HARRISBURG — Should Pennsylvania decide to overhaul its transportation infrastructure, chances are it won’t involve adding to a heap of state debt.
But its options are limited.
GARVEE bonds, short for grant anticipation revenue vehicles, offer states upfront funding for construction projects. The borrowing happens in anticipation of future federal aid, acting as an advance of federal money that will be issued in the future.
Nationwide, more than 30 states have taken advantage of GARVEEs.
Dennis Buterbaugh, press secretary for Pennsylvania Department of Transportation, said the state isn’t interested.
“Because of the debt load that would be incurred by the state using such financing for transportation projects, we feel it is not a prudent option,” Buterbaugh said in an email. “Bonding is borrowing and we have to live within our means.”
Buterbaugh said he was speaking for the administration.
The commonwealth’s debt is already leading to consequences. Last week, ratings agency Moody’s downgraded Pennsylvania’s debt rating in connection with unfunded pension liabilities.
House Transportation Committee Chairman Rep. Rick Geist, R-Altoona, said he didn’t think a GARVEE bond “is a workable solution for Pennsylvania” because of concerns about taking on new debt.
The state’s needs are pressing – there’s around $3.2 billion in immediate needs to be addressed, according to a report last summer from the state’s Transportation Funding Advisory Commission.
But how those needs will be met is still open-ended.
Elsewhere, GARVEEs funded billions of dollars worth of improvements. Underwriters issued a total of 38 separate GARVEEs totaling more than $6 billion since the 2008 credit crisis, according to a Bank of America Merrill Lynch March 2012 report on GARVEE markets.
Bank of America Merrill Lynch has a 40 percent market share of GARVEES.
The report indicated a GARVEE bond issue in Pennsylvania was “under discussion.”
Joshua Schank, president and chief executive offer for nonprofit think tank the Eno Center for Transportation, said states have a right to be nervous about taking advantage of the program.
The federal government has supplemented the Highway Trust Fund — from where state transportation funding comes — with revenue from the general fund instead of relying only on gas- tax revenue, Schank said.
The feds will only be able to bail out the fund for so long, Schank said, putting the reliability of future payments in jeopardy.
“It used to be GAVREES were based on the expectation of funding that people knew they were getting,” Schank said. “There’s no guarantee that money is going to be there when it’s time to pay it back.”
Schank said governments often lean on tolls as a source of reliable revenue to fund improvements – like the New York Metropolitan Transportation Authority does to fund an ongoing stream of subway system renovations.
The Pennsylvania Turnpike Commission recently announced toll hikes next year as part of a plan that funds PennDOT projects statewide. The federal government has turned down an application to implement tolls for Interstate 80.
Schank said Pennsylvania is not alone in struggling with a pressing need to address maintaining existing infrastructure. Politically, it’s tough to pull off, he said, and states tend to be more likely to pay for new projects than rehabbing what’s built.
“Northeastern states are in the toughest spot; they’re still having to work pretty hard to maintain existing infrastructure,” he said. “Maintaining the existing infrastructure is less sexy and harder to get people to buy into. You run into those problems.”
The Senate Democratic Appropriations Committee came up with an infrastructure-needs financing plan after the governor’s budget address in February. The plan included a $1 billion GARVEE bond in addition to $1.8 billion of spending in other areas.
“GARVEE bonds, backed by the pledge of future federal transportation subsidies, provide the best means available to us now,” reads the proposal’s summary. “The Governor could act to generate these funds immediately and save the current construction season.”
State Sen. Vince Hughes, D-Philadelphia, chair of the Senate Democratic Appropriations Committee, said failing to take advantage of GARVEE bonds is a missed opportunity.
The GARVEE wouldn’t require legislative action, Hughes said, allowing work to begin this construction season, in accordance with other types of investments.
“It is not the long-term solution, it is not the overall solution to the transportation problem, to the infrastructure problem in Pennsylvania, but it should be used as part of a solution,” Hughes said.
Hughes said getting the bonds would bring jobs while addressing the needs of Pennsylvania’s 40,000 miles of state-owned roads and 25,000 bridges.
A transportation overhaul, he said, could be met with bipartisan support.
“The governor is going to have to send a message to the General Assembly that this is what he wants to do,” Hughes said.
By Melissa Daniels
(PA Independent)
July 23, 2012
