From: "Friends of Transit NEWS" To: Subject: State Officials Seek New Transit Funding Agency Date: Thursday, May 30, 2002 3:58 AM State Officials Seek New Transit Funding Agency By Don Phillips Washington Post Staff Writer Thursday, May 9, 2002; Page A29 Facing slow growth in federal transportation funds, the states' departments of transportation will recommend today the creation of a new federal corporation that would sell tax-credit bonds to expand spending on highways, transit and railroads by billions of dollars. The American Association of State Highway and Transportation Officials (AASHTO) will recommend a new federal Transportation Finance Corporation, similar to the Federal National Mortgage Association (Fannie Mae). Under the organization's plan, spending on highways would increase 22 percent by 2009. The organization's recommendation for next year's reauthorization of highway and transit legislation is considered important because it represents the collective opinion of the states, which are struggling to keep ahead of the burgeoning growth in highway traffic. Jack Horsley, AASHTO executive director, said the political climate is not right for a major increase in the gasoline tax, so his organization has tried to find a way to boost funding as painlessly as possible. According to Horsley, the AASHTO plan would increase spending over six years for highways by $34 billion, for transit by $8.5 billion and for other needs by $5 billion. Jack Basso, AASHTO's director of management and business development, said the new Transportation Finance Corporation could boost spending by as much as would be raised by a gasoline tax increase of 4.3 cents a gallon. But he and Horsley agreed that politicians are not ready for such a vote. The group noted that the U.S. population is projected to grow by 100 million over the next 40 years, and that the number of miles traveled on highways is growing at double the rate of population growth. The proposed new Transportation Finance Corporation would work this way: � The corporation would sell tax-credit bonds on the open market, distributing most of the proceeds to the states based on a formula. It would raise $59.5 billion over six years. Tax credit bonds are zero-coupon bonds that give bondholders annual federal tax credits in lieu of cash interest payments. � The corporation would set aside 28 percent of the proceeds from the sales -- $16.9 billion -- for a fund that would be invested in federal securities. The proceeds would pay off the bond principal over 20 years. � The remaining $42.6 billion in net bond proceeds would be distributed to the states -- $34.1 billion for highways and $8.5 billion for transit. � An additional $5 billion in federal credit support would go to a capital revolving fund for other projects, including highways, transit, freight rail, high-speed passenger rail, intercity buses, seaport access and other similar projects. Since the federal government, in effect, pays for the tax credits going to bondholders, the AASHTO board directed Horsley and Basso to come up with ways to make up the estimated $19.4 billion cost to the government. Among the financing mechanisms being considered are methods to make up for highway trust fund income that is now lost because gasohol is not taxed at the same rate as gasoline. The federal gas tax is 18.3 cents per gallon, while the gasohol tax averages 13 cents a gallon, with 2.5 cents of that amount not going into the highway trust fund. © 2002 The Washington Post Company