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FEDERAL UPDATE July 2013

House Appropriations Update: The House Appropriations Transportation, Housing and Urban Develop subcommittee marked up the bill on June 19. The full House Appropriations Committee approved the bill on June 27. The bill provides $44.1 billion in discretionary spending – a reduction of $7.7 billion below the FY 2013 enacted level and $13.9 billion below the President’s budget request. The measure fully funds the MAP-21 surface transportation law, avoids Federal Aviation Administration (FAA) furloughs, and provides money for contract air traffic control towers. However, it also includes a provision that would eliminate funding for California's high-speed rail project, and it effectively ends the TIGER discretionary grant program. The bill funds Federal Transit Administration (FTA) New Starts at $1.817 billion, 2.1 percent below the FY 2013 funding level and 8.4 percent decrease below the president's budget request. The bill does not include funding for the president's $50 billion infrastructure stimulus funding proposal.

House Majority Leader Eric Cantor has indicated that he hopes to bring the measure to floor during the week of July 29. However, passage of the legislation – which has already proven controversial due to its steep cuts – remains uncertain as Democrats are strongly opposed. Additionally, with the August recess fast approaching and consideration of recent appropriations bills taking longer than expected, it is possible consideration of the bill could be delayed.

Senate Appropriations Update: The full Senate began consideration of its version of the FY 2014 Transportation, Housing, and Urban Development (THUD) Appropriations bill during the week of July 22.

Overall, the Senate THUD bill totals $54 billion, providing $10 billion more than its House counterpart. Specifically, it includes $550 million for TIGER projects, with a requirement that the Department of Transportation must allocate no less than 20 percent of the funding ($110 million) for projects in rural communities. The bill also includes $40.3 billion for federal-aid highways, $636 million above the FY 2013 enacted level, and $1.943 billion for FTA's New Starts program.

The measure includes only $100 million for high-speed rail, a significantly lower amount than the $3.66 billion requested in the president's budget but much more than the House version, which includes no funding.

The bill provides $500 million for "Bridges in Critical Corridors" (BRICC). This funding would support bridge projects eligible under the Surface Transportation Program, which is authorized by MAP-21. The funding will be distributed through a competitive process, and the bill requires

the Secretary of Transportation to ensure an equitable geographic distribution of funds and an appropriate balance in addressing the needs of urban and rural areas. No similar investments were provided for in FY 2013.

Senate Majority Leader Harry Reid (D-NV) hopes to complete consideration of the legislation before the August recess. However, several amendments to the legislation have been offered and debate will continue into the week of July 29.

Notably, an amendment by Senator Sherrod Brown (D-OH) would allow Demand Response Transit (DRT) systems, which offer “pickup” services, greater flexibility if they use federal transit dollars. DRT systems do not operate fixed route service and provide public transit in small to medium sized vehicles for individuals living in either rural or low population areas where there is low passenger demand. Most users of DRT systems are senior citizens and people with disabilities. Federal funds are typically prohibited for transit operating expenses in urban areas of 200,000 or more residents. Under Brown’s amendment, however, small DRT systems would be given flexibility to use funds for operating assistance.

Additionally, Senator Mark Udall (D-CO) has offered one amendment that would require FRA to reexamine its regulations on trains using horns at road crossings.

Holland & Knight continues to monitor the floor debate surrounding the bill and will keep SamTrans apprised of any developments of interest.

Foxx Confirmed as Transportation Secretary: On June 27, the Senate confirmed Charlotte, North Carolina Mayor Anthony Foxx to serve as the next Secretary of Transportation by a vote of 100 to 0. Foxx was unanimously approved by the Senate Commerce, Science, and Transportation Committee earlier in the month. He replaces outgoing Secretary Ray LaHood who announced his intention to step down earlier this year but agreed to remain in his post until a successor was confirmed.

Elected as mayor in 2009, Foxx is widely considered a rising star in the Democratic Party and has been praised for his role in luring the 2012 Democratic National Convention to Charlotte. His tenure as the city's top official has also seen many transportation successes, including the expansion of Charlotte's streetcar system to UNC-Charlotte, the formation of the Charlotte Regional Intermodal Facility that transfers cargo between trucks and trains, and the construction of a new runway at Charlotte's Douglas International Airport.

Senate Commerce Holds Hearing on Rail Safety: On June 19, the Senate Commerce, Science, and Transportation Committee held a hearing entitled "Staying on Track: Next Steps in Improving Passenger Freight Rail Safety." The meeting, chaired by Senator Richard Blumenthal (D-CT), included a lengthy discussion of recent rail accidents in Connecticut and Missouri as well as an in-depth dialogue about the status of rail safety efforts across the country. Particular attention was paid to Positive Train Control (PTC) requirements.

The hearing featured two panels. Witnesses on the first panel were: The Honorable Joseph Szabo, Administrator, Federal Railroad Administration (FRA); The Honorable Deborah

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Hersman, Chairman, National Transportation Safety Board; and Ms. Susan Fleming, Director, Physical Infrastructure Issues, U.S. Government Accountability Office (GAO).

The second panel was made up of Mr. Ed Hamberger, President and CEO, Association of American Railroads; Ms. Kathryn Waters, Executive Vice President for Member Services, American Public Transportation Association (APTA); Mr. James Stem, National Legislative Director, Transportation Division, International Association of Sheet Metal Air, Rail, and Transportation (SMART) Workers; Mr. James Redeker, Commissioner, Connecticut Department of Transportation; and Ms. Michelle Teel, Multimodal Director, Missouri Department of Transportation.

Mr. Szabo detailed recent accomplishments of the FRA and discussed the current challenges faced by his organization. He also discussed implementation of the Railway Safety Improvement Act (RSIA) stating that FRA has completed 59 percent of the rules mandates by RSIA and 69 percent of the studies. He outlined the efforts FRA has undertaken to comply with "unprecedented mandates" found in RSIA. He then spoke about the main causes of rail accidents. He also offered his thoughts of RSIA and PRIIA reauthorization. On that note, he said that the FRA's main priorities are: (i) enhancing world class rail safety, (ii) modernizing rail infrastructure, (iii) meeting the growing market demand, (iv) promoting innovation, and (v) ensuring transparency and accountability. To meet these goals, he stressed, there is a strong need for predictable funding. Finally, Mr. Szabo addressed the options FRA is exploring to enhance safety (PTC, hours of service, grade crossing analyses, harmonization of operating rules, etc.).

Ms. Hersman spoke generally about rail safety and stated that, despite its increased role in the American economy, we must not become complacent with rail. She then detailed the NTSB's response to recent accidents in Connecticut, Maryland, and Missouri. She also outlined the NTSB's "Most Wanted List" - a catalogue of top safety priorities for the agency. Among the items on the list are PTC, less distraction, improved infrastructure, and in-cab recording devices, among others.

Ms. Fleming discussed the GAO's ongoing reviews of FRA's rail safety oversight and the implementation of PTC. She detailed several challenges facing FRA, including lack of a final rule for risk reduction plans, lack of succession planning for its aging inspector workforce, effects of weather on railroad operations, and new technologies such as PTC. She closed with an assessment of PTC implementation, stating that most railroads will fail to meet the 2015 deadline due to the challenges and complexity posed by the requirement.

Mr. Hamberger touted the industry's strong safety record, noting that 2012 was the safest year in rail history. He stressed the need for a financially stable rail system that can invest in safety measures as needed. He spoke at length about PTC, pointing out that it is an "unprecedented technological challenge" that includes a "daunting array of tasks that railroads must perform." He suggested that the implementation deadline for PTC should be extended by at least three years, to December 2018.

Ms. Waters stressed APTA's commitment to safety mentioning that it has supported the concept of PTC since the beginning. She stated that APTA is working with its members to meet the

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implementation requirements, but APTA urges the committee to focus on the best way to install PTC systems on an complicated network of rails in a way that maximizes all of an operator's safety concerns while still moving efficiently toward implementation. She spoke of the rail industry's culture of safety. Given that most railroads seem unable to meet the 2015 deadline, she noted that APTA supports language that would allow the FRA to consider alternative technologies in lieu of a PTC system on specified line segments.

Mr. Stem detailed problems arising from employee fatigue. He also touched on PTC arguing against a blanket three to five year extension that others have suggested. He said that such an extension would only lead railroads to further slow their progress. Instead, he indicated that extensions should be given on an individual basis, be short in duration, and only granted after identifying why the current deadline was unattainable.

Mr. Redeker discussed safety issues along the Northeast Corridor. He noted that there is a $4.5 billion backlog in critical State of Good Repair needs facing the rail line. He also gave insight into the two recent accidents in Connecticut and promised that his agency would assist NTSB in their ongoing investigation as well as implement any recommendations that come from that investigation.

House Panel Holds Hearing on National Rail Policy: On June 27, the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials held a hearing entitled, "National Rail Policy: Examining Goals, Objectives, and Responsibilities." Witnesses included: The Honorable Joseph Szabo, Administrator, Federal Railroad Administration (FRA); Mr. Michael P. Melaniphy, President and Chief Executive Officer, American Public Transportation Association (APTA); Mr. Edward Hamberger, President and Chief Executive Officer, Association of American Railroads (AAR); Mr. Mike Lewis, Director, Rhode Island Department of Transportation, on behalf of American Association of State Highway & Transportation Officials (AASHTO); and Mr. John P. Tolman, Vice President & National Legislative Representative, Brotherhood of Locomotive Engineers and Trainmen.

Mr. Szabo outlined five key priorities: (i) enhancing America's world-class rail safety; (ii) modernizing rail infrastructure; (iii) meeting growing market demand; (iv) promoting innovation; and (v) ensuring transparency and accountability. He praised the president's FY 2014 budget proposal as a strong step forward.

Mr. Melaniphy noted that APTA’s Legislative Committee recently adopted principles for a federal high-speed and intercity passenger rail (HSIPR) policy. These call for new dedicated revenue sources other than those currently supporting the Highway Trust Fund, a streamlined National Environmental Protection Act (NEPA) review process, and an efficient combination of private and public sector leadership in the development of new rail service. APTA’s recommendations call for significant private sector participation in the planning, construction, and financing of new rail infrastructure. Such projects should be financed through a combination of federal, state, local, regional and private funding.

Mr. Hamberger spoke largely about freight. However, he also offered some guiding principles for passenger rail. These include: (i) safety comes first; (ii) capacity issues must be properly

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addressed; (iii) full and fair compensation for those freight railroads used by passenger rail service; (iv) adequate protection from liability for freight railroads, and (v) there can be no one- size-fits-all approach.

Mr. Lewis stressed that there is a strong need for a federal role in intercity passenger rail. He also stated that a national policy must be just that, a national policy, one that is part of a larger vision. He stated that AASHTO supports the application of MAP-21 streamlining provisions and that financing must be an important piece of the national rail policy.

Finally, Mr. Tolman expressed concern over the House Appropriations proposal for FY 2014. He noted that Amtrak needs a long-term funding source and that their must be cooperation between freight railroads and labor to provide the industry and economy with stimulus.

House Panel Discusses Innovative Finance and Intercity Passenger Rail: On July 9, the House Transportation & Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials held a hearing on "The Role of Innovative Finance in Intercity Passenger Rail." Witnesses included The Honorable John Porcari, Deputy Secretary, U.S. Department of Transportation; Ms. Beverley Swaim-Staley, President & CEO, Union Station Redevelopment Corporation; Mr. Frank Chechile, CEO, Parallel Infrastructure; and Mr. John Robert Smith, Former Mayor of Meridian, Mississippi, President & CEO, Reconnecting America.

Secretary Porcari noted that Americans are choosing rail in record numbers and that, while DOT has an $18 billion portfolio of grants and loans to help fuel the development of America’s passenger and freight rail network, this is only a starting point. He pointed out that American's travel habits are changing, and rail must be a key part of a multimodal transportation network. He outlined the five-year rail reauthorization proposal found in the Administration's FY 2014 budget.

The National High-Performance Rail System (NHPRS) proposes a new, coordinated approach to rail investments. The NHPRS would replace and consolidate existing rail programs (including the Amtrak grants and capital assistance for high-speed rail, among others) with two interlinked programs: the Current Passenger Rail Service—focused on maintaining the current rail network serviced by Amtrak—and the Rail Service Improvement Program—focused on expanding and improving the passenger and freight rail networks to accommodate growing travel demand. Additionally, the Research, Development, and Technology program will invest in people, businesses, and technology, ensuring that America’s rail industry is the world’s most innovative and state-of-the-art. The NHPRS is the centerpiece of this reauthorization vision.

The president’s FY 2014 Budget requests $6.4 billion—and $40 billion over the next five years—for the NHPRS program. The Administration proposes Congress fund the program through mandatory authorizations from a new rail account of a broader Transportation Trust Fund. The trust fund would initially be funded through the General Fund transfers that are offset from savings generated by capping Overseas Contingency Operations activities and would not require new taxes or fees.

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Mr. Chechile discussed how private-public partnerships have helped to make certain projects in Florida a success. Mr. Smith stressed the need for stable, dedicated funding, stating that it is the foundation for innovative finance. He closed by highlighting the benefits of station-area development.

House Panel Discusses Highway Trust Fund Impacts on Surface Transportation: On Tuesday, July 23, the House Transportation & Infrastructure Subcommittee on Highways and Transit held a hearing entitled "How the Financial Status of the Highway Trust Fund Impacts Surface Transportation Programs." Witnesses included Polly Trottenberg, Under Secretary for Policy, U.S. Department of Transportation and Kim P. Crawley, Unit Chief, Natural and Physical Resources Cost Estimates Unit, Congressional Budget Office (CBO).

The hearing focused on the problems facing the trust fund and how they should be addressed. Full committee Chairman Bill Shuster (R-PA) called for project streamlining and innovative approaches. He also suggested that a grassroots strategy was needed to encourage Americans to realize the need for infrastructure investment and push their elected officials toward this goal. Full committee Ranking Member Nick Rahall (D-WV) stressed that tough choices will need to be made to change the course of the fund. He highlighted examples of several states taking bold steps (increasing sales and gas taxes, for example) and urged the federal government to adopt a similar posture.

Mr. Crawley with the CBO pointed out that the current trajectory of the fund is simply unsustainable. (CBO projects that it will be insolvent by 2015). He highlighted several options available to shore up the fund including a gas tax increase or another general fund transfer. The trust fund needs $15 billion just in FY 2015 and even more in subsequent years, he told the panel. To rebalance the Highway Trust Fund in 2015, Congress would need to cut all $51 billion in estimated obligation authority that year, hike the gas tax ten cents a gallon or a combination of

Ms. Trottenberg reminded the committee that, since 2008, DOT has relied on piecemeal infusions of funds from general transfers, and the trust fund has come very close to insolvency before. She noted that the gas tax has not been raised in nearly 20 years and discussed two trends that continue to pose problems for the trust fund: increased fuel efficiency standards (which result in fewer gas taxes being collected) and a drop in per capita miles traveled. She also suggested that as insolvency nears, states fearing the inability of DOT to reimburse them, will begin to delay projects.

Senate Committee Holds MAP-21/TIFIA Oversight Hearing: On Wednesday, July 24, the Senate Environment and Public Works Committee held an oversight hearing on the implementation of MAP-21's Transportation Infrastructure Finance and Innovation Act (TIFIA) program enhancements. The hearing marked the first time that Secretary of Transportation Anthony Foxx appeared before a congressional committee in the context of his new role. In addition to Foxx, the committee heard from a second panel of witnesses made up of: James Bass, CFO, Texas Department of Transportation; Geoffrey Yarema, Partner, Nossaman LLP; Arthur T. Leahy, CEO, Los Angeles Country Metropolitan Transportation Authority; James Roberts, President & CEO, Granite Construction Incorporated; and D.J. Gribbin, Managing Director, Macquarie Capital.

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Secretary Foxx highlighted several successful TIFIA projects and spoke about many of the benefits of the program. He noted that TIFIA funding is in high demand and that DOT has made significant progress in increasing staff resources and improving the program. Finally, he touched on changes recently made to the TIFIA review process and reiterated his department's commitment to continuing to move critical projects.

New Gas Tax Poll Has Mixed Reviews for Transit: The Mineta Transportation Institute released the results of a poll on how the public views funding for transportation infrastructure. General support for a 10 cent gas tax increase is 23 percent. However, when funding is dedicated to a particular cause, that number rises significantly. Of those asked if they would support the tax hike if the money were put toward climate protection, 50 percent said yes; if it were used for road maintenance, 67 percent supported the idea. In terms of transit, 64 percent of those surveyed are in favor of using current gas tax dollars for rail and buses, but a majority opposes increasing the tax for transit purposes. The survey also shows that only 46 percent of survey respondents were aware that the federal government pays for transit projects.

Norton New Highways and Transit Ranking Member: On June 25, Representative Ed Markey (D-MA) was elected to the Senate leaving open the ranking member seat on the House Natural Resources Committee. On July 18, Representative Peter DeFazio (D-OR) was selected to replace Markey on the Natural Resources Committee. Prior to the change, DeFazio was the ranking member on the House Transportation & Infrastructure Subcommittee on Highways and Transit. It was announced on July 25 that Delegate Eleanor Holmes Norton (D-DC) will replace DeFazio as the top Democrat on that panel.

Transit Tax Parity Bill Introduced: On June 6, a bipartisan group of lawmakers in the House introduced legislation that would maintain tax equality between motorists and public transportation commuters. Employers may currently offer their employees an option of up to $245 per month in pre-tax parking or transit benefits. However, if Congress does not act, on January 1, 2014, the transit benefit is set to drop to $125 per month, while the monthly parking benefit will remain steady. H.R. 2288 addresses this issue by capping both transit and parking benefits at $220 per month. The bill is deficit neutral. Holland & Knight assisted SamTrans with the drafting of a letter to send to members of its congressional delegation. Thus, far those California Representatives having signed onto the bill are: Jackie Speier, Zoe Lofgren, Lois Capps, Doris Matsui, Mike Thompson, and Mike Honda.

Across the Capitol, Senator Chuck Schumer (D-NY) has introduced a similar piece of legislation (S. 116, the Commuter Benefits Equity Act) that caps both credits at $245 and includes an annual cost of living boost.

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