Statement of Gerald Pfeffer
Senior Vice President
United Infrastructure Company
Before the Subcommittee on Transportation and Infrastructure
March 6, 1997

Introduction

Good morning, Mr. Chairman and members of the Senate Subcommittee on Transportation and Infrastructure. My name is Gerald Pfeffer. I'm a Senior Vice President with United Infrastructure Company, a partnership of the Bechtel Group and Peter Kiewit Sons', two of the most respected names in the construction industry. With me this morning is Ms. Edith Page, a transportation expert in Bechtel's Washington office.

We develop, finance and operate toll roads, airport and water facilities projects in partnership with public agencies. We appreciate the opportunity to brief you on three innovative highway projects and to suggest some ways that the Congress could help stimulate private investment in our nation's transportation facilities. I'd like to make four key points:

-- Our transportation funding problems are increasing.

-- Private investors stand ready to rapidly implement innovative and popular solutions.

-- American motorists will pay market prices to avoid congestion.

-- Federal leadership is needed for the public to realize the maximum benefits.

The situation today

First, let me characterize today's situation:

While our growing population is driving more miles than ever, they're driving the most fuel-efficient cars in history. That means more wear and tear on our highways, but lower gas tax revenues. And the tax revolt shows no sign of ebbing. The bottom line: Many states can't afford to maintain their existing highways, much less build new ones.

There is a solution. There's a large pool of private capital available, and investors are always on the lookout for projects that offer adequate returns on investment. In the last seven years, our parent companies have arranged over $11 billion worth of financing. Billions more are available, for the right opportunities.

However, unless we act now, much of this capital will be directed to projects overseas. It's estimated that Asian countries alone need a billion dollars a week to upgrade their infrastructure. Many nations rely on private financing to modernize and make their economies more productive. Ironically, much of this money comes from U.S. institutions. Every billion we invest creates an estimated 20,000 jobs. Isn't it time we look for ways to keep this capital in the United States?

In the Intermodal Surface Transportation Efficiency Act of 1991, Congress took the first steps to encourage private financing. It's a solid foundation to build upon, but only a handful of projects have been realized. To maximize the potential of public-private partnerships, some additional innovative policy changes are needed. I'll describe these changes in a few minutes.

Case Studies

But first, let me share with you three projects that show what can be done, given the right backing: the 91 Express Lanes in Orange County, California, the 1-15 Congestion Pricing Demonstration in San Diego, California, and the Tacoma Narrows Bridge in Pierce County, Washington. Additional information on these projects is included in your packet.

91 Express Lanes, Orange County, California

Our affiliate, California Private Transportation Company, holds a franchise awarded by the California Department of Transportation to develop, finance, construct and operate the 91 Express Lanes - the world's first fully automated toll road, the first toll road to be financed in more than 50 years, and our country's first example of congestion pricing.

This is one of four privately financed transportation projects authorized by the California Legislature in 1989, and the only one completed to date.

This $126 million project added four lanes in the median of the existing Riverside (91) Freeway, over a 10-rnile stretch from Anaheim in Orange County to the Riverside County line. We did it without a dollar of federal or state money. In fact, we're going to pay the state an additional $120 million over 35 years for maintenance and police services that would otherwise have been paid by California taxpayers.

We depend on technologies that literally did not exist when the 102nd Congress began to draft ISTEA a few years ago. Today, the project stands as perhaps the best example in the U.S. of the kind of innovation that private investors, in partnership with federal, state and local agencies, can accomplish. Here are a few of the new ideas we've implemented:

-- The 91 Express Lanes is a toll road without toll booths. Using windshield-mounted gadgets called "transponders," we deduct user fees electronically from our customers' prepaid accounts as they cruise along at 65 miles per hour.

-- While variable-pricing has long been used by phone companies, airlines, hotels and other capital intensive services, 91 was the first toll road in the United States to vary tolls depending on the time of day, direction of traffic and day of the week. Off peak, we charge as little as 50 cents. During peak hours, the toll steps up to $2.75 for the 10 mile stretch. Variable tolls would not be possible without advanced technology.

-- Our transponders comply with California standards. Through a reciprocal agreement, our customers can use their transponders on the Foothill and San Joaquin Hills Transportation Corridors and vice versa. They'll soon be accepted on toll facilities throughout the state.

-- 91 is the only toll road in the world that offers a guarantee. If at any time you're unhappy with our service, return your transponder and we'll refund your deposit and your last five tolls.

-- To provide quality service, we monitor hundreds of sensors and dozens of TV cameras from our own state-of-the-art traffic management center. If there's an incident, we respond with our own fleet of tow trucks.

-- We even have our own affinity program. Frequent drivers can join the 91 Express Club. Members pay $ 15 per month and save 50 cents on each trip.

-- The project was constructed using the design/build method. That saved money and improved quality. It also led to some real time savings. For example, we built a $2 million temporary bridge so a key interchange could continue to carry 250,000 cars a day while we rebuilt its primary structures. We more than paid for the bridge with the interest we saved by slicing l3 months off the state's original schedule.

Most of our customers are thrilled with the 91 Express Lanes. Some indicators of their satisfaction:

-- Before we opened our new lanes, the freeway was stop and go for six hours each workday, and the trip often took 45 to 60 minutes. Today, our customers report time savings of 20 minutes during peak hours. Even those who choose to stay on the adjacent free lanes benefit, since Caltrans reports that traffic on those lanes is flowing better than it has in years.

-- Since we opened about a year ago, we've distributed more than 80,000 transponders, and we're adding over a hundred customers a day. Several homebuilders in Riverside County have begun offering prepaid transponders to new home buyers.

-- To make sure we're serving our customers' needs, we do a lot of market research. We recently asked our customers what we could do to improve the 91 Express Lanes. Their most frequent request? "Make it longer!"

I-15 Congestion Pricing Demonstration, San Diego, CA

The Interstate 15 ExpressPass program is the nation's first federally-funded test of congestion pricing. The three-year project is located on an eight-mile stretch of reversible high occupancy vehicle lanes in San Diego. United Infrastructure Company serves as the operations subcontractor for the San Diego Association of Governments.

I-15 ExpressPass currently allows a limited number of solo drivers to use the HOV lanes for a monthly fee. We started on December 2 with 500 permits at $50 a month, and sold out on day one. We were recently authorized to expand to 700 permits at $70 per month, and there are about 500 names on our waiting list. We expect to issue up to 900 permits next month.

An electronic system like the one we use on the 91 Express Lanes will be installed later this year. At that point, we expect to begin testing additional concepts, including dynamic pricing.

Tacoma Narrows Bridge, Pierce County, Washington

The Tacoma Narrows Bridge, located on State Route 16 in Pierce County, Washington, is the primary link between the Seattle-Tacoma metro area and the scenic Olympic Peninsula.

The first bridge at this site was destroyed by aerodynamic problems soon after it opened in 1940. The existing four-lane, 2,800 foot, suspension bridge was completed in 1950.

Recent growth has led to increased traffic on the bridge. Congestion lasts for three to four hours each day, costing motorists over 500,000 hours of lost time every year. Over 80,000 vehicles use the bridge each day. That's expected to grow to 108,000 vehicles by 2010.

In 1993, legislation was adopted authorizing the Washington State Department of Transportation (WSDOT) to enter into partnerships for the private financing of transportation facilities. A year later, WSDOT selected our company over two competitors to negotiate a franchise for improvements in the SR 16 corridor.

During 1995, in an effort to stop two other toll roads that had become controversial, the legislature adopted a number of changes in the program. Last year, the legislature authorized WSDOT to contract with our firm for technical, financial and environmental studies for the SR 16 corridor. Like a State Infrastructure Bank, the legislature anticipated that public funds advanced for these studies would be reimbursed from the proceeds of the project's financing.

We're halfway through a federal Major Investment Study, and our team has identified a number of innovative approaches for solving congestion. These include a new bridge, double-decklng the existing bridge, a transportation demand management approach using peak hour pricing and moveable barriers, and a transit-intensive alternative. We're very proud of our extensive public involvement program, which includes a storefront information center and an Internet home page.

We're pleased to be able to continue to work with WSDOT on this important project.

Key Legislative Provisions

In our experience, the combination of private funds and innovative technologies can help reduce gridlock. Americans will accept new methods of financing and operating our highway system. But to make more of these projects a reality, we need additional enabling legislation. Because of the historic federal-state partnership in transportation, the states are unlikely to embrace this concept without federal encouragement. We urge Congress to include the following provisions in the ISTEA reauthorization bill:

1. S. 275, which would establish a pilot program to test the use of tax-exempt debt in conjunction with privately-financed transportation projects.

2. A Transportation Infrastructure Credit Program, which could provide development risk insurance, revenue risk insurance, subordinated debt and related support measures.

3. Authority for toll financing of new and reconstructed segments of the Interstate System.

4. Standardized state and local laws and regulations governing the development and operation of projects financed through public-private partnerships. Incentives could include:

-- Increased flexibility in the timing and use of federal cash flows, Expanded access to federal credit enhancement mechanisms, and

-- Additional authority and funds to expand the State Infrastructure Bank program.

5. Federal, state, regional and local project approval procedures that provide the flexibility needed for innovative funding methods.

6. Clarification of the environmental permits associated with partnership projects. For example, lenders and rating agencies are concerned that there are no time limits on challenges to federal environmental decisions. We also recommend that provisions for toll operation be included in all applicable environmental impact studies.

In addition to these significant policy changes, we support the adoption of national standards for automatic vehicle identification systems, as well as expanded research and demonstrations of congestion pricing, automatic vehicle occupancy verification, automatic license plate recognition, and improved regional traffic modeling. To avoid charges of "double taxation," we recommend that states be allowed to rebate federal taxes paid on fuels consumed on toll roads.

Conclusions

As head of a company that invested millions to reduce gridlock on one of America's busiest freeways, I can say without hesitation that public-private partnerships offer a win-win-win opportunity.

-- They're good for the public sector,

-- They're good for private investors, and

-- Most of all, they're good for our nation's motorists.

The creativity, technology and private capital are available for the right projects. What's needed is additional enabling legislation to clearly signal the federal government's commitment to innovative public-private partnerships. By encouraging the states to pursue these partnerships, Congress can trigger billions of dollars of private investment and help solve some of America's most intractable transport problems, long before public funds could become available.

Thank you for allowing us to share our views with you. We'd be happy to arrange briefings or tours for any Senators or staff members interested in leaming more about our projects. I'd be happy to answer any questions.