Infrastructure Alert - April 17, 2013

by Cozen O'Connor
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Last week, President Obama released his FY2014 budget, outlining several proposals to fund new infrastructure programs.  The budget proposes $40 billion for “Fix it First” projects to repair existing infrastructure, as well as $10 billion for new infrastructure spending.  The proposal also includes a call for the creation of a National Infrastructure Bank, a policy he alluded to in his State of the Union address this year.  The National Infrastructure Bank would utilize both loans and loan guarantees and would operate as “an independent, wholly-owned Government entity outside of political influence.”  The budget additionally proposes an America Fast Forward (AFF) Bonds program to attract private capital for infrastructure investment, such as public pension funds or foreign investor funds.  The budget includes $40 billion over five years to fund development of passenger rail programs, particularly high-speed rail, and $1 billion for the implementation of the Next Generation Air Transportation System (NextGen).  Absent from the budget proposal, however, were methods to fund the aforementioned infrastructure programs.

The International Longshoremen’s Association (ILA) has approved a new six-year contract that would cover about 15,000 dockworkers on the Atlantic and Gulf coasts.  The negotiations between the  ILA and the U.S. Maritime Alliance (USMX) have been ongoing for over a year and have nearly resulted twice in strikes, first in December 2012, then again in February 2013.  The contract includes a $1 hourly wage increase in 2014, 2016 and 2017, a new payment advancement scale, protection of ILA members displaced by new technology, container royalties split between the ILA and USMX exceeding $225 million, and employer contributions of $1 per hour to local pensions and benefits. 

ON THE HILL
Members of Congress wrote Secretary of Transportation Ray LaHood and the Federal Aviation Administration (FAA) last week expressing their opposition to federal funding cuts to 149 air traffic control towers on June 15.  Most notable of the signatories of the bipartisan letter were Sen. Jay Rockefeller (D-W.V.), Chairman of the Senate Commerce Committee, Sen. John Thune (R-S.D.), Ranking Member of the Senate Commerce Committee, Rep. Bill Shuster (R-Pa.), Chairman of the House Transportation and Infrastructure Committee, and Rep. Nick Rahall (D-W.V.), Ranking Member of the House Transportation and Infrastructure Committee.

Several bills have been introduced to continue funding some or all of the towers.  In the House, Rep. Tom Cotton (R-Ark.) introduced H.R. 1432, the Air Traffic Control Tower Funding Restoration Act, which would prevent the cuts and provide the $50 million in funding through cutting the FAA’s research and facilities funding.  In the Senate, Sens. Richard Blumenthal (D-Conn.) and Jerry Moran (R-Kan.) introduced S. 687 to prohibit the closing of air traffic control towers.  The bipartisan S. 687 currently has 29 cosponsors. 

The Senate voted 87-11 to confirm Sally Jewell to head the Department of Interior.  Prior to her confirmation, Jewell was the CEO of REI.  The confirmation comes after Sen. Lisa Murkowski (R-Alaska) and the Department of Interior negotiated a deal to revisit the Department of Interior’s decision to block construction of a road that would provide health care access to Aleutian villagers through the Izembek National Wildlife Refuge.  Sen. Murkowski had been considering placing a hold on the nomination prior to this agreement.

The Congressional Budget Office has scored S.601, the Water Resources Development Act (WRDA) of 2013.  Whereas the WRDA of 2007 was scored at $23.2 billion over 10 years, S.601 has been scored as costing $12.5 billion over the next 10 years (while requiring $135 million in offsets).  The WRDA reauthorization bill lacks earmarks, which contributed to the higher WRDA of 2007 score.  To avoid earmarking, S.601 grants authority to the U.S. Army Corps of Engineers to determine which projects will receive authorized funds.

Rep. Rosa DeLauro (D-Conn.) released a statement announcing her intention to reintroduce her bill, the National Infrastructure Development Bank Act, this Congress.  In the 112th Congress, H.R. 402 had 78 co-sponsors, all of whom were Democrats. 

AT THE AGENCIES
The FAA has postponed its air traffic control tower funding cuts for two months.  The FAA has announced that it will stop funding all of the 149 air traffic control towers on its list on June 15, achieving about $600 million in budget cuts to satisfy budget sequestration.  Originally, the FAA intended to cut funding at three staggered dates: 24 towers would have lost funding April 7, another 46 towers would have lost funding April 21, and the remaining 79 towers would have lost funding on May 5.  The delays, however, are still prompting criticism from several lawmakers and industry groups.  The American Association of Airport Executives and several individual airports have filed suit against the FAA in an effort to prevent some of the funding cuts.  The loss of funding does not necessarily mean that all of these towers will close; some state governments are considering funding some towers in lieu of federal funding.

Amtrak ridership has increased by one percent in the first half of FY2013.  Amtrak has seen ridership increases in 26 of its 45 routes.  In FY2012, Amtrak recorded a record ridership high of 31.2 million passengers.  March also set a record for the most ridership in Amtrak’s history.  2.8 million riders used Amtrak in March, a 1.9 percent increase from March 2012.

Boeing completed its sole test flight for the FAA’s re-rectification process of the 787 Dreamliner.  The flight was reportedly “uneventful” and was to demonstrate that the newly redesigned lithium ion battery system is safe and not prone to the battery fire issues that grounded the plane in January.  The FAA has not indicated what the review process timeline will be moving forward.  Regardless, British Airways has committed to purchasing 18 new Dreamliners.

On March 29, the Department of Transportation released a total of $1.4 billion in Superstorm Sandy aid to the Metropolitan Transportation Authority, PATH, New Jersey Transit, and the New York City Department of Transportation.  By statute, $2 billion had to be allocated to reimburse transit agencies by the April 1 deadline.  Prior to these transfers, $554 billion had been allocated to transit agencies in New York, New Jersey, Pennsylvania and Connecticut in early March. 

Customs and Border Protection has delayed its implementation of furloughs and overtime cuts in response to increased funding over sequestration levels in the continuing resolution.

BEFORE THE COURTS
The Supreme Court denied certiorari to Spirit Airlines v. U.S. Department of Transportation, an airline challenge to a 2012 Department of Transportation rule requiring airlines to display the total price of a ticket most prominently including in the largest type size.  The plaintiffs claimed that rule is a violation of speech rights as it prevents airlines from suitably demonstrating the impact of taxes and fees on the final price of a flight, as well as unfair because other industries are not required to demonstrate prices and taxes in such a manner.

The merger of American Airlines and US Airways has cleared federal bankruptcy court.  The merger still requires approval from the Department of Justice and US Airways shareholders.  The merger will give shareholders of the AMR Corporation 3.5 percent  of the new airline.

IN THE STATES
After the failed Port of Virginia privatization, Fitch Ratings believes that future “port privatizations will be similarly challenging.”

California: Los Angeles has completed a 30-year, $400 million software synchronization of all of its 4,500 traffic signals.  The effort to boost commuter and vehicle efficiency will reportedly raise the average automobile speed to 17.3 miles per hour from 15 miles per hour and significantly reduce average driving times. 

Maryland:  The Maryland Senate has joined the House of Delegates in passing the transportation bill, on a vote of 27-20.  The bill would phase in the higher gasoline taxes over several years, with the first increase of 4¢ occurring in July.  The bill indexes the 23.5¢ per gallon tax on gasoline to inflation, allowing automatic increases each year.  The bill also relies on a federal action to allow states to collect out-of-state sales tax on Internet retailers, as does an early passed Virginia transportation bill.  If Congress does not pass legislation empowering states to levy this tax by 2015, then Maryland’s sales tax on gasoline will automatically increase an additional 2 percent.

Massachusetts: State lawmakers are considering various tax increases to fund transportation.  The $500 million package would raise the gasoline tax by 3¢, increase taxes on tobacco products, including an additional $1 tax per pack of cigarettes, and modify the tax code with respect to computer software design.  The increased revenue is projected to create more than $300 million to invest in infrastructure by 2018.  Governor Deval Patrick has an alternative package that would increase the income tax to 6.25 percent and lower the sales tax to 4.5 percent to fund $1.9 billion in  education and  transportation projects.

Michigan: Governor Rick Snyder signed SB 233, granting $21 million to dredge 58 harbors.  He also signed SB 252, which provides low-interest loans to dredge private marinas.

New Hampshire: The New Hampshire House of Representatives has given its final approval of a 12¢ gasoline tax increase on a 206-158 vote.  The bill originally passed in the House on March 6 and touted a 15¢ tax.  As the bill involves state revenue, it had to return to the House Ways and Means Committee again, and be voted on a second time to pass. The bill advances to the Republican-controlled Senate, where it faces little chance of advancing to the Governor.

New York:  The New York Metropolitan Transportation Authority is constructing a two-mile long steel seawall to prevent future flooding.  The $38 million project will stretch along the A subway line to the Rockaway peninsula, and be seven feet taller than the rails. 

Virginia: Governor Bob McDonnell’s proposed changes to the General Assembly-passed transportation bill have been approved by both houses of the General Assembly.  Among Gov. McDonnell’s changes is a reduction to the proposed hybrid vehicle annual fee, reducing the proposed fee from $100 to $64.  In the original General Assembly-passed package, the motor vehicle sales tax was increased from 3 percent to 4.4 percent, but Gov. McDonnell’s submitted changes proposed an increase from 3 percent to 4.15 percent.  The plan is expected to raise almost $6 billion over five years.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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