Angels Flight® to Re-Open through Los Angeles P3

The Angels® Flight Railway Foundation, represented by Nossaman LLP and Shumaker Mallory LLP, reached a historic agreement with a team led by ACS Group and including Sener Engineering and Systems, to put the iconic Angels Flight® Railway in downtown Los Angeles back into service by this coming Labor Day.

The agreement utilizes a public-private partnership to restore the Railway to passenger service, through full-scale modernization and state-of-the-art safety improvements, and to operate and maintain it to industry standards for 30 years. Borrowing  a revenue risk concession structure usually employed only for much larger and more  complex projects, the transaction demonstrates applicability on the smaller stage as well.

Known as the “world’s shortest railway,” the Railway is one of the most enduring landmarks in the City. It has operated over 115 years, and has carried more than one hundred million passengers, but it has been shut down since late 2013 due to regulatory requirements.

In addition to being a tourist attraction, the Railway will serve as an important transit connection between the Pershing Square Metro station and the top of Bunker Hill – an area that includes Walt Disney Concert Hall, the Broad Contemporary Art Museum, MOCA and the Los Angeles Music Center, among other cultural institutions. The public-private partnership will ensure the long-term stability of this essential connection for 30 years.

Addressing the crowd at the March 1 announcement of the historic agreement, Mayor Eric Garcetti said “Angels Flight® is a cultural gem that tells an unforgettable story about the history of Los Angeles. Today, we celebrate the rebirth of this iconic attraction — and once the modernization is complete, we will welcome millions of visitors from around the world to experience it with us.”  “It is truly a historic day for one of Los Angeles’ most recognized treasures,” said Councilmember Jose Huizar. “It is our hope that this public-private partnership ensures the new Angels Flight® will be safe, economically sustainable and — once again — a key City of Los Angeles cultural centerpiece for years to come.”

The new operator has been formed by strong companies ready, willing and able to deliver safe, reliable and sustainable transit service, and will make significant, at-risk and up-front investments necessary to cover all needed modernization, operations and long-term maintenance in exchange for an interest in the revenues the Railway will generate during the concession period.

The operators have not yet announced their initial fare structure but, owing to an agreement the Foundation reached with the Los Angeles Metropolitan Transportation Authority, the operator will offer Metro TAP Card holders a 50% discount on Railway passenger fares for at least the first three years.  The Railway is expected to operate for public use seven days per week from 6:45 a.m. until 10 p.m., subject to reasonable shutdowns for maintenance and repairs and limited special events, like movie location shoots.

For a historic funicular railway immortalized in hundreds of works of art, books, television shows and movies, most recently the widely acclaimed film and Oscar-winner, “La La Land,” this is truly a red-letter day.

For further information, please visit the Angels Flight® website at

OCTA Signs DB Contract for $1.9 Billion Managed Lanes Project in California

Last week the Orange County Transportation Authority executed the design/build contract for the I-405 Improvement Project with OC405 Partners, a joint venture consisting of OHL USA and Astaldi Construction Corporation.  With a contract price of $1,217,065,000 and a total estimated project cost of $1.9 billion, the project, which consists of 16 miles of reconstruction of one of the most congested corridors in the United States including 14 miles of tolled express lanes, is the largest highway project in California currently under development.

OCTA is a multi-modal county transportation agency that, among other duties, administers a multi-billion dollar local transportation sales tax program.  The project will be financed in part with approximately $1.25 billion of local sales tax funds.  OCTA will be applying for a $627 million TIFIA loan to be secured with toll revenue received from users of the express lanes.  Caltrans is contributing another $89 million of funding for the project.  OCTA has operated one of the most successful managed lanes project in the country, the SR91 Express Lanes.  The I-405 Improvement Project is the first use of AB194, a state statute the authorizes Caltrans as well as regional transportation agencies to levy tolls to pay for state highway projects with approval from the California Transportation Commission.  The project is being developed and operated in a partnership with Caltrans, which has entered into a design/build cooperative agreement under which it will exercise project oversight services and a toll period operating agreement giving OCTA the right to operate the express lanes for 40 years beginning on the day the express lanes open to traffic. 

Next steps for the project include separate procurements for a toll systems integrator and back offices services provider for the managed lanes portion of the project.


Cap and Trade Auction Credits: Taxes, Regulatory Fees or “Something Else”? California Third District Court of Appeal Hears Argument on AB 32 GHG Reduction Program

A three-judge panel of the California Court of Appeal for the Third District heard oral arguments last week in the longstanding companion cases challenging the legality of AB 32’s cap and trade auctions. (California Chamber of Commerce v. California Air Resources Board and Morning Star Packing Co. v. California Air Resources Board)  The questions most frequently posed by the Justices related to the nature of payments made for greenhouse gas (“GHG”) emission credits, a contributor in the billions of dollars to the state general fund for programs designed to reduce greenhouse gasses.

The plaintiffs in the lawsuits, the California Chamber of Commerce and Morning Star Packing, a processor of bulk tomato products, claimed that the auction scheme created by AB 32, and in particular revenues generated by the auctions, constituted either illegal taxes (since the auction process and revenues had not been approved by the voters or the legislature by the required two/thirds vote) or were illegal regulatory fees under the standards established by the California Supreme Court in its Sinclair Paint Co. v. State Board of Equalization decision (since the State had failed to demonstrate the necessary nexus between the charges and the regulatory purpose of the GHG law.)

While the California Air Resources Board (“CARB”) disputed the plaintiffs’ assertion that the auction revenues violated either Prop 13 or the standards in Sinclair Paint, in a Supplemental Letter Brief to the Court and during oral argument, CARB raised a novel, but not unique, argument that the auction process generated neither taxes or regulatory fees, but rather was “something else,” referred to in the Letter Brief as “compliance instruments” that were neither taxes nor regulatory fees.  Plaintiffs asserted in counter argument and in their Supplemental Letter Briefs to the Court that there were no legal options other than a tax or a regulatory fee under California law as set forth in Sinclair Paint. However, in response to a question from the Court, CARB argued that Sinclair Paint had not established a “binary world,” asserting that the auctions performed regulatory functions such as providing equity and transparency outside the tax/regulatory fee analytical framework.

AB 32, enacted by the California State Legislature in 2006, put in place a system of greenhouse gas auctions as a way to facilitate the reduction of GHG emissions in the State by requiring emitters to purchase credits as a way to allow them to exceed GHG reduction targets. Emitters can purchase, through an auction process held quarterly, credits allowing them to emit greenhouse gasses in excess of the allowances permitted to them by the State.  The intent of the program is to reduce allowable emissions over time, forcing emitters to purchase additional allowances, reduce GHG emissions through improved technologies or by finding other ways to reduce greenhouse gasses.

A decision of the Court of Appeal is expected by April 24. Based on the Justice’s questions, observers believe that the Court will affirm the trial court decision allowing the program to continue.

FTA Publishes Buy America Handbook Addressing Rolling Stock

Federal Transit Administration (“FTA”) grant recipients and the firms that work on the projects have a twenty years in the making, updated resource to assist them in one of the more complex areas of FTA projects. The FTA last week published its Buy America Handbook, which contains the FTA’s “best practices” for conducting pre-award and post-delivery audits for rolling stock procurements.  The Handbook replaces the FTA’s 1995 handbooks for both rail vehicles and buses and is a “nonbinding guidance document” for use by grant recipients, auditors, manufacturers and suppliers.

FTA’s Buy America requirements apply to third party procurements conducted by FTA grant recipients. Those requirements, first codified in the Surface Transportation Assistance Act of 1982 and most recently set forth in the 2015 Fixing America’s Surface Transportation (FAST) Act and implementing regulations, require steel, iron and manufactured projects used in a federally funded project to be produced in the U.S.  The FAST Act also required a phasing in of increased domestic content percentage requirement for rolling stock.

FTA grant recipients are required to conduct pre-award and post-delivery audits of rolling stock. Grantees must certify compliance with Buy America and the pre-award and post-delivery audit requirements as a condition to receiving FTA grant funds.  The Handbook presents FTA guidance on processes for both pre-award and post-delivery Buy America audits, as well as methods of calculating domestic content.  In addition, to aid the user, the Handbook includes checklists, sample certification forms, references and reports.  The Handbook, together with FTA’s earlier guidance on implementing the Fast Act’s phased increase in domestic content, are valuable resources for ensuring both compliance with FTA’s Buy America requirements for rolling stock as well as uniform application of FTA’s Buy America program.

A Rise in the Tides for Water Infrastructure

It’s been a productive time for advocates of water in the U.S. with President Obama signing into law the Water Infrastructure Improvements for the Nation Act (WIIN).  WIIN includes the Water Resources Development Act of 2016 (WRDA), together with provisions to authorize critical water projects  and improve drinking water infrastructure, water storage and supply, flood control and waterways across the nation.

A summary of some of WIIN’s key attributes are set out below:

  • WIIN authorizes Congress to provide $20 million for the Water Infrastructure Finance and Innovation Act (WIFIA) in 2017. This the first time the WIFIA legislation, passed in 2014, has received appropriations from Congress with expectations that for each dollar appropriated the Environmental Protection Agency will be able to loan out at least ten dollars to eligible projects.
  • WIIN includes provisions to address California’s ongoing drought including investment in projects for desalination, water storage and supply, flood control and water recycling.
  • WIIN provides much needed funding for Flint, Michigan to treat lead contamination within its drinking water system.
  • WIIN provides for settlement of four long standing Indian water rights claims to water.

For full text of WIIN, see

Nossaman Infrastructure Practice Group Chair Named to Board of Cornell Program in Infrastructure Policy

Patrick Harder, Chair of Nossaman’s Infrastructure Practice Group, has been appointed to the advisory board of the Cornell Program in Infrastructure Policy (CPIP), an internationally regarded academic center dedicated to advancing infrastructure through teaching, research and outreach.

Mr. Harder, a veteran infrastructure attorney who focuses on advising public agencies in high profile, complex deals, was one of 10 new board members named at the CPIP annual fall meeting in late October. He joined a field that includes CEOs and other infrastructure leaders from companies and universities in the US and internationally.

Widely known for his leadership in the field of public-private partnerships (P3s) and other innovative delivery methods, Mr. Harder assists clients in delivering projects through cutting-edge approaches, including working with the State of Florida and its advisors to help create a model for the use of availability payment P3s that laid the groundwork for such transactions across the United States.

He has served as lead outside counsel on numerous precedent-setting projects including the Florida Department of Transportation’s I-595 and I-4 Ultimate projects, the country’s first and largest P3 availability payment deals, respectively. Mr. Harder also led the legal team advising the University of California Board of Regents on the UC Merced 2020 Campus Expansion Project, the first university campus expansion in the US to be undertaken using the P3 availability payment model.

Before joining Nossaman, Mr. Harder served as general counsel for two of the world’s largest construction and engineering firms, both based in Japan. He also worked as legal and business advisor on dozens of public and private construction and infrastructure projects around the world including the Petronas Towers in Kuala Lumpur, Malaysia – two of the world’s tallest buildings.

Mr. Harder and the other new members of the 26-member CPIP advisory board join as the organization seeks to expand the reach of its core research and teaching mission. CPIP plans to develop new strategic alliances with other leading academic centers, including the Global Projects Center at Stanford University, to conduct focused study and research on infrastructure issues.

In a statement, CPIP Advisory Board Chair Anthony Ferrari, CEO of Crimson Infrastructure, an infrastructure-focused investment and advisory firm, said the new and existing board members’ “remarkable experience, relationships, and global reach” across the infrastructure sector “positions CPIP to be one of the leading academic centers of infrastructure not only in the US, but on a world stage.”

The new board members, in addition to Mr. Harder, include:

  • Enrique Diaz-Rato – CEO, Cintra (Madrid)
  • Nuria Haltiwanger – CEO, ACS Infrastructure Development (Miami)
  • Javier Fortea Perez – CEO, Globalvia Infrastructure (Madrid)
  • Peter Nicol – President, CH2M Global Water Business Group (Denver)
  • Karl Reichelt – Senior Vice President and Global P3 Leader, AECOM Capital (Washington, DC and New York)
  • Keith Hennessey – Principal Vice President and Head of PPPs, Bechtel (Washington, DC)
  • Ruth McMurrow – Executive Vice President and Head of PPPs, Parsons Enterprises (New York)
  • Jim Reynolds, Jr. – Chairman, CEO and Founder, Loop Capital (Chicago)
  • Thomas Denis O’Rourke – Cornell Professor (Ithaca, NY) and Chair of the International Advisory Group at Cambridge University Centre for Smart Infrastructure

For more information on CPIP, please see: Cornell Program in Infrastructure Policy



Kentucky Rolls Out its P3 Law in Lexington

The National Council for Public Private Partnerships (NCPPP) and the Kentucky Chamber of Commerce recently concluded on October 28 a very well-attended two day conference in Lexington, Kentucky on the Commonwealth’s new public-private partnership (P3) enabling legislation, the so-called “HB-309.”  HB-309’s chief drafter, Rep. Leslie Combs, was on-hand, participating in nearly every panel discussion, either as a panelist or from the audience.  Rep. Combs reflected on HB-309 “as if she were a proud mama,” and her and fellow Kentuckians’ enthusiasm for its flexibility and broad applicability was evident.  Secretary Don Parkinson, of the Kentucky Tourism, Arts and heritage Cabinet, noted in lunchtime remarks that Kentucky’s border states each had enabling legislation for P3s, and that the time had come for Kentucky to consider this procurement tool as a means by which to grow Kentucky’s economy and solve some of Kentucky’s challenges.

The conference, subtitled “Opportunities and Obstacles,” indeed identified and discussed both.  At once a primer on P3s and collection of government decision-makers revealing their plans, the conference gathered people from all over the country to learn about P3 opportunities in the Commonwealth.  With over 200 participants, representatives from the architects/engineers, construction, development, banking, university, legal and municipal/county communities engaged in active discussions about P3s, what they are, how they work and most critically, how a P3 comes to be in Kentucky.   Active social media participation during the conference (#kyp3) recounts many discussions, insights and perspectives relevant to Kentucky.

HB-309 affords state and local governments in the Commonwealth both to initiate P3 procurements and to entertain unsolicited proposals for P3 projects. A series of processes within the legislation are drafted to support transparency in the process.  The Kentucky Finance and Administration Cabinet recently promulgated amended proposed regulations to implement the law.  On a notable panel, the general counsels from the Kentucky Finance and Administration Cabinet, the Kentucky Tourism, Arts and Heritage Cabinet and the Kentucky Transportation Cabinet discussed candidly their respective Cabinet’s efforts to create internal infrastructure capable of handling unsolicited P3 proposals and organizing for possible P3 procurements.

The Kentucky Chamber and NCPPP anticipate working together to continue to educate interested parties and citizens in the Commonwealth about P3s.

U.S. Department of Transportation Solicits Project Applications for $850 Million in FASTLANE Grants

The U.S. Department of Transportation (USDOT) is calling for project applications for $850 million in transportation infrastructure grants, representing the second opportunity for funding from a program that has already received tremendous interest from public project sponsors and the infrastructure community. The grants, announced in a Notice of Funding Opportunity posted on the USDOT website on October 28, find their genesis and funding authorization in the FAST Act (P.L. 114-94), which President Obama signed into law on December 4, 2015.

The FAST Act created a discretionary grant program, which USDOT dubbed the “FASTLANE” program, to provide additional federal funds for nationally significant highway and freight projects. Congress created this program under the rationale that in today’s fiscal climate, public sponsors of large infrastructure projects will be able to leverage existing public and non-public revenue sources more effectively with seed money in the form of a grant awarded under this program. The FAST Act authorized $800 million for the program in fiscal year (FY) 2016, $850 million in FY 2017, and nearly $3 billion more in FY 2018 through FY 2020.

USDOT conducted the competition for the FY 2016 round of FASTLANE grant funding this summer. In that first solicitation, project sponsors submitted 212 applications requesting nearly $10 billion in grant funding—over twelve times the amount available for award. USDOT ultimately awarded 18 projects a total of nearly $760 million in grants, with an estimated total project cost for all of the awarded projects of over $3.6 billion. This leveraging effect is exactly what the congressional authors of the program intended.

With that background in place, the fact that USDOT chose to release these funds today is noteworthy for several reasons. First, while the FAST Act authorized $850 million in Contract Authority for these grants in FY 2017, USDOT is not able to release those funds until the President signs a full-year appropriations bill, essentially directing the U.S. Treasury to transfer the funds made available by the FAST Act to USDOT. Currently, the federal government is operating under a Continuing Resolution that expires on December 9, 2016. So, while USDOT has provided a Notice of Funding Opportunity for the FY 2017 round of FASTLANE funds, the Department does not currently have the legal authority to release those funds. This fact has not stopped USDOT from soliciting applications in the past (see, for example, the Department’s Positive Train Control solicitation), but it raises the question why USDOT chose to release the notice before the full-year appropriation is in place. The Department addressed this issue in the Notice, stating that “the Department is now beginning the process of soliciting applications to facilitate the possibility of awards with sufficient time for grantees to obligate in advance of peak construction season.” Whether industry stakeholders will find that to be a satisfying explanation is unclear.

Second, at the risk of stating the obvious, especially in light of the foregoing facts, the optics of distributing nearly a billion dollars in discretionary grant funds days before the end of the Administration will undoubtedly raise concern in the industry. To be clear, soliciting grant applications and making grant awards are not the same, and it is unclear whether USDOT expects to make initial project selection prior to the inauguration of the next President. That being said, merely soliciting applications for such a large amount of funding will be sufficient to raise the question of political motivation in the minds of project applicants.

Third, the industry consensus is that USDOT rushed the first round selection process this summer. That process took four months from issuance of the Notice of Funding Opportunity to initial project selection. The Department’s solicitation for applications for FY 2017 grant funding indicates that the timeline to initial selection may be even quicker. The Notice stipulates that applications are due on December 15th. As stated above, it is unclear whether USDOT intends to select projects prior to the end of the Administration, but if so, this timing would leave USDOT staff a month over the holiday season to review, score, and advance applications for award.

Finally, should USDOT intend to make initial project selection during this Administration, rushing the process in this way will be bad for the program, overall. Compressing the application and selection process for such a large amount of grant funding discourages thorough, well-planned project applications and a robust Q&A process between USDOT and potential applicants.

While the timing of this Notice of Funding Opportunity gives project sponsors much to be nervous about, it also emphasizes how valuable USDOT finds the program. In an era where infrastructure funding is unable even to begin to address infrastructure needs, the FASTLANE program leverages funds to deliver infrastructure projects that would otherwise sit on the proverbial shelf for years.

New Management Contract Rules Hot Topic At NABL Conference

Over a thousand US public finance attorneys converged on the City of Chicago last week for the annual National Association of Bond Lawyers Bond Attorneys Workshop.  The conference, the oldest and largest of its kind, featured a number of breakout sessions devoted to a wide range of issues facing the public finance legal community, including the new management contract rules recently issued by the IRS, Revenue Procedure 2016-44 .  As I wrote sometime ago, NABL was a major influence proposing changes to the rules to make them less formulaic and more flexible given the range of business arrangements and asset types being explored in the US, particularly in the emerging social infrastructure P3 space.

Since the release of the new rules, which by the way are less hard and fast rules and more guidance about what types of management and operating agreements with private entities will constitute “private use”, there has been much discussion about them within the P3 community, particularly whether they will lead to a greater use of tax exempt financing for P3 social infrastructure projects.  In this blog, I’m not going to speculate on that issue (though I may comment on that topic in future blogs)—I believe before anyone can do that in an informed and thoughtful way they need to better understand the requirements of the revenue procedure.  And what better place to get clarification on the points of the revenue procedure then at the NABL conference where the leading practitioners in the area as well as representative of the Service can analyze practical issues relating to the rules and give their thoughts on how to resolve them.  Here is what I learned regarding several of the financial considerations set forth in the new rules that for me anyway raised a number of questions (NOTE:  these are not the only factors to consider under the new rules and in future blogs I may discuss the others).

Is it Safe?  As I mentioned above, these are only safe harbors, meaning contracts that comply with the requirements will not be deemed “private use” and projects that are the subject of a qualified contract could be eligible for tax exempt financing.  That said, a leading muni bond tax attorney was of the view that strict adherence to the rules may not be the end of the analysis—what’s important is to understand the principles espoused in the rules.  Therefore, slight variations from the rules (which themselves have a fair amount of flexibility by the way) may still get you to an unqualified tax opinion.  That said, a clear principle of the rules is qualified contracts must NOT be subject to characterization as long-term leases for tax purposes.

Tax Ownership.  Another key principle of the rules is that for tax purposes, ownership of the facilities must be maintained by the entity entering into the management contract with the private entity.  So private entities cannot take depreciation or otherwise take a position contrary to this characterization.

Risk Allocation.  Risk of loss relating to the bond financed facilities must be retained by the owner; however, the contract can require the private manager to purchase insurance for the facilities, though an interesting question is who has to pay the deductibles.  An important point here:  it was made perfectly clear at the conference that risk of loss for purposes of the rules relates to damage or destruction of the project, not “economic loss” or a loss in profits to the private operator if they’ve guessed wrong regarding the life cycle cost of the project or fail to maintain the project in accordance with the contract standards.

Term Limits.  The new rules drop the old formulaic approach of setting specific term limits to the contract based on the compensation method and instead, consistent with the “don’t be a lease” and tax ownership principles described above, set a limit to the term of the contract of the lesser of 80% of the useful life of the managed property or 30 years.   It’s clear in the rules that the construction period would not count against the operating term limit.  But what about projects that include not just construction and operation of buildings but the purchase and installation of equipment that may have a useful life of 10-15 years?  The panelists all agreed that the management contract rules could be used in conjunction with a separate set of tax exempt bond rules that allow for a reasonable allocation of project costs between those paid for with bond proceeds and those paid from other sources, including equity and milestone payments.

Constitutional Use of Toll Revenue the Subject of Recent Federal Court Decision

Public agencies with toll-setting authority should take note of a recent federal court decision relating to the uses of user fees and toll revenue, as well as the stated goals of the plaintiff in that case.

The U.S. District Court for the Southern District of New York recently clarified the constitutional uses of toll revenue in American Trucking Associations v. New York State Thruway Authority, 13 Civ. 8123 (CM) (S.D.N.Y. Aug. 10, 2016). In this case, commercial trucking companies and the American Trucking Associations (ATA) claimed that the New York State Thruway Authority violated the Constitution by charging inflated toll rates to cover the operations and maintenance costs of the New York State Canal System. The Court agreed.

The plaintiffs engage in interstate commerce and pay tolls to use the Thruway, the portion of the Interstate Highway System that runs from New York City to Buffalo. The Thruway Authority charges tolls that exceed the needs of the Thruway in order to cover the costs of operating and maintaining the Canal System. The Canal System serves as a recreational and tourist attraction. In her decision, Chief Judge McMahon held that the Thruway Authority’s practice of charging higher tolls to cover the costs of the Canal System unduly burdened interstate commerce in violation of the so-called Dormant Commerce Clause of the Constitution.

toll booth


In arriving at her decision, McMahon invoked the test set forth by the Supreme Court in Northwest Airlines, Inc. v. County of Kent, 510 U.S. 355 (1994), which finds that a user fee or toll is constitutionally permissible only if it meets three requirements. First, the toll or user fee must be “based on some fair approximation of the use of the facilities for which it is paid.” Second, the toll or user fee must not be “excessive in relation to the benefits conferred from the use of those facilities.” Third, the toll or user fee must “not discriminate against interstate commerce.”

In this case, McMahon focused her analysis on the first two elements of the Northwest Airlines test, finding that the Thruway Authority failed to satisfy both the fair approximation prong and the excessiveness prong of the test. McMahon was clear that the fair approximation requirement related to the plaintiffs’ use of the Canal System, not the Thruway itself: “to the extent that Thruway tolls are set with reference to the needs of the Canal System, there must be a rational relationship between the setting of those tolls and interstate truckers’ use of or benefit from Canal System facilities.”

McMahon explained the second prong of the Northwest Airlines test: “[t]he excessiveness prong compares the amount paid by the payer to the benefits conferred on him in his capacity as a consumer of those benefits (the benefits, in this case, being the barge canals and the associated facilities, not the New York State Thruway).” Unsurprisingly, McMahon found that diversion of toll revenue to the Canal System, from which plaintiffs receive no benefit, is unconstitutionally excessive.

The recurring theme in McMahon’s decision relates to the plaintiffs’ use or benefit from the off-system diversion of user fees or toll revenue. In this case, she found that the Thruway’s practice of using toll revenue from the Thruway to support the Canal System violated the Constitution. However, she distinguished the situation in the instant case from another federal decision relating to the use of highway toll revenue for public transit, which found that such use was permissible because transit alleviated congestion on the facilities that were being tolled, creating a “functional relationship” that conveyed a benefit to those paying the toll. Automobile Club of New York, Inc. v. Port Authority, 887 F.2d 417, 421 (2d Cir. 1989).

In the wake of the New York Thruway decision, ATA President and CEO Chris Spear said that he hopes this decision will “dissuade other states from financing their budget shortfalls on the backs of our industry.” Indeed, the Pittsburgh Post-Gazette reports that as a result of the decision, ATA plans to review similar situations in other states to ascertain what further actions the organization could take.

One of those potential actions could come in Pennsylvania, where the Pennsylvania Turnpike Commission currently pays $450 million per year to the Pennsylvania Department of Transportation to fund mass transit service in Philadelphia and Pittsburgh. Clearly, the Automobile Club of New York decision is relevant here, but that holding turned on the fact that the transit system in question alleviated congestion on the facility that was tolled. In the Pennsylvania scenario the transit systems are located at either end of the Pennsylvania Turnpike, which is hundreds of miles long.

Another potential impact could be felt in Oklahoma, where the Oklahoma Turnpike Authority is considering a 17 percent increase in toll rates to finance new construction. The ultimate legality of such an increase could also turn on the location of the projects to be funded with the Turnpike toll revenue and the relationship those projects have with the Turnpike itself.

It seems as though the tolling practices of the Port Authority of New York and New Jersey is always the subject of dispute. In fact, the Automobile Association of New York is again suing the Port Authority, arguing that the Port Authority’s recent toll increase is unconstitutional due to its intended use to fund redevelopment of the World Trade Center.

The most significant potential impact of the New York Thruway decision, though, may have nothing to do with tolls. The Northwest Airlines decision applies to user fees as well as tolls, as McMahon notes in her decision. If federal courts interpret the Dormant Commerce Clause to apply to motor fuel and other excise taxes in the same way the New York Thruway decision applies this rubric to tolls, then the potential impact could be extreme. The question of whether or not an excise tax is legally tantamount to a user fee is murky, especially when such taxes are firewalled into trust funds with specific eligible uses.

Should federal courts arrive at such an interpretation, long-standing state practices could be deemed unconstitutional. For example, article 8, section 7-a of the Texas Constitution requires that 25 percent of all revenue from the state’s motor fuel tax be used to fund education, the remainder of which must be used to acquire right of way, construct, maintain, and police public roads, and administer related laws. This provision has been the law of Texas for nearly 70 years. More and more states have recently adopted or considered fuel tax increases to improve and maintain crumbling infrastructure, and such an interpretation could materially hamper the political negotiations necessary to adopt such increases.

Furthermore, the U.S. Code allows for public agencies to use toll revenue on facilities where the toll revenue is not collected. 23 U.S.C. § 129(a)(3)(A)(v) authorizes a public authority to use toll revenue for “any other purpose for which Federal funds may be obligated” under title 23 of the U.S. Code, which includes expansive authority to construct, operate, maintain, and improve highway and transit infrastructure, so long as the agency certifies that the tolled facility is maintained.

While the ultimate ramifications of the New York Thruway decision are yet to be realized, public agencies with tolling authority would be prudent to watch how the American Trucking Associations and its legal counsel challenge tolling practices in other situations around the country.