in a research agenda that will lower operating costs for transit and improve functionality for the industry.

I want to highlight one research effort in particular  --  our new strategic plan for electric drive technology.  This plan will lead to commercially viable transit vehicles with significantly higher efficiencies, lower emissions, and superior performance by 2030.

The effort reflects FTA’s commitment to a strategic research agenda that enhances energy storage. . . helps establish all-electric buses. . . and introduces innovative bus design for advanced propulsion.

Now, I mentioned earlier the importance of encouraging public-private partnerships. We believe in encouraging the transit industry to incorporate PPP arrangements whenever and wherever it makes sense to do so.

We’re considering various ways to offer incentives to the industry to encourage PPPs. For example, we may decide to exclude the private-sector share from New Starts cost-effectiveness ratings  --  a move that may make PPPs highly attractive in some cases.

We have also cosponsored 4 day-long workshops on PPPs – bringing public and private sector leaders together to take a close look at what works, best practices, and considerations for getting started. Additional workshops are planned.
FTA and the DOT also have sponsored PPP demonstration projects in several cities  -- and we’re watching closely to see how these projects fare, so that we may measure outcomes and help to duplicate successes around the country.

Everything I’ve mentioned up to now has concerned our efforts to support the transit industry domestically. But we are also very proud of our efforts to reach out globally to other countries where transit networks are emerging as vital to economic and social development.

We don’t have all the answers here in the U.S. – and we should reach out to other nations, to analyze how transit works in different environments.

Last year, we signed a Memorandum of Cooperation with India, fostering the exchange of transportation-related information and technology between our nations. This has proven a fertile source of ideas and inspiration on both sides – and I know I benefited enormously from my visit to India in September, where signs of tremendous vitality in the transportation sector are evident in major cities like Delhi and Hyderabad.

This agreement also opens doors to new business opportunities, as Indian and U.S. companies seek to market and license transportation industry supplies, services, and technologies.

And finally, I must mention the amazing efforts by FTA’s own workforce to adopt a culture of continuous improvement. This is something
I championed at FTA – and I am gratified to see the extent to which the staff has taken concrete actions to enhance accountability, performance measurement, customer responsiveness, and management of FTA’s core programs. Today we are better at managing for results than ever before  -- and I know we’re a better agency because of it.

Now more than ever, we need a committed workforce to help us tackle the many challenges facing the transit industry.
Chief among these challenges is the need to secure sustainable funding for public transportation.  This is particularly important for attaining and maintaining a state of good repair throughout the industry.

This will require changing the prevailing culture from one that favors ‘ribbon-cutting’ to one that says, ‘fix it first.’

Achieving a state of good repair is in fact a statutory requirement under SAFETEA-LU and prior authorizing legislation.

The problem is huge: $30 billion of heavy rail assets among the nation’s 15 largest rail agencies are in such poor condition they should be replaced immediately. An additional $7 billion is needed annually over the next 20 years to achieve a state of good repair for all our systems.

Congress has asked FTA to issue a report on transit operators’ recapitalization plans – and we are releasing that report later this year.

FTA has been very proactive on this matter. We’ve convened a roundtable with the leadership of 15 transit agencies to review methods for dealing with the issue, and we’re collecting capital asset data in the National Transit Database to help quantify the extent of the need.

We have also issued guidance to our grantees, indicating they must demonstrate that a sufficient local funding match is available to preserve existing transit service before we invest any federal money in new service.

We encourage all transit agencies to develop state-of-good-repair asset management program.

In broader terms, we must encourage the transit industry to take a strategic, multimodal perspective – to “think people, not mode.” The transit industry is about mobility management – not just bus or rail, but movement throughout the region.

We must also “think land use, not mode,” as this is about marrying mobility to land use.

We should develop high-performing corridors with highway and transit working together, wherever possible.

Ultimately, transit needs to be a team player in the infrastructure picture – not an isolated actor.

And finally, transit needs HEROES  --  people willing to try new things, create new alliances, cut innovative deals.

FTA grants are only a piece of the puzzle  --  a starting point, not an ending point.

In closing, I want to stress the need for bold, creative leadership at all levels  --  in Washington, our state capitols, local government agencies, and within the private sector.

We must never forget the wise words of Ralph Waldo Emerson, who said back in 1844:

“America is the country of the future. It is a country of beginnings, of projects, of vast designs and expectations.”

We must remember this sentiment. . . honor it. . .  and deliver the transportation infrastructure that our children and grandchildren deserve.

Thank you.