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Legal Update

President Barack Obama Announces $50 Billion Infrastructure Spending Proposal, Highlighting Continuing Need for Private Investment in Infrastructure

8 September 2010
Mayer Brown Legal Update

President Obama recently announced support for several transportation infrastructure proposals. These include: a six-year funding authorization with a $50 billion accelerated first year of funding; inclusion of high speed rail in ongoing funding; funding for the Federal Aviation Administration’s proposed “next generation” air traffic control system; and a national infrastructure bank that would leverage private investment.

The announcement included the following elements:

  • The funding is intended to result in the reconstruction of 150,000 miles of road, the construction and maintenance of 4,000 miles of rail (including new funding for the “New Starts” public transportation program, additional high speed rail funding and an overhaul of the Amtrak fleet) and the rehabilitation or reconstruction of 150 miles of runway, as well as the implementation of the NextGen air traffic control system.
  • The establishment of a National Infrastructure Bank that the Administration states will leverage private as well as state and local funds for projects of national and regional significance. The decisions of the bank are to be based on objective analytic criteria in an effect to determine which projects produce the greatest return for the country. No specific details as to the amount of funding for the bank were provided.
  • High speed rail would be integrated on an equal basis with other surface transportation funding programs.
  • More than 100 different transportation programs would be combined to streamline federal surface transportation policy. Additional use of performance measures and “race-to-the-top” competitive procedures would be implemented.
  • The Administration would continue its focus on areas such as safety, environmental sustainability, economic competitiveness and livability in guiding transportation policy.

While specific details are not included in the proposal, and Congress is unlikely to take action to adopt these measures before the November elections, the announcement demonstrates political support for US infrastructure spending. The White House would not be announcing these proposals 60 days before an election if it did not assess that public support as strong. Of particular note is the explicit inclusion by a Democratic administration of the objective of increasing private investment in US infrastructure.

The focus on infrastructure funding, and the recognition of private investment as an important element in achieving US needs, will continue regardless of the outcome of the November elections. The Republicans who would occupy key transportation positions if they take control of the House, are among the strongest advocates of maximizing the use of private resources. For example, Florida Congressman John Mica, who would become Chair of the House Transportation and Infrastructure Committee, has publicly urged Florida and other states to follow the lead of Governor Mitch Daniels’s lease of the Indiana Toll Road by leasing their own toll roads to obtain resources to meet other infrastructure needs. Budget and economic pressures that make any tax increases extraordinarily difficult will enhance the search for alternative funding mechanisms.

One issue that will confront Congress before the end of the year is the need to decide on the extension of Build America Bonds (BABs) that have provided a huge boost to state and local government financing for infrastructure since their introduction under the 2009 federal stimulus bill. One way to combine that BABs extension with enhanced availability of private capital sources would be to eliminate the current restriction on using BABs as the financing mechanism for authorized private activity bonds (PABs) where a private operator will be responsible for infrastructure.

The use of PABs could also be expanded by eliminating the current $15 billion aggregate national volume cap and eliminating the current restriction on using PABs to finance the acquisition of existing infrastructure, as opposed to the construction of new facilities. That restriction currently prevents the use of tax-exempt financing to make upfront payments under the leasing transactions that could be a major available source of large-scale funding for the rebuilding of deteriorating infrastructure.

The President’s remarks make reference to infrastructure funding as an area for bipartisan work. While cooperation is unlikely prior to the November elections, circumstances, and the public demand for action, may begin to produce it after.

For more information about the topics raised in this Legal Update, please contact , , , or .

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