UNPRODUCTIVE COLLATERAL.

I've long been of the view that roads are productive assets and highway departments treat them accordingly, as sources of revenue.

That's not how some cash-strapped municipalities in quarantine-strangled California see it.  "[T]wo cities in California are issuing bonds with their own city streets as collateral to pay down their unfunded pension liabilities." Play stupid games, win stupid prizes. "[T]hey’re not turning their streets into toll roads, or giving bond-buyers the ability to 'foreclose' or take control either now or in the future."  There's a procedure for that.

They’re using a bond-issuing mechanism called “lease revenue bonds.” We’re all used to cities paying for public works, stadiums, and the like by issuing bonds which are paid off by a dedicated revenue source — sewer bills, hotel taxes, etc. But lease revenue bonds are different. Here’s the layperson’s description at Charles Schwab:

“Lease revenue bonds are a unique structure in the muni market. Instead of issuing long-term debt, like general obligation bonds do, to finance improvements on a public facility, the municipality may enter into an arrangement that uses lease revenue bonds. Often a trust, not the municipality, issues bonds and generates revenues to pay the bonds back by leasing the facility to the municipality. The municipality will generally appropriate money during each budget session to meet the lease payment.

“Bonds backed by structures with lower essentiality and limited protections for appropriating funds will usually be lower-rated and have higher yields. Our opinion is to be cautious of bonds backed by lease revenues, as these bonds should be viewed more like general government bonds, not revenue bonds.”

I think that's a fancy way of saying "junk bonds" or perhaps it's a financial can being kicked down a crumbling road.

Despite the fact that the streets are nominally being “leased,” the bondholders will not have any particular rights to lay claim to the streets; despite their status as “collateral,” the bondholders can’t take them over and charge tolls if either city defaults on their “rent” payments. The city will simply pay the “rent” based on their ordinary tax revenue rather than any special purpose taxes. The “lease” component then becomes little more than a gimmick, a loophole, a way to use the existing “menu” of bond choices available to them in the most advantageous way possible, especially since, at least in California, “general obligation bonds” require voter approval.

As long as everyone is in on the grand fiction ...

Maybe, after they've tried everything else, they'll get permission from Congress (because without those federal matching funds, there wouldn't be anywhere near as many roads and expansion project) to make their collateral productive.  "Congress Needs to Get Serious About Enabling Tolling So States Can Rebuild Highways."  Get out of the way, and faster, please.

The most troubling provision in the [House bill] was the requirement for every toll project to have a separate, federally-approved tolling agreement. This inserts the federal government into state and local transportation projects, runs counter to previous attempts to mainstream tolling, and, given that the law would have made the projects ensure that air quality, mass transit, environmental justice, and equity were taken into account, one has to wonder if it is designed to provide a way for opponents of infrastructure projects to derail needed improvements across the country.

The Senate’s [bill] was a somewhat better proposal but also had its own limitations as it mostly sought to maintain the failing status quo, which brought us to this funding standstill. In terms of tolling, [it] would have expanded the Interstate highway tolling program to urban areas but would not have removed the restrictions on tolling Interstate highways that deter many states from considering all options.

Given that states own their portions of the Interstate system, Congress should not micromanage how states fund roadways. If states have some form of users-pay/users-benefit funding source that does not inhibit interstate commerce, Congress should not stand in the way. It’s no wonder that some states would like to stop sending state gas tax money to Washington and replace the federal gas tax with an equivalent state gas tax that stayed in those locations.

Deregulate. Devolve.

By easing tolling restrictions Congress could allow states to be the laboratories of democracy, unlock a new, reliable funding source that enables them to pay for needed infrastructure and have sufficient revenue to fund responsible stewardship of their roadways.

As Congress continually fails to identify sources for long-term transportation funding, tolling should be viewed as a critically important tool that can be used to help rebuild the aging Interstate Highway System. The next federal surface transportation reauthorization bill should not restrict tolling. Rather, Congress should unlock an important funding option that can be implemented with some common-sense guardrails to protect taxpayers.

Maybe it's time for the states to recognize that they are offering multiple, sometimes competing, sometimes complementary transportation services, and it's as silly to attempt to allocate some taxes for road projects only or rail projects only or any other attempt at segregating the money, and simply price the bundle of services they offer (whether those are roads, freight railways serving critical facilities, or Commuter Rail or Amtrak's regional services) in a way so as to most efficiently cover the costs incurred.