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FEDERAL UPDATE APRIL 2013

Department of Transportation (DOT) Nominee: On April 29, President Obama nominated Charlotte, North Carolina Mayor to be the next Secretary of DOT. Foxx will replace outgoing Secretary Ray LaHood, who has agreed to remain in his post until his successor is 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 2008 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.

President's FY2014 Budget Proposal: On April 10, President Obama released his FY 2014 budget. The budget proposal includes recommendations for up to $3.77 trillion in spending for FY 2014, down from $3.8 trillion recommended in FY 2013. When reviewing the proposed FY 2014 funding levels, note that these levels do not take into account the current across-the-board sequester, as President Obama proposes replacing the sequester as part of a grand budget bargain. While the president's proposal does provide insight into the administration's priorities for FY 2014, the funding recommendations are only suggestions for Congress to consider. Congress has the ability to restructure the president's suggested funding levels during the appropriations process.

The president's FY 2014 budget provides a total of $76.6 billion in funding for the DOT with an additional $50 billion in a one-time stimulus appropriation. Congress has rejected the president's previous three stimulus proposals in February 2011, September 2011, and February 2012. The total amount requested for DOT is a 5.5 percent increase above FY 2012 enacted levels. The $50 billion in proposed stimulus funding includes:

• $27 billion for the Federal Highways Administration (FHWA) • $2 billion for land ports of entry • $4 billion for TIGER • $6 billion for Federal Transit Administration's (FTA) state-of-good-repair grants • $2.5 billion for transit capital formula grants • $500 million for New Starts • $2 billion for the Federal Aviation Administration's (FAA) Airport Improvement Program grants

• $1 billion for NextGen air traffic control modernization • $5 billion for the Federal Railroad Administration (FRA)

Additionally, the president seeks to create an independent National Infrastructure Bank with $10 billion in initial seed money to finance about $100 billion in federal lending and credit assistance for transportation, water, and energy infrastructure projects.

The budget request includes a $40.256 billion obligation limitation on federal-aid highways, the MAP-21 authorized level. It also proposes a total of $10.910 billion for the FTA, including $8.595 billion for transit formula grants (MAP-21 authorized funding level) and $2.132 billion for the New Starts program.

Details for the Administration's FY2014 budget request for rail:

House Rail Panel Hearing on Amtrak: On April 3, the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Material held a hearing on "Amtrak’s Fiscal Year 2014 Budget: The Starting Point for Reauthorization." The witnesses were Joseph Boardman, President and CEO of Amtrak, and Joseph Szabo, Administrator of the Federal Railroad Administration. Subcommittee Chairman Jeff Denham stated that Congress has appropriated more than Amtrak needs; Amtrak has received $2.6 billion in operating appropriations but had only $2.1 billion in losses. He also stated that there is growing agreement

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between Amtrak, the Administration, and others like the Brookings Institute that reorganization is a big first step toward running Amtrak more like a business, which should allow proper infrastructure development.

Administrator Szabo stated that the financial performance of the freight rail industry and Amtrak has never been stronger. He described the priorities of Amtrak's reauthorization proposal included in the President's FY14 budget: enhance world-class safety, modernize our rail infrastructure, meet growing market demand, promote innovation, and ensure transparency and accountability. The overarching issue that runs across all of these priorities is the need for sustained and long-term funding similar to enacted legislation currently in place for highways, transit, and aviation.

He described the highlights from the reauthorization proposal.

• National High-Performance Rail System (NHPRS): "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 that Congress fund the program through mandatory authorizations from a new Rail Account in the Transportation Trust Fund. The trust fund would initially be funded through General Fund transfers, which would beoffset from savings generated by capping Overseas Contingency Operations activities and would not require new taxes or fees."

• Current Passenger Rail Service: "The objective is to maintain public rail assets in a state of good repair, while continuing to support long-distance passenger rail services. The program will be organized according to the primary “business lines” of current passenger services listed below. This approach is "a major policy change from how Federal support for current service is provided today, which is through separate Operating and Capital/Debt Service grants to Amtrak":

 Northeast Corridor: Bring Northeast Corridor infrastructure and equipment into a state of good repair.

 State Corridors: "Facilitate efficient transition of financial control to states for short-distance state-supported corridors, as required by Passenger Rail Investment and Improvement Act of 2008 (PRIIA). This program will be phased out within the five year period once states are transitioned."

 Long-Distance Routes: Continue operations of important long-distance routes.

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 National Assets: "Improve efficiency of the nation’s “backbone” rail facilities, further implement positive train control (PTC) on Amtrak routes, and bring stations into compliance with requirements of the Americans with Disabilities Act (ADA)."

• Rail Service Improvement Program: "The objective of this program is to substantially improve the nation’s passenger and freight rail systems to accommodate population growth and the increasing demand for rail transportation across the country…The program will make competitive, discretionary investments based on analyses of the business and public investment cases for each proposal – no projects are “pre-designated” to receive any of these funds. The program will also address the needs of local communities, through funding for station areas, mitigation of the local safety, environmental, and noise impacts generated by the presence of rail, and for rail line relocation activities."

• The Research, Development, and Technology program will prepare the nation for high performance rail by developing new technologies and testing facilities.

• The agency is exploring program ways to improve the administration of the Railroad Rehabilitation and Improvement Financing Program (RRIF).

• The Next Generation Equipment Committee has developed and approved specifications for single- and bi-level passenger cars, diesel locomotives, train sets and diesel multiple units.

Mr. Boardman said that Amtrak's major issue is cash management. Amtrak cannot make enough revenue to cover operating costs, let alone fund capital investment. The seasonality of its revenues is exacerbated by the periodic nature of its operating support payments and the challenges that come with an unpredictable budget cycle. He asked the committee to think carefully about the question Amtrak has perennially faced: what does the government want us to be?

Chairman Denham asked Administrator Szabo, "Of the $26 billion, 40 percent would be allocated to California High Speed Rail?" Szabo said that "No future dollars are automatically allocated anywhere. All projects would compete through a competitive bid process.…we're absolutely committed as well as bullish on the project, but we will not presuppose that anybody will get these dollars that are expected to be competitively bid. So it will depend upon these applications, based upon the sound planning that has been done, and based upon service being tailored to the market needs." Denham asked, "So there's no guarantee that high speed rail will get a large amount or any amount of that $26 billion." And, Szabo said, "They would have to compete."

House Rail Panel to Hold Hearing in California: Representative Jeff Denham (R-CA), Chairman of the House Transportation and Infrastructure Subcommittee on Railroads, Pipelines, and Hazardous Materials, has announced a field hearing and listening session on California's high- speed rail project for May 28 and 29, respectively. Both meetings will occur in California, with the hearing taking place in Madera. A location for the listening session has not been set, nor has either event been publicly announced yet.

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Senate Commerce Committee Discusses Rail: On April 17, the Senate Committee on Commerce, Science, and Transportation held a hearing entitled, "The Future of Passenger Rail: What's Next for the Northeast Corridor?" Witnesses included: Joseph Boardman, President of Amtrak; James Redeker, Commissioner of the Connecticut Department of Transportation; Jim Steer, Founder and Director of Steer, Davies, Gleave (commissioned by DOT's Office of Inspector General to document and recommend best practices for high-speed rail ridership and revenue and operating cost and economic impact forecasts); John P. Tolman, Vice President and National Legislative Representative of the Brotherhood of Locomotive Engineers & Trainmen Teamsters Rail Conference; and Richard Geddes, Adjunct Scholar at the American Enterprise Institute. Topics of discussion included the role of federal money in Amtrak's budget, the benefits of public private partnerships, the challenges faced by the Northeast Corridor project, the need for a more reliable source of capital investment, and the negative impacts of discontinuing high speed rail investments in the Midwest, California, the Pacific Northwest and the Northeast Corridor. Mr. Boardman discussed how Amtrak is "taking near-term steps to help make this vision a reality, including working with the California High Speed Rail Authority to jointly pursue new high speed train sets. Through a recently released “request for information” (RFI), we are in the process of hearing from leading train manufacturers from around the world on what high speed rail equipment they could provide to both organizations and we hope to begin a procurement process this year for new trains to augment and then replace our Acela train sets." Additionally, Mr. Tolman discussed how discontinuing high speed passenger rail investments in the Midwest, California, the Pacific Northwest and the Northeast Corridor would possibly cause $24.6 billion in net forgone economic benefits over the next 40 years.

House Committee Hearing on MAP-21 Implementation: On April 25, the House Transportation and Infrastructure Subcommittee on Highways and Transit met to discuss the implementation of MAP-21 from a state and local perspective. Witnesses included: Mr. Michael Lewis, Director of Rhode Island Department of Transportation -- on behalf of the American Association of State Highway and Transportation Officials (AASHTO); Oregon State Senator Bruce Starr -- on behalf of the National Conference of State Legislatures (NCSL); Peter Varga, Chief Operating Officer of the Interurban Transit Partnership (The Rapid) -- on behalf of the American Public Transportation Association (APTA); Richard Perrin, Executive Director of the Genesee Transportation Council -- on behalf of the Association of Metropolitan Planning Organizations (AMPO); Terry Bobrowski, Executive Director of the East Tennessee Development District -- on behalf of the National Association of Development Organizations (NADO); and Edward Reiskin, Director of Transportation of the San Francisco Municipal Transportation Agency (SFMTA). Witnesses were largely supportive of the MAP-21 reform efforts to date and shared their input for the program going forward. Mr. Reiskin with SFTMA discussed issues with the lack of funding for state-of-good-repair and core capacity projects from Federal Transit Administration (FTA), FTA's efforts to streamline the New Starts program, and the concern with the sequestration impact on the New Starts program. The members' questions focused on the sustainability of the Highway Trust Fund, the need for additional funding for transportation infrastructure, and the need to streamline transportation projects.

Congressional Budget Office (CBO) on Transportation Funding: On April 24, the CBO warned Congress that the current trajectory of the Highway Trust Fund is unsustainable. In order to

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prevent a shortfall in FY 2015, CBO indicates that Congress must either: (i) perform another general fund transfer of $14 billion for that year, (ii) cut transportation spending from $51 billion to $4 billion for that year, (iii) raise the gas tax by about 10 cents per gallon, or (iv) proceed with some combination of these options.

TIGER 2013 Funding: On April 22, the DOT announced the Notice of Funding Availability (NOFA) for the next round of TIGER grant program. The grant program allows for DOT to invest in road, rail, transit and port projects that promise to achieve critical national objectives. In the FY 2011 round of TIGER Grants, DOT awarded 46 capital projects in 33 states and Puerto Rico. The FY 2012 round of TIGER Grants, DOT awarded 47 capital projects in 34 states and the District of Columbia. For FY 2013, DOT will award $473.847 million in grants. This round of grants will focus on capital investments in surface transportation infrastructure.

Government Accountability Office (GAO) Audit of California High-Speed Rail: On April 5, the GAO released its audit of the California high-speed rail project. Generally speaking, the report identified achievements where the California High-Speed Rail Authority (Authority) has met expectations but also pointed to a few areas that could use some improvement. Specifically, GAO reviewed: (i) the reliability of project cost estimates, (ii) the reasonableness of revenue and passenger rail ridership forecasts, (iii) the risks involved with the project’s funding plan, and (iv) the comprehensiveness with which the project’s economic impacts were identified.

In regard to cost estimates, the report found that “the California High-Speed Rail Authority met some, but not all of the best practices” encouraged by the GAO, thereby increasing the risk of “overruns, missed deadlines, and unmet performance targets.” Concerning ridership and revenue forecasts, the report found the Authority’s projections to be reasonable. In terms of funding, the project cash flow – which relies on both public and private sources – faces uncertainty in the current fiscal environment. Finally, the report concluded that the Authority “did a comprehensive job” in identifying economic impacts.

Intermodal Freight Strategy: On April 16, House Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) unveiled a working group to begin formulating a national intermodal freight plan that will coordinate road, rail, water and air freight connections. Representative John J. Duncan Jr. (R-TN) will head the special panel, which will work for six months to produce a series of recommendations to be the foundation for the next highway bill, which expires in September 2014. The following members are part of the panel: Rep. Gary Miller (R-CA), Rep. Rick Crawford (R-AR), Rep. Richard Hanna (R-NY), Rep. Daniel Webster (R-FL), Rep. Markwayne Mullin (R-OK), Rep. Jerrold Nadler (D-NY), Rep. Corrine Brown (D- FL), Rep. Daniel Lipinski (D-IL), Rep. Albio Sires (D-NJ), and Rep. Janice Hahn (D-CA). The first meeting of the panel was set to take place on April 24.

Cabinet Nominations:

• Department of Energy Secretary stepped down on April 22, 2013. His post will be filled by Deputy Secretary Dan Poneman until , President Obama's choice to succeed Chu, is confirmed by the Senate. Chu will return to California where he will be a faculty member at Stanford University. Moniz was confirmed by the Senate

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Energy and Natural Resources Committee on April 18 by a vote of 21to 1 and is expected to receive a Senate floor soon. He is currently a professor at the Massachusetts Institute of Technology (MIT) where he leads MIT's Energy Initiative (MITEI).

• On April 25, President Obama tapped Howard A. Shelanski to be Administrator of the Office of Information and Regulatory Affairs (OIRA) within the White House Office of Management and Budget (OMB). Shelanski, currently the Director of the Bureau of Economics at the Federal Trade Commission (FTC), will fill the post vacated by Cass Sunstein and work under newly-confirmed OMB Director Sylvia Matthews Burwell. OIRA is responsible for reviewing federal regulations, reducing paperwork burdens, and overseeing policies pertaining to privacy, information quality, and statistical programs.

• On April 24, the Senate voted in favor of the nomination of Sylvia Matthews Burwell to lead the OMB. The vote was 96-0. Burwell, a West Virginia native, served as OMB deputy director in the Clinton administration under , who is now the Treasury Secretary. Prior to her nomination, she served as president of the Walmart Foundation.

Senate Finance Committee Chair Not to Seek Re-Election: Senator Max Baucus (D-MT), Chairman of the Senate Finance Committee, recently announced that he will not seek a seventh term in 2014. Senator Ron Wyden (D-OR) is next in seniority on the committee and could be the next chairman. Wyden is currently the chairman of the Senate Energy and Natural Resources Committee.

Throughout his nearly four decades in the Senate, Baucus has played a pivotal role on several critical issues, often bucking his party. For example, the senior senator from Montana worked with Republicans on the Bush-era tax cuts as well a Medicare prescription drug plan. However, he also emerged as a key opponent to Bush's plans to privatize Social Security and played a crucial role in writing President Obama's signature healthcare law. The announcement of his departure could have profound policy consequences. No longer bound by reelection concerns, Baucus may feel free to aggressively pursue tax reform. In this regard, his counterpart in the House, Dave Camp, is term limited as Chairman of the Ways and Means Committee, a combination that could lead the two to work together more closely than normal.

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