MAX INMAN, FHWA MANAGING EDITOR
SUMMER 1997
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MIRIAM ROSKIN, EDITOR MAX INMAN, FHWA MANAGING EDITOR |
VOL. 3, NO.1 SUMMER 1997 |
Welcome to the inaugural issue of Innovative Finance Quarterly - an expanded version of the innovative finance newsletter you've received in the past, either on-line or in print. As always, our goal is to keep you current on cutting-edge strategies for financing highway and transit projects both large and small. With this issue, however, we extend the publication to six pages, introduce some new features, and provide a greater diversity of general interest and technical articles.
Each issue of the new, expanded IFQ will typically include the following features:
In addition, look for special one-time features in each issue. This edition of IFQ, for example, provides a SIB Special that explores the recent expansion of the SIB pilot program.
We hope you enjoy Innovative Finance Quarterly.
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We want to know what you think. Please write to us with any
comments about the types of information that are most useful to
you. We are also soliciting questions for potential inclusion in
a question-and-answer column to be included in future issues (we'll
respond to your question regardless of its publication
in IFQ). You may direct your comments and questions
to:
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In this issue. . .
Transportation Infrastructure Finance and Innovation Act of 1997 SIB Pilot Expands: New States, New Money SIB Financial Authority: August Update |
On June 25, Senator John Chafee, Chairman of the Senate Environment
and Public Works Committee, introduced the Transportation
Infrastructure Finance and Innovation Act of 1997 (TIFIA, S.963).
The goal of the bill, co-sponsored by Senators Graham, Boxer,
Bennett, Hatch, Moynihan, and Lieberman, is to address the funding
shortfall for large new transportation investments by providing new
tools - secured federal loans, loan guarantees, and standby lines
of credit - to project sponsors. While doing so, the bill seeks to
make the most of limited federal resources by inducing private and
non-federal capital to stimulate new investment in transportation
infrastructure.
Program Description and Scope
The federal credit program would complement the State
Infrastructure Bank program and other innovative financing
techniques by directing resources to transportation investments of
critical national importance - intermodal facilities, highways,
intercity rail projects, and other investments with national
benefits - that otherwise might be delayed or not constructed at
all because of their size, complexity, and uncertainty over timing
of revenues.
The program would use $800 million in federal budget authority over
six years to support as much as $16 billion in federal credit
assistance for public and private project sponsors. With the
federal role being capped at 33 percent of total project costs, the
program could stimulate nearly $50 billion in new transportation
investment. The program could be an important step in closing the
current funding gap and supporting the national economy in an era
of constrained public resources.
Eligibility Requirements
The U.S. Department of Transportation (USDOT) would be responsible
for administering the program and selecting projects. To qualify
for assistance under TIFIA, a project would have to:
In addition, the project sponsor would have to provide a
preliminary rating opinion letter from a nationally recognized bond
rating agency. Projects meeting the initial threshold criteria
would then be selected based on their ability to generate economic
benefits, support international commerce, or otherwise enhance the
national transportation system.
Financial Products
Under TIFIA, USDOT could offer secured loans, loan guarantees, and
standby lines of credit. Secured loans would be structured with
flexible repayment terms (allowing sponsors to defer principal and
interest payments for up to 10 years) to match project revenues,
and would improve the caliber of the senior debt by offering
financing on a junior-lien basis. The loans could be in an amount
up to 33 percent of the cost of a project and have a final maturity
date as long as 35 years after construction. Interest rates on
loans would be established at the time loan agreements were
executed and would be set at the prevailing yields on U.S. Treasury
bonds issued for comparable terms. After substantial completion
of a project, the Secretary of Transportation would have the chance
to sell or reoffer the loan into the capital markets, provided that
the reoffer could be made on favorable terms.
In lieu of a direct loan, USDOT could provide a federal loan
guarantee to encourage capital market investments in transportation
infrastructure. Similar to the secured loans, the loan guarantees
would secure debt with flexible repayments terms, improve the
rating on the senior debt, and attract non-federal financing by
limiting the federal role to 33 percent of the total cost of a
project. The interest rates on the private debt, however, would be
determined by the borrower and lender, subject to the approval of
the Secretary of Transportation.
USDOT could also provide a standby line of credit to assist
projects in attaining an investment-grade bond rating and securing
bond insurance by providing a secondary source of capital during
the first 10 years following project completion. The standby line
of credit would take the form of a future government commitment to
make one or more direct loans. If drawn upon, the proceeds could
be used to support debt service payments, operating and maintenance
costs, extraordinary repair and rehabilitation costs, and costs of
unexpected environmental requirements. The total line could not
exceed 33 percent of project costs. Up to 20 percent of the line
could be loaned in any given year, and any draws would need to be
repaid from project-related revenues within 30 years of project
completion.
Conclusion
The credit program established under TIFIA is a limited, six year
pilot program. The program is designed to overcome current market
gaps by familiarizing investors with the risk and financial
profiles associated with large startup transportation
infrastructure projects. Ultimately, a successful program could
put itself out of business by demonstrating to private investors
the long-term feasibility of this class of transportation
investment, thus phasing-out federal credit participation in these
large transportation projects.
LEGISLATIVE SPOTLIGHT
Transportation Infrastructure Finance and Innovation Act of
1997
Contacts:
David Seltzer, FHWA, 202/366-0397 or
Bryan
Grote, FHWA, 202/366-0673.
At a White House briefing held on June 19, 1997, Vice President
Gore announced USDOT's approval of 29 new participants in the State
Infrastructure Bank (SIB) pilot program. This brings total
participation in the pilot program to 38 states plus Puerto Rico,
as shown in the map below. The group of 39 includes two regional
infrastructure banks. In these cases, two or more states have
banded together to form a SIB that will serve multi-state
transportation needs.
SIB SPECIAL
SIB Pilot Expands: New States, New Money
Initial
Designee 
New Designee 
New Multi-State Designee
New Allocations Announced
When Vice President Gore announced the new SIB participants, he also announced the distribution of an extra $150 million made available for SIB capitalization. These allocations are highly flexible, as the funds may be used to capitalize highway accounts, transit accounts, or both, at each state's discretion.
The $150 million will be distributed among the states in accordance with each state's plans to use other eligible federal transportation funds and non-federal funds to capitalize their banks. This method of distribution creates a favorable environment for fast-moving projects, as a state that shifts regular grant funds into its SIB has a strong incentive to advance SIB-assisted projects especially quickly. Irrespective of other funding plans, each new participant is guaranteed a minimum share of $1.5 million, and each of the initial 10 participants is guaranteed a minimum share of $3.0 million.
The $150 million comes from the U.S. Treasury's General Fund rather than the Highway Trust Fund, and was appropriated for the SIB pilot program under the 1997 DOT Appropriations Act (PL 104-205) It is important toremember that the special General Fund allocations are merely a fraction of total federal funds available for use as seed capital. Each SIB participant can also transfer up to 10 percent of most categories of federal surface transportation funding into its SIB, using highway funds to capitalize SIB highway accounts, and transit funds to capitalize SIB transit accounts. Taking both General Fund and Trust Fund sources of funds into account, nearly $3 billion will ultimately be available for capitalizing the SIBs throughout the life of the pilot program.
The process by which regular federal highway apportionments are designated for potential transfer into the SIB is known as advance capitalization (ACAP). The advance capitalization process can be tricky, so this issue of IFQ presents a description of ACAP - what it is and how it works - as this quarter's Technical Corner.
Technical Assistance Available
FHWA has prepared a set of materials designed to demystify the occasionally obscure mechanics of the SIB pilot. To date, these materials comprise:
Additional materials are currently being developed. Copies of all materials are available from FHWA: contact the financial manager in your state's FHWA Division Office or Cynthia McDuffie at FHWA headquarters (202/366-0673) for copies. The report to Congress and other selected materials are also available through the innovative finance home page at http://www.fhwa.dot.gov/innovativefinance.
The Federal Transit Administration (FTA) is also developing SIB transit related materials. Contact Paul Marx at 202/366-1675 for more information.
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Contacts: Max Inman, FHWA, 202/366-0673 or Lucinda Eagle, FHWA, 202/366-5057 |
SIB activity is on the rise, with the number of loans made by the
pilot SIBs growing to five as of August 1, 1997. The following
exhibit summarizes the key features of the loans and the projects
they are assisting.
SIB Loans as of August 1, 1997
Capitalization Activity
As of August 1, 1997, latest information available showed that the
10 initial states participating in the SIB pilot program had
deposited a total of $80.4 million in federal highway funds into
their banks' highway accounts. With non-federal matching funds,
total SIB capitalization is more than $120 million. The 29 new SIB
designees can begin capitalizing their banks once they have signed
cooperative agreements with FHWA and/or FTA.
Other Developments
SIB SPECIAL
SIB Financial Activity: August Update
State
Loan Amount
Project
Project Value (estimated)
Ohio
$10,000,000
Butler Regional Highway
$120,000,000
Ohio
$10,000,000
Butler Regional Highway
Ohio
$15,000,000
Butler Regional Highway
Ohio
$7,800,000
Great Lakes Science Center Parking Facility
$7,800,000
Missouri
$1,180,000
Springfield Transportation Corporation
$33,000,000
Pressures to reduce the size of the federal deficit affect all
aspects of the transportation funding. The SIB pilot is no
exception. Subsection 350(g) of the NHS Act, the legislation that
established the SIB pilot program, requires that annual
expenditures of federal funds under the SIB pilot program mirror
the pattern of expenditures assumed for other elements of the
federal-aid program. To ensure that the pattern is upheld, only a
portion of total funds eligible for transfer to the pilot program
may actually be used as seed capital in any given year. Advance
capitalization (ACAP) is the tool that allows states to capitalize
their banks in accordance with the disbursement constraint imposed
by subsection 350(g).
One key to understanding ACAP is to recognize that it is not a
commitment. ACAP is patterned on advance construction - an
existing federal-aid highway funding strategy - in that it merely
preserves a given project's future eligibility for federal
participation. In the case of the SIB pilot program, the SIB is
considered to be the "project." Thus, all that an ACAP amount does
is preserve the state's right to use current federal highway
apportionments for the purposes of SIB capitalization at a later
date.
When (and if) a state decides to convert all or part of an ACAP
amount into actual SIB capitalization funds, the subsequent steps
are transfer, obligation, and outlay. ACAP sets the stage for
these steps by establishing the baseline against which these
amounts are calculated. For federal highway funds, the maximum
pattern of expenditure extends over nine years. In the first year
of an ACAP amount's availability, transfers, obligations, and
outlays may not exceed 15 percent of the ACAP amount, and in
subsequent years, 53%, 16%, 5%, 3%, 3%, 2%, 2%, and 1%,
respectively. This outlay rate pertains to highway funds only; a
different outlay rate is assumed for transit accounts.
The following example of the ACAP process is greatly simplified for
the sake of illustration. It serves as a worksheet to describe how
ACAP, the General Fund (GF) distribution approved under the 1997
DOT Appropriations Act, and the subsection 350(g) disbursement
limitation interrelate and ultimately determine the level of
funding available for obligation and expenditure each year.
Hypothetical Example: ACAP Process for New Designees, Fiscal
Years 1997 and 1998 (Highway Account)
For the sake of illustration, assume that FY97 is the final year
of the SIB pilot program. That would cause FY98 ACAP, transfers,
obligations, and outlays to look like this:
A few hints:
ACAP Baseline
The amount shown is equal to 10 percent of apportionments and
allocations for most federal-aid highway (FAH) program categories.
General Fund Distribution
Obligations
The example shows the state choosing to obligate the maximum amount
possible in each of the two fiscal years shown. However, it didn't
have to do so, since obligational authority is cumulative. For
example, if the state didn't obligate its full $20 in 1997, it
could obligate the remainder in 1998 - plus the additional $55.65
that becomes available for obligation in 1998.
TECHNICAL CORNER
Advance Capitalization
$100
$100
[(.15)(97ACAP)]= [(.15)($100)]= $15
$5
[(.15)(97ACAP)] + [(1)(GF Dist.)] = [(.15)($100)]+[(1)($5)]=
$20
[(.15)(97ACAP)] + [(.15)(GF Dist.)] = [(.15)($100)+[(.15)($5)] =
$15.75
$0
$0
[(.53)(97ACAP)]= [(.53)($100)]=$53
$0
[(.53)(97ACAP)] + [(1)(GF Dist.)] = [(.53)($100)]+[(1)($0)] =
$53
[(.53)(97ACAP)] + [(.53)(GF Dist.)] = [(.53)($100)+[(.53)($5)] =
$55.65
How does this example relate to your state? FHWA has prepared 39
spreadsheets that use actual numbers to display the maximum amount
of federal highway funding that each SIB participant could
potentially obligate and deposit by the end of fiscal year
1997.
Expansion of the SIB pilot program. The TE-045 innovative finance
research initiative. Financial Management Improvement Projects.
Reauthorization proposals.
With so much afoot in the world of federal transportation finance,
states and metropolitan planning organizations are developing a
healthy appetite for prompt and reliable technical assistance. As
always, USDOT division, regional, and headquarters offices stand
ready to help, but recently another excellent resource has emerged:
FHWA's Regional Finance Centers. In late 1996 FHWA established two
finance centers - Western and Eastern - to assist front-line field
offices in serving FHWA partners and customers. In particular, the
finance centers focus on addressing questions concerning the
financial aspects of 1) the traditional federal-aid program, and 2)
new innovative finance initiatives, including SIBs. The WFC and
EFC also coordinate and conduct training sessions on the Financial
Management Information System (FMIS), development of State
Transportation Improvement Programs (STIPs), Financial Management
Improvement Projects (FMIPs), and various aspects of innovative
finance.
WFC maintains an extensive home page with links to reauthorization
fact sheets, training schedules, current and back issues of the
regional finance centers' newsletters, and other helpful reference
materials.
The home page also provides contact names and numbers for each of
FHWA's nine regions. EFC is currently developing a home page as
well - IFQ will publish the address as soon as it's
available.
Regional Finance Center Contacts:
RESOURCE REFERRAL
FHWA's Regional Finance Centers
Eastern Finance Center
Region 1 (CT, MA, ME, NH, NJ, NY, RI, VT, Puerto Rico)
Mike Fazioli
518/431-4224 x216
Region 3 (DE, MD, PA, VA, WV)
Audrey Davis
410/962-0077 x3042
Region 4 (AL, FL, GA, KY, MS, NC, SC, TN)
John Jeffers
404/347-4071
Region 5 (IL, IN, MI, MN, OH, WI)
Mike Rosenstiehl
708/283-3515
Western Finance Center
Regions 6 and 7 (AR, IA, KS, LA, MO, NB, NM, OK, TX)
Sue Kiser
916/498-5009
Region 8 (CO, MT, ND, SD, UT, WY)
Jennifer Mayer
415/744-2634
Region 9 (AZ, CA, HI, NV)
Russ Fosha
415/744-2655
Region 10 (AK, ID, OR, WA)
Leslie Harris
503/326-5953
FHWA does not maintain a mailing list and does not distribute IFQ directly. IFQ is available as an insert to the ITE JOURNAL and AASHTO JOURNAL, and is available electronically through: |
Miriam A. Roskin, Editor |
