Transportation Funding Must be Tied to Reform

Testimony of Matthew J. Brouillette to the Senate and House Transportation Committees

Thank you Chairman Rafferty and Chairman Geist and members of the committees for the invitation to testify today and for your consideration of our policy solutions to help address Pennsylvania’s transportation infrastructure funding challenges.

Governor Corbett’s Transportation Funding Advisory Commission identified the dilapidated state of Pennsylvania’s roads and bridges and future infrastructure needs.  Pennsylvania routinely finishes among the worst states in rankings of road conditions, and among the highest in the number of structurally deficient bridges.  Yet Pennsylvania also ranks high among states in terms of spending on roads and bridges, both in terms of spending per capita and spending per highway mile.

In other words, Pennsylvania’s transportation system is one of high costs and poor quality.

This is not a new discovery.  In 2006, Gov. Rendell’s Pennsylvania Transportation Funding and Reform Commission wrote: “The Commission concludes that no additional funding should be provided for highways, bridges and transit unless a series of parallel actions are taken to reform funding structure and a number of transportation business practices.” Yet critical reforms have yet to be implemented.

This charge must be emphasized in discussions of transportation funding once again.  More funding for transportation — meaning higher taxes or fees on residents and motorists — should only occur alongside significant reforms.  It is your duty to ensure that every current taxpayer dollar is well-spent before asking taxpayers to give more of their hard-earned money at the pump, in bonded debt, or any other revenue-raising mechanism.

We applaud much of the Transportation Funding Advisory Commission’s report for taking into account cost-saving measures and reforms.  Many of the recommendations and the direction being taken by the current administration — from consolidation of services to the effective use of modern technology — recognizes that this is all taxpayer money, and as thus should be spent efficiently.

So as this committee discusses how to address this challenge, I would like to identify two principles that we believe should frame this discussion, as well as two reforms that will save money and improve quality.

Users Pay

The first principle is “Users Pay.”  To the extent possible, transportation funding should come directly from the users who benefit.  This may include additional toll roads or toll lanes, so long as tolls flow solely into improving the road being used, rather than redirecting funds elsewhere.  The Transportation Funding Advisory Commission supports this principle in many of its recommendations.

This same principle should apply to mass transit funding.  Transit riders should bear the primary burden for financing the costs, rather than non-users.  (I will more fully address this later in my testimony.)

The Transportation Funding Advisory Commission, however, recommends that Turnpike payments under Act 44 be used entirely for transit, rather than for roads and bridges.  This flies in the face of the user-fee model by forcing Turnpike drivers to subsidize transit agencies they choose not to use.

Prioritize Every Dollar

The second principle is “Prioritize Every Dollar.”  Prioritizing every dollar also means that transportation funding must be considered in light of all state spending priorities.  Transportation infrastructure is a legitimate function of government, and it should be prioritized as such.  But while it is important that while we identify critical areas in need of additional funding, we must also look at the hundreds of millions of tax dollars spent each year on less pressing priorities such as bike trails and beautification efforts.  And we should also be looking to redirect or eliminate spending on non-core government functions such as building hockey arenas and convention centers and subsidizing film producers and corporations.  You must ask yourselves if these are core functions of government.  And if they are, are they more important than safe bridges and roads?

Redefine Prevailing Wage Laws

The first reform that needs to be implemented is a redefining of Pennsylvania’s antiquated prevailing wage law.  The current prevailing wage formula unnecessarily drives up the cost of road construction by applying wage rates that are above the average labor market rate in a community.  In other words, we get less road for more money when we force government contractors to pay higher wages than those paid by the private sector for the same work.  State-mandated wages for government projects are 40% higher, on average, than private sector pay for the same work.

Even with the continuance of the federal Davis-Bacon prevailing wage mandates, estimated transportation savings from redefining prevailing wage rates as the market wage for state and local governments range from several hundred million dollars to “only” $20 to $40 million annually.  This is tens of millions in potholes and bridge repairs than cannot be completed because we are requiring state and local taxpayers to spend more on projects than the going labor market rate.

Since 1980, 10 ten states have repealed prevailing wage mandates to maximize their transportation dollars.  Pennsylvania must do the same or state and local governments will continue to overspend on labor costs to enforce a mandate that flies in the face of common sense.  To stretch every tax dollar further, we must begin with redefining prevailing wage laws in Pennsylvania and also work to change them in Washington, D.C. 

Enable and Utilize Public-Private Partnerships

The second reform Pennsylvania needs is a robust public-private partnership law to encourage private investment in public infrastructure.  P3 legislation has been a high priority for years, but it never seems to get done.  P3s are the emerging paradigm in transportation funding of new projects.  Immediately implementing P3s on express lanes, high occupancy lanes, highways, and bridges could reduce costs to taxpayers and commuters and improve quality.

Study after study shows that a competitive system is more efficient and effective than traditional single provider systems. When Massachusetts turned to competition for its highway maintenance, nearly half of the contracts were won by employee groups that competed. For the first time, efficiency and effectiveness were introduced system wide producing tremendous improvements.  Massachusetts was able to lower labor input costs by 37% and received greater productivity in return. Furthermore, the introduction of competition frees up resources that could be allocated to other, higher priority needs.

The contractual mechanism in P3 also increases the incentive to produce high-quality work and ensure high performance.  Indeed, the level of performance is firmly established in the contract.  Generally, contracts can (and should be) performance-based (focusing on outputs or outcomes) and can include quality assurances.  Often these performance standards exceed those established for the public agencies — the Indiana Toll Road agreement being just one example.

P3s also protect citizens’ interests.  These contracts allow government agencies to shift risk from the taxpayers to the contractors.  With the power of a contract at hand, governments can build quality assurance and/or quality controls into project delivery as a means to manage risk.  An increasing trend is the employment of warranty concepts whereby the contractor places a long-term guarantee on their work.  This further shields taxpayers from risk.

Finally, public-private partnerships produce innovative solutions. In non-competitive systems where the incentive structure is not set up to reward innovation, there is little motivation to “swim upstream” and advance a new idea.  Private firms have far more opportunity and incentive to encourage and foster innovative ideas at all levels.

Utilizing P3s to their full extent includes eliminating the Pennsylvania Turnpike Commission and leasing the turnpike.  Based on previous offers, leasing could (by investing a lease payment) generate upward of $50 billion over the next 50 years.  This revenue would help to offset budget deficits and give a dollar’s worth of service for every dollar spent.

Short of leasing the Turnpike, rolling the toll road into PennDOT and eliminating an unnecessary bureaucracy would offer substantial savings in transportation spending.  Millions of tax dollars in savings could be realized if the state legislature were to dissolve the Turnpike bureaucracy and right-size its workforce.  PennDOT employs one-fourteenth the number of workers per mile, and the Turnpike Commission has more managers per mile than PennDOT has total workers per mile.  Clearly, there are opportunities to improve efficiencies and better spend transportation tax dollars.

P3s are also key to reforming mass transit. Competitive contracting, whereby private operators contract with the government to operate transit services, has reduced operating costs in cities across the U.S. by 20-50%, with savings of about 35% being the norm. Houston experienced savings of 26%, San Diego, over 30%, and Denver, 46%. Las Vegas, home of the largest fully contracted out U.S. system, has costs approximately 30% below systems of similar size.

Transit agencies must also increase its reliance on local funding and fares rather than state taxpayers.  In order to become efficient, transit agencies must be more dependent on attracting customers and meeting local needs.  Currently, agencies’ funding depends on how effective their lobbyists are, not on how well they provide service.  Subsidies for mass transit should be for riders, not agencies like PAT and SEPTA. 

Pennsylvania should require the competitive contracting of all transit services, and transit riders should pay their fair share of the costs rather than having their transportation choices subsidized by the taxpayers.  For low-income Pennsylvanians who are dependent on transit, there is a simple solution — offer fare assistance.  A means-tested tax credit or voucher would allow low-income families to afford the costs of transportation and target aid to those who need it rather than subsidizing riders who can afford to pay the true cost of their trip.

To summarize, we believe that funding and maintaining our transportation infrastructure is a core function of state government.  But before you ask the taxpayers to pay even more money at the pump, in bonded debt, in tolls, or any other measure, we believe these principles and reforms should shape the discussion and final outcome.  Simply finding more or new revenue sources without maximizing current transportation tax dollars with substantive reforms will fall short of what taxpayers want and deserve from you as their elected officials.

I thank you again for the opportunity to share our perspective, and I look forward to your questions.