February 28, 2024

Rise To Thrive

Investing guide, latest news & videos!

Eno’s Davis talks transportation, midterms

21 min read
Eno's Davis talks transportation, midterms

Transcription:
Caitlin Devitt: (00:03)
Hi and welcome to the Bond Buyer podcast. I’m Caitlin Devitt. My guest today is Jeff Davis, a senior fellow at the Eno Center for Transportation, which is, as most of you know, a nonprofit research group on all things transportation related. And he’s also the editor of the Eno Transportation Weekly, a Must Read. Jeff focuses on the analysis of federal transportation budget and long term trends in transportation funding and policy. He’s worked on and around Capitol Hill for a long time.

We’re here today to get his perspective about what’s at stake for transportation in the midterms, as well as we’ll talk about a few other things like federal appointments and how he thinks the rollout of the big infrastructure law, which was past almost a year ago today, is going. So welcome, Jeff.

Jeff Davis: (00:48)
Thanks for having me.

Caitlin Devitt: (00:50)
Thanks for being here. We’re recording this on October 4th, so we’re about 35 days away from midterms. What are you thinking about? What are you paying attention to? What do you think is important in terms of transportation, funding and finance when it comes to the elections? What are the key people, seats, committees that you think might be in play or that we should be paying attention to?

Jeff Davis: (01:08)
Well, we know who the top people are gonna be in a lot of instances. Regardless, it’s a question of whether they’re going to be the chairman or the ranking minority member of which committees. In the house, you’ve got Peter DeFazio, chairman of the Transportation Committee, retiring. He’ll be replaced on the Democratic side, either by Eleanor Holmes Norton from the District of Columbia, or Rick Larson from, uh, the Seattle area of Washington. Either way it’s gonna be a big change in how the Democrats in the committee deal with Boeing because Larson the biggest event, the biggest employer in Larson’s district. So he obviously can’t take as skeptical a line against Boeing as DeFazio did or Norton could.

Jeff Davis: (01:59)
On the Republican side, Sam Graves from Missouri will be the head Republican on the committee, whether it’s chairman or in the minority. And on the appropriations committee side, which funds things, David Price, the chairman of the Transportation funding subcommittee, is retiring. He’ll be replaced by Mike Quigley from Chicago. On the Republican side, the Republican Mario Diaz Balart is up against a term limit. So he’ll be replaced by either an experienced hand anyway, like Howard Rogers from the Kentucky, or Mike Simpson from Idaho, or maybe Mr. Cole from Oklahoma on the Senate side. Maria Cantwell is welcome to stay put as the head Democrat on the Commerce Science and Transportation Committee, but there’s a musical chairs game gonna start because there’s a vacancy at Senate Arm Services. Roger Wicker is going to go there instead of being, ranking member on commerce, he’ll go to arm services and be replaced by Ted Cruz. So to the extent that Mr. Wicker was unusually pro-Amtrak for a Republican, Mr. Cruz is not, and in addition, that’s the commitment that’s gonna be Reauthorizing Aviation programs next year.

Jeff Davis: (02:56)
So Mr. Cruz will have a big role in that. And then on the funding side, Susan Collins, from Maine, who has been the head Republican on the Transportation funding subcommittee for 12 years, is gonna move on up and be in charge of the whole committee in words to Shelby’s retiring so that the check-writing ability in the Senate will be up for grabs and several different, senators could bid for that: Lisa Markowski, Lindsey Graham, Jerry Moran, depending on what subcommittee they want, they go in seniority order. So those are the big issues that are up in the election. That’s depends on whether these people are gonna be chairman or ranking member.

Caitlin Devitt: (03:37)
Uh, well, let’s talk a little bit more about DeFazio. He’s a longtime chair of House Committee T and I, which you talked about. He’s retiring after I think 36 years.

Speaker 2: (03:46)
Yes, 36 years on the committee.

Caitlin Devitt: (03:47)
I watched one of his final committee meetings last week where Amtrak CEO Steven Gardner was there, and DeFazio’s colleagues were reflecting about all his work over the years. So how important is his departure, do you think, or another way to say it, I guess, is how important was he to infrastructure, to transportation infrastructure over the years? And you mentioned Graves, let’s just say Graves is gonna be his replacement. What do you think we could expect from Graves being the chair or in general Republican led house T and I?

Jeff Davis: (04:18)
Well, you saw a lot of it in the witness list for that last hearing. Mr. DeFazio held a valedictory final hearing as chairman of the committee and the witnesses. You had two unions, the flight attendants, and you had the transportation trades of AFL CIO, and you had the president of Amtrak there, and then you had a mass transit person from Oregon. Mr. DeFazio’s home state. Republicans, if they take the House, are gonna be noticeably less friendly to the transportation unions and to Amtrak and to the mass transit people. So the selection of witnesses sort of tells you all about where the relative priorities are going to be next year. Mr. Defazio did have a very significant impact on aviation in particular over his years. But in the last, this past Congress, he’s been actually cut out because the Senate wound up writing the infrastructure bill on their own with very little to no House input. So, it was kind of bitter switch for Mr. DeFazio that they finally passed a huge infrastructure bill, yet because it was a Senate-only production at the House was forbidden to amend his ability to influence the contents of that legislation were kind of hamstrung.

Caitlin Devitt: (05:31)
Mm-hmm. That’s interesting. So, yeah. And I think the Republican witness on that was from Heritage Foundation, right? Or is that right?

Jeff Davis: (05:40)
Yes. And he just basically served as the interlock here to where that the Republicans could just bounce their ideas off of, you know, back and forth with him.

Caitlin Devitt: (05:49)
You think there’s, they’re gonna have a lot, they are gonna have a lot more scrutiny over the use of the infrastructure money?

Jeff Davis: (05:55)
Well, here’s the thing. The infrastructure bill enacted last November provided directly provided $383 billion over five years out of the Highway Trust fund for highways and mass transit, and directly provided another $184 billion in, uh, advanced appropriations over five years from the general fund for a variety of DOT needs. And all of that money is guaranteed up front. And because of the Impoundment Control Act, there is nothing that really administration can really do to hold that up, even if they wanted to. So there’s not much that the new chairman of T and I, whoever they are, can do to affect that money without the President Biden going along and, and be willing to sign a law to do so, which he’s not gonna be inclined to do if it’s Republicans trying to make wholesale changes in it. So for surface transportation, highways, transit, and rail things are pretty much set until 2026, with the exception of the two things that still need annual funding from Congress in addition to what they got in this bill. And that’s Amtrak and new subways and light rail systems.

Caitlin Devitt: (07:04)
Hmm. Ok. What about legislation? Anything that is pending or anything that you think could come up? Anything that’s important?

Jeff Davis: (07:12)
This, uh, a lot of these, these bills work up periodically, and the major mode that was left out of the IIJA last year was aviation, because Congress passed a five year aviation law in 2018. That’s gonna be up for reauthorization next year. So the, this year the committees have been holding hearings saying, What should we do next year and focus on this? They hit the ground running, uh, in February, hopefully. Uh, so that’s gonna be the main focus of, of, of next year, is to reauthorize federal aviation policy and funding levels for the next four or five years. A lot of that’s gonna be about trying to integrate unmanned aerial systems more into the system. We in a period of major technological change that we haven’t really seen since jet planes took over from a GE props in the seventies, early seventies. So that’s gonna be the main focus of these committees next year, in addition to trying to oversee how DOT is spending the incredible amount of money that they receive from the IIJA.

Caitlin Devitt: (08:14)
Interesting. All right. Thank you. We will be right back after this message. And we’re back talking with Eno Center’s Jeff Davis, about transportation in the midterms. So let’s take a minute to talk about appointments after a long time without a chief of Federal Highway Administration’s now poised to see Shailen Bhatt as its new director, he had what seemed to me a pretty easy confirmation hearing a few weeks ago. What are your thoughts about him or what he might bring to the table?

Jeff Davis: (08:42)
Yeah, if, if you wanna design somebody in a lab who could get confirmed by this Senate, it would be someone who used to run the highway committee, State DOT in Delaware, and who also had, checked the box. He worked in, uh, minority leader McConnell’s, uh, home state transportation cabinet, and then run another state and also run a National Trade Association for a couple of years, touching bases on a lot of technology issues, all of which is Shailen Bhatt’s resume. So, as you mentioned, his, uh, confirmation hearing before the Senate Public Works Committee was a love fest, and I fully expect him to be approved by the committee in the first markup when they come back from the elections, and then hopefully get him confirmed in that massive tranche of year end nominees, but before they clean the slate to go to the next Congress.

Caitlin Devitt: (09:30)
So what do you think about what he’ll bring to the table?

Jeff Davis: (09:33)
Um, he will bring to the table somebody who has been at the state level in in purple states and red states in a blue state, and can, and understands what the state DOTs want in terms of flexibility to spend their government money however they want to, and trying to find politically acceptable ways to pursue some of the Biden administration’s policies and try to coerce states in a more friendly way to pursue, uh, some of the Biden administration objectives with those formula dollars that the federal government can’t legally force states to do XYZ with.

Caitlin Devitt: (10:16)
Yeah. That came up right at the confirmation here in the, the now infamous memo that was written about trying to restrict highway expansion projects. And so he seemed to, you think he seems a little bit more willing to let them, I mean, I know that they legally can’t do it anyway, can’t restrict it, but seemed to back off that policy you think a little bit.

Jeff Davis: (10:36)
Well, Secretary Buttigieg finally found a formulation to respond to these questions with, given the questions over and over and over. If it’s legal for the states to do it, we’re gonna let you do it. But, again, that memo issued by acting administrator, Stephanie Pollock back last December, it wasn’t what the memo said that we’re gonna do, It was the fact that the memo quoted directly from Chairman DeFazio’s bill that never got enacted in the law. That was rejected by the IIJA conference on what the objectives were. If they had, if they had just paraphrased it, instead of quoting directly from a Democrats only bill this, this, uh, contratemps would’ve been avoided, I think.

Caitlin Devitt: (11:16)
But yeah, I think they were holding up giant signs, Right. The Republicans with the quotes.

Jeff Davis: (11:21)
Yeah. Uh, so, but so but Shailen Bhatt is well respected amongst all the state DOTs and amongst the stakeholder community, and at the same time in the administration. So, uh, I believe if anyone can navigate these, uh, waters, he can.

Caitlin Devitt: (11:36)
Yeah. And I think for, and from our perspective in Muniland, you know, former issuers are always important. And speaking of which, there’s Phil Washington, Biden’s picked to run the FAA. He’s also a former issuer. In his case, he was at LA’s Metro and the Denver Regional Transportation District for a long time. He’s also from Chicago. What do you think about, what about that Pick?

Jeff Davis: (11:58)
Full disclosure. Phil used to be on the ENO board of directors, and I know Phil.

Caitlin Devitt: (12:01)
Ah, okay.

Jeff Davis: (12:02)
I like Phil. His nomination is held up because of an internal political spat going on in Los Angeles County right now. One of the — it’s political, it’s not partisan, it’s Democrat versus Democrat — but one of the county supervisors is, has made mortal enemies of the county sheriff and who has started the investigation of her and one of her friends. And there was some search warrants served a couple of weeks ago. The LA Metro has gotten caught up in this. And the State Attorney General has now ordered the sheriff to stop and taken over the investigation, and the DA says he’s not gonna charge on, But the optics were not good at the same time were, were Phil hasn’t had his hearing yet, so we’re, we’re not sure what this is gonna do to the schedule for, uh, Phil’s, uh, confirmation hearing in the commerce committee long term, if they’re gonna wait for this to settle down some, or if they’re gonna actually, uh, ask him about it in a hearing. But we’re, we’re not sure how that’s gonna work. But right now, there’s a, there’s nothing scheduled for his confirmation. There’s a lot of confusion. We’re gonna wait and see, you know, how this, uh, the search warrant thing in Los Angeles County shakes out.

Caitlin Devitt: (13:12)
Well, if it shakes out in his direction, he, um, he is confirmed. Do you think, what does it mean for the FAA, if anything? Or what do you think he would bring to that?

Jeff Davis: (13:21)
What President Biden was trying to get with Phil, apparently was someone who was outside of the current stakeholder system, outside of the current aviation FAA culture, who’s still a competent organization person trying to break up the way that the FAA thinks of aviation manufactured in airlines as partners, rather than people to be regulated, you know, trying to break up the regulatory mindset, trying to do okay. Uh, which is why they didn’t choose an insight. Now, if, if, if, and if Phil goes through, that’s what they’re gonna try to get. If, if, if they had to choose somebody else, I think they’re still going to try to choose somebody who was not part of the, uh, regulatory mindset that’s been at the FAA for a while. Because there was a, a sense after the, uh, Boeing someone 37 max thing that the, in many cases, the, the, the regulators were just too close to the manufacturers.

Caitlin Devitt: (14:17)
Okay, Got it. So on the funding side, Eno did a report recently where it looked at the federal COVID aid for public transit agencies. And I, I think if you look at the three stimulus bills, I think they got around $70 billion or something since 2020, and that’s set to run out in the next few years. So I kind of wanted to ask you a little bit what transit agencies you think might be the most vulnerable in our world. We talk a little bit about this, you know, the fiscal cliff that, that states locals and, and transit agencies might be facing. So have you taken a look at that? What do you think might be the most vulnerable?

Jeff Davis: (14:56)
Yeah, we’re in the process. The Garrett wrote the first article a couple weeks. So for us, you’re right, the three Covid bills did give $70 billion in total of the mass transit agencies. But the formula wasn’t at all about the revenues they were losing from covid. It wound up, first of all, there was, uh, sort of ad hoc the first, but then the second and third bullet was tried to make it up. Everyone was guaranteed at least 132% of one year’s normal operating expense. So they got a tremendous amount of money from this. Uh, the question is, when is that money gonna run out and what happens next? Because in most everywhere, ridership has not rebounded to its pre covid levels, particularly on rail systems, more so on bus. But as, as the article points out, there’s a great deal of, uh, of difference in how it’s gonna affect different systems because the day you and and I stop riding Mass Transit, we stop putting fare box revenue in the fare box, and that hits their bottom line immediately.

Jeff Davis: (15:52)
But different, uh, agencies have different reliability on, on Fare Box. For example, San Francisco Bart made 72% of its operating costs back through fares right before Covid, uh, on the other end, Los Angeles County only got about 32% back. So there’s, there’s a huge discrepancy. Uh, New York City was about 53%. And so the agencies that that pre covid relied much more heavily on fare box revenues are gonna have a harder time once the Covid A runs out. So we’ve identified those, first of all. And then second of all, we’ve gotta try to look at some of the big ones and figure out how responsively they plug their code money in in the first place. Most of these, uh, agencies run on July 1st or June 30th fiscal year. So if their, if their money is gonna run out in, in 2024, uh, they’re gonna start debating those budgets in January and February.

Jeff Davis: (16:45)
But we thought at one point that the DC Metro was gonna hit the fiscal cliff first WMATA, because in addition to the regular code problem, they have that horrible, uh, having to pull 60% of their cars outta the surface. So their problem’s worse than everybody else, but they just announced that they’re gonna have $185 million shortfall in FY 24 that they think they can manage, but then the rest of their code money will run out. So in FY 25, they’re projecting a $738 million deficit, and they’re projecting $700 million a year deficits, even after ridership returns to a hundred percent of pre covid levels. And so many other, uh, subway systems like that are gonna start hitting that wall, probably not much this year, but the year after that, they’re going to come to Congress for some kind of additional relief. And if Congress is run by Republicans in 2024, uh, it’s going to be a much less friendly environment for them. They’re not going to get a blank check like they might have, uh, under, under Democratic rule. And we’re gonna have to just see it if ridership to the urban core is never gonna return back to the pre covid level, and it’s a new normal, whose responsibility is it to pay for? That is the federal government, is it say local government, What? And we’ve got to, uh, come to that kind of, uh, of decision in the next two years.

Caitlin Devitt: (18:07)
There’s gonna be a reckoning for sure. Yeah. I wanted to ask you about Congress, but you covered that, so thanks. Okay. Switching topics. I saw you said, and I don’t know if you tweeted this or where you set it, but you said that the recent court ruling that we covered a little bit about the Rhode Island, uh, federal judge found the Rhode Island tolling system, which is a truck-only tolling regime, unconstitutional. And you said that you think that this might affect the MTA’s congestion pricing plan. Can you talk a little bit more about that? Well,

Jeff Davis: (18:39)
In terms, as a reminder of the restrictions that a lot of people involved in the congestion pricing plan, were sort of aware of the general rules here that have been established by courts under the Commerce clause of the Constitution. But basically, Constitution says that Congress has the sole authority to regulate interstate and foreign commerce. And so the, and the sort of implied inverse of is that the states don’t. And so the states generally are not allowed to enact policies that put any kind of undue burden on interstate commerce or single out or tax interstate commerce, you know, And, uh, so the court in Rhode Island, a US district court found their truck toll system unconstitutional for basically two reasons. One is that there, while there is a Federal Highway administration statute that allows, uh, states to toll bridges on the interstate, and then that’s what, uh, Rhode Island was trying to take advantage of.

Jeff Davis: (19:32)
The statute also requires that they spend the money from those tolls on the bridges that are being told. And Rhode Island was totaling I-95 bridges and using those toll receipts to rebuild other bridges across the state. So that was the legal reason. But the constitutional reason was basically that, uh, they had designed the tolls in such a way that trucks, local trucks registered in Rhode Island wouldn’t have to pay as much as interstate trucks passing through Rhode Island. And that was a red line constitutional law there that the court decided was a violation of the constitution and therefore caused the truck to plan to be rejected. And so it’s a similar thing that people in New York really have to watch out for that in no way are they gonna be allowed to give drivers coming to Manhattan from the Bronx or Brooklyn or Queens or State Island, any kind of preferential treatment that’s not always also given to drivers coming from New Jersey. So that’s basically just what, uh, what people have to keep in mind is that’s, that’s the implication that this court decision had for however, New York wants to finish, uh, setting up its congestion pricing plan, but you have treat everybody coming in equally, no matter what state they’re,

Caitlin Devitt: (20:44)
We know are probably watching that and be ready to, to sue, maybe on those grounds that goes forward. Um, so let’s talk about the Infrastructure Investment and Jobs Act, the implementation, the rollout of it. How do you think they’re doing, How’s the DOT, how’s the administration in general, doing in terms of getting the money out the door? And is midterms gonna speed that up at all? I mean, I know they’re probably trying to get as much out the doors as they can before midterms, right?

Jeff Davis: (21:10)
Yeah. The, when this thing was enacted last November, I was kind of predicting, I said, I predict that they will be able to, they will try as hard as they possibly can to get as many of the first years, uh, competitive grants named. And the press releases out before the, the midterm election. Some, you know, some somehow some magical way for fiscal year 2022, the first year of the, of the five years of the law, there were $24.9 billion given to the Secretary of Transportation to name individual projects for variety of competitive grant programs. And as of two weeks ago, they had put out the notices of funding opportunity, uh, to solicit grants for about $15.2 billion of that. And of that they had named the actual grant recipients for about six and a half billion for it. So they’ve still got several big programs that they can name grant recipients for before the elections. The MEGAPROJECTS grant program that, uh, closed May 23rd, they should be able to get that done. The rural surface transportation grants, uh, university transportation centers, port infrastructure grants should be coming out any day. Uh, and a few other things. So,

Caitlin Devitt: (22:24)
So those are the actual names of the, of the winners or of the applicants that’ll be coming out. Okay.

Jeff Davis: (22:30)
Yes. Now it may take another six or eight months or a year for those applicants to get their formal grant agreements negotiated and lawyered and signed. And that’s the point of which a legal obligation taxes to pay the money. And then you start going from there. Mm-hmm.

Caitlin Devitt: (22:43)
Okay. Now talk a little bit about, you did something, I think it was in the spring or maybe early summer. It was very interesting about how inflation might affect the increased funding in the I I J A. Can you kind of sketch that out a little bit for us?

Jeff Davis: (23:00)
Uh, yeah. The, uh, the Federal Highway Administration keeps a index called the National Highway Construction Cost Index of how much the construction materials, labor, et cetera, to build a highway project cost relative to, uh, previous it quarterly. Uh, and I had seen that have been sloping upwards earlier this year. And I gone back, I’ve done a lot of work on, on congressional policy in the seventies during the great inflation and just how much of previous transportation increases wound up being eaten up by sector specific inflation. Cause there’s, there’s inflation in the broader economy, writ whole of, uh, too much money chasing not enough goods. But then there’s also sector-specific inflation where that it can be, you know, know you can have, uh, shortages in asphalt and concrete and gravel and rebar and, and diesel fuel and organized labor that are more severe than the shortage in the economy of the whole, or less the, the 2005 safety transportation bill, SAFETEA-LU, provided funding increases, but it wound the, all those funding increases got eaten up by increased costs in highway construction, mostly because they came around about the same time that China had been allowed full access to WTO construction materials markets.

Jeff Davis: (24:16)
And China’s big building boom wound up boosting the cost of these construction materials to the point that, uh, that it ate up a lot of that funding increase. And unfortunately, two weeks ago, FH w a released the updated, uh, cost index for highway construction for the first quarter of 2022, January, February, March. And highway construction costs are up 20% over the first quarter of 2021.

Caitlin Devitt: (24:44)
20 per 20% year over year

Jeff Davis: (24:46)
Two 0%.

Caitlin Devitt: (24:47)
Yeah, That’s wild.

Jeff Davis: (24:48)
The biggest offender there is asphalt. And obviously it’s cuz uh, a lot of this is probably some of it’s due to high oil price because that hit the asphalt three ways. Cause asphalt binder itself is the gun left over at the end of a barrel. Petroleum asphalt has, has to be hot mixed to 300 Fahrenheit at the plant, usually done by natural gas or sometimes diesel eating. And as we kept warm between the plant and the job site by portal diesel heaters, so, you know, asphalt gets it three ways from my fuel prices. Uh, but grading excavation, which is also dependent on the diesel fuel used by bulldozers and excavators. But, uh, again, and this was, uh, the first quarter this year was before the full might of the tremendous funding increase for 2022 provided by the IIJA had taken full effect yet. So even though though that the crude to oil prices are declining a bit, that should show up in the future iterations of this index, the increased demand for gravel, for rebar, for cement, uh, for extremely scared labor, uh, et cetera, is gonna show up again.

Jeff Davis: (25:56)
So we we’re keeping an eye on that, but, uh, you know, and it probably annualized won’t come up to 20%, you know, again, for another year if, unless we have another ridiculous, uh, constriction on the petroleum market. But still, it’s, so to definitely keep an eye on, I think I figured out last, earlier this year that if you do five years and annualized seven and a half percent construction cost increase would pretty much nullify the funding increase provided by IIJA. So if you average seven and a half percent inflation over five years, that would eat your entire

Caitlin Devitt: (26:29)
Increase. That’s gonna eat it out.

Jeff Davis: (26:30)
And 20 and 20% first year is not a good start today,

Caitlin Devitt: (26:33)
Right, right, right. Yeah, we’re gonna have to go down from that and down from under seven. That’s interesting. Okay. All right. Well, Jeff Davis of Eno, thank you very much for being with us here today. Did you wanna offer any last thoughts on transportation, the midterms, the fall next year, what you’re looking at?

Jeff Davis: (26:50)
Last thoughts. If the Republicans take over Congress, it’s gonna be interesting to see if they can pass any spending bills at all. I’m not at all confident that they’re going to be able to, uh, find the votes to get anything done because they, they backed themselves in such a corner on a lot of the rejection of the status quo. And because the nature of the budget process when you’ve gotta get a spending bill that’s passed by House and Senate and signed by the president, incrementalism is the only way to go. So, it’s gonna be an interesting 2023 if they take over. And I’m almost certain you’ll see some kind of a lengthy government shutdown in October if, uh, if the Republicans have one or both chambers.

Caitlin Devitt: (27:32)
All right. Well, dark clouds possibly ahead. Well, thanks again for being here. I really appreciate it. And thanks to the listeners. And special thanks to Kellie Malone who did the audio production for this episode. Don’t forget to rate us, review us and subscribe, www.bondbuyer.com/subscribe. And for the Bond Buyer, I’m Caitlin Devitt, and thanks again for listening.