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FHWA Guidance for Administering the State Infrastructure Bank Pilot Program

INTRODUCTION

The State Infrastructure Bank (SIB) pilot program was enacted by Congress under Section 350 of the National Highway System Designation Act of 1995 (NHS Act) as part of the U.S. Department of Transportation's (DOT) continuing effort to increase infrastructure investment in the transportation sector. As described in Section 350, a SIB is an investment fund at the State or regional (multi-State) level with the ability to make loans and provide other forms of credit assistance to public and private entities to carry out highway construction and transit capital projects.

Under the NHS Act provision, Congress established a pilot program for up to 10 States to enter into cooperative agreements with FHWA and/or FTA for the implementation of a SIB. The Fiscal Year 1997 DOT Appropriations Act expanded the pilot program to include any State subject to an application process and approval from DOT. The NHS Act requires DOT to issue procedures and guidelines for establishing, operating, and providing assistance from the pilot SIB. This guidance relates primarily to the implementation of the highway portion of the pilot program. The Federal Transit Administration will issue separate guidance relating to the implementation of the transit portion of the pilot program.

CONTENTS

  1. Capitalization of the SIB

  2. Types of Assistance

  3. Administration of the SIB

  4. Project Requirements

  5. Annual Report

  6. Disposition of the SIB

I. CAPITALIZATION OF THE SIB

A. Capitalization Process: Federal-aid Apportioned Funds

The following steps are necessary to capitalize the SIB using Federal-aid apportioned funds.

  1. Execute the SIB cooperative agreement.

  2. Establish an advance capitalization (ACAP) amount.

  3. Transfer eligible apportionments to the SIB.

  4. Obligate the funds.

  5. Capitalize the bank.

Step 1. Execute the SIB cooperative agreement

The first step in the implementation of the SIB is the signing of a cooperative agreement between the FHWA and/or FTA Administrator(s), the State, and any other party to the SIB. A cooperative agreement is a legal document that establishes how the funds will be managed once they are deposited into the SIB. The cooperative agreement must be signed before any funds can be disbursed to the SIB.

If FHWA or FTA determines that the State has not complied with the terms of its cooperative agreement, the requirements of the NHS Act or the SIB Guidelines, FHWA or FTA (as applicable) will notify the State of the noncompliance and of the requested corrective action. The State agrees to take appropriate corrective action or submit a compliance plan to FHWA or FTA within 60 days.

If the State fails to take corrective action or provide an acceptable plan to correct the noncompliance, FHWA may take appropriate action in accordance with Title 23, Code of Federal Regulations, Section 1.36.

Step 2. Establish an Advance Capitalization (ACAP) amount

To begin the capitalization process a State will establish an "Advance Capitalization" (ACAP) amount. ACAP, which is similar in concept to advance construction, enables the State to designate a level of potential SIB funding for each fiscal year. The ACAP amount is limited to 10% of a fiscal year's gross-level eligible SIB funding categories (before SPR take-down). FHWA approval of the ACAP amount is not a commitment of funds, but recognition of the maximum amount of Federal-aid funding that may subsequently be obligated for the SIB. The ACAP amount will be entered into the Fiscal Management Information System (FMIS) as program code S99.

The ACAP amount is a maximum; States may actually obligate smaller amounts. For the initial ten States that joined the pilot in 1996, there will be one ACAP amount for FY 1996 and one for FY 1997. For those ten pilot States, the ACAP amount for FY 1997 may include potential ACAP that was not designated in FY 1996. For those States that joined the pilot in 1997, there will be one FY 1997 ACAP amount that may include the value of up to 10% of eligible apportionments in FY 1996 and FY 1997.

The ACAP amount is not identified on the Statewide Transportation Improvement Program (STIP); however, the amount of SIB assistance to a project will appear on the STIP. (Note: FHWA will provide further procedures for States to integrate SIB assistance into financially constrained STIP's.)

Step 3. Transfer eligible apportionments to the SIB

The State will submit a written request to transfer eligible apportionments to the SIB program. Subject to the disbursement constraint, pilot States can deposit a maximum of 10% of their eligible FY 1996 and FY 1997 Federal-aid highway apportionments. For control purposes, the amount transferred to the SIB cannot exceed the amount available for disbursement as described in Step 5. Eligible categories of funds include:

Any Area Funds Urban Attributable Funds that Require Written Concurrence from MPO

Interstate Maintenance (04M)

 

National Highway System (315)

 

Bridge (114 and 118)

 

Surface Transportation Program (33D)*

Surface Transportation Program (33C)

Interstate Reimbursement (33D)*

 

Apportionment Adjustment (Hold Harmless and 90% Payment Adjustments) (33D)*

 

Donor State Bonus (35A)

Donor State Bonus (35B)

Minimum Allocation (34A)

Minimum Allocation (34B)

*Interstate Reimbursement, Hold Harmless, and 90% Payment Adjustments are combined with STP funds.

A State does not have to capitalize with funds from every category or use the maximum 10% of any one category. Furthermore, SIB contributions from the various eligible funding categories lose their programmatic identity once deposited into the SIB and do not have to be tracked separately.

FHWA will transfer the specified amounts from the designated eligible funding categories to the SIB Account (program code 99A for funds transferred from categories subject to the Federal-aid obligation ceiling and program code 99B for funds transferred from Minimum Allocation).

Urban Attributable Funds that Require Concurrence from the MPO
The NHS Act states that funds attributable to an urbanized area require written concurrence from the Metropolitan Planning Organization before transferring to the SIB. Affected funding categories are Surface Transportation Program (33C), Donor State Bonus (35B), and Minimum Allocation (34B). Please see table above.

Use of Surface Transportation Program and Bridge Program Funds in Capitalizing the SIB
The NHS Act permits States to capitalize the SIBs with a maximum of 10 percent of their Surface Transportation Program (STP) funds. However, certain STP subcategories (e.g. enhancement activities, safety, and rural areas) specifically defined in Title 23 are not to be used for the capitalization of the SIB. A State's capitalization of a SIB with a specific subcategory would not relieve that State from the requirements associated with those funds. Therefore, the use of STP funds to capitalize the SIB is limited to funds in the "any area" subcategory (33D), and funds that are attributable to an urbanized area (33C).

Likewise, off-system bridge funds may not be transferred to the SIB. Transfers from bridge funds are limited to program codes 114 and 118.

Step 4. Obligate the funds.

Once a transfer has taken place, the State may request that the funds be obligated. FHWA and the State will execute a Project Agreement (PR-2 form).

Step 5. Capitalize the bank.

The State must submit a payment request (preferably through the current bill system) to FHWA to receive a disbursement. Payments must be directly deposited into the SIB.

Disbursements of Federal funds are addressed in the NHS Act. Section 350(g)(1) states that "Federal disbursements shall be at a rate consistent with historic rates for the Federal-aid highway program and the Federal transit program, respectively." Congress inserted this provision for overall budgetary reasons to ensure that the SIB pilot program does not disburse cash (outlays) on an annual basis more quickly than the regular Federal-aid highway and transit programs.

Historic outlay rates reflect annual estimated payments resulting from the obligation of Federal-aid funds in a given fiscal year. The outlay rates are used for Federal budget scoring purposes. The following outlay rates apply to the SIB program:

Federal Highway Administration (payments as percent of ACAP in each fiscal year)

  Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
Outlay Rate 15% 53% 16% 5% 3% 3% 2% 2% 1%
Cumulative 15% 68% 84% 89% 92% 95% 97% 99% 100%

* Note: FTA's outlay rate is 15%, 30%, 30%, 20%, and 5%

If the State does not claim the full amount in a given year, the remainder will be available in a subsequent year up to the cumulative amounts shown in the above chart.

Disbursements of Federal funds must be matched by a State deposit of at least 25 percent of the Federal contribution (which equals 20% of the total deposit). The non-Federal share can be reduced if the State uses a lower non-Federal share under subsection 120(b) of Title 23 (sliding scale rate applicable to projects not on the Interstate System). The non-Federal match must be deposited into the SIB on or before the date Federal funds are deposited. The non-Federal match must be in the form of cash. Soft match (ISTEA Section 1044 toll credits) and in-kind contributions cannot be used to match Federal funds deposited into the SIB.

B. Capitalization Process: Fiscal Year 1997 DOT Appropriations Act General Funds

Once the pilot State has been notified of its allocation amount in a letter from the Secretary, the State should request that the total amount allocated be obligated using program code 594 for deposits into the highway account and program code 5TB for deposits into the transit account. Once a cooperative agreement has been signed, the State and FHWA must execute a project agreement (PR-2) not to exceed the amount of funds eligible under the FHWA historic rate of disbursements. This amount will then be available for disbursement to the State. These funds are not subject to the obligation limitation. The State may deposit these funds into either the highway or transit account. These funds are not subject to the ACAP process. Non-Federal match must be made available when the Federal funds are disbursed to the SIB.

II. TYPES OF ASSISTANCE

SIBs may offer highway and transit capital project sponsors the following forms of assistance:

Loans:

  • Loans at subsidized rates and/or with flexible repayment provisions

  • Grant Anticipation Notes (GANs)

  • Short-term construction or long-term debt financing

  • Certificates of Participation

Credit Enhancement:

  • Capital reserves and other security for bond or debt instrument financing

  • Letters of credit (direct pay or stand-by)

  • Lines of credit

  • Bond insurance and loan guarantees

Other Forms of Assistance:

  • Other forms of proposed assistance should be submitted to the Secretary in writing for approval.

III. ADMINISTRATION OF THE SIB

Accounting

The SIB must establish fiscal controls and accounting procedures sufficient to assure proper accounting for payments received and disbursements made through the SIB, and to provide SIB balances at the beginning and end of the accounting period. The SIB must use accounting and fiscal procedures conforming to generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board.

The SIB accounting structure must maintain separate highway and transit accounts when funds are provided from Title 23 and Title 49 programs. Repayments to the SIB from project sponsors may be made to a repayment account(s) provided the SIB can assure that repayments from Federal sources are reused in accordance with Federal requirements. In addition, repayments to the SIB cannot be used as matching funds for capitalization.

Investments

Funds held in SIB accounts may be invested in U.S. Treasury securities or other financing instruments that the State currently uses for its own funds to earn interest. If a State chooses to use an investment instrument that it does not currently use for its own State funds, the State must seek approval from DOT in writing. The interest earned on funds deposited into the SIB must be credited to the account in which it was earned and is subject to the requirements of that account.

Records Retention

The State will retain project files relating to the SIB until all financial assistance has been repaid and necessary audits have been performed. Retention and disposition of SIB files will be in accordance with State laws unless such period for retention conflicts with the requirement above or the three- year minimum requirement of 49 CFR section 18.42 in which event, the later period of retention will apply.

Administrative Costs

Up to two percent of the Federal funds deposited into the SIB can be used to administer the SIB.

State Entity

The SIB is a State entity. The United States is not obligated to any third party as a result of commitments of the SIB.

Debt Issuance

If the SIB issues debt through bonds or other financial instruments, such obligations must receive an investment grade rating (BBB or higher) from a nationally-recognized rating agency. If the SIB provides other assistance resulting in liabilities in excess of its contributed capital, such as loan guarantees, the SIB must also receive an investment grade rating on its claims-paying ability. DOT must receive a copy of any rating agency report.

Audit

The SIB is subject to the single audit requirements established by the Office of Management and Budget Circular A-133.

IV. PROJECT REQUIREMENTS

Agreements with Project Sponsors

Before providing financial assistance for a project, the SIB must enter into a written agreement with the project sponsor. The agreement must include interest rates, repayment terms, a disbursement schedule, and any other fees, compensation, or other collateral offered by the recipient of the assistance. The SIB must require each recipient to maintain project accounts in accordance with generally accepted accounting principles. The State shall indicate in all agreements with parties receiving financial assistance from the SIB that any security or debt financing instrument issued by the bank does not constitute a commitment, guarantee, or obligation of the United States.

Requirements

Projects receiving assistance from the SIB must comply with the Federal requirements which generally apply to projects under Title 23 when the assistance is derived from: (1) the Federal funds deposited into the SIB, (2) the non-Federal matching funds, (3) repayment amounts from a Federal source, or (4) any investment income generated from these funds.

Repayments not derived from Federal funds may be treated as State funds. Projects receiving assistance from non-Federal repayments must comply with State laws and are exempt from those Federal requirements specific to Title 23.

All projects receiving assistance from the SIB must be eligible for assistance under Title 23, which includes transit capital projects, regardless of the application of Federal requirements.

In addition, all SIB projects are subject to those provisions of Federal law which apply generally to activities of Federal grant recipients. The most prominent of such provisions are Federal civil rights laws (e.g., non-discrimination).

Section 129 Agreements

Section 129 toll agreements are not required for toll projects receiving assistance from the SIB, provided no other Federal-aid highway funds are used on the project.

Loans

Repayments on the loan must commence not later than 5 years after the project has been completed, or in the case of a highway project, when the facility has opened to traffic (whichever is later). Once repayments commence, they must be completed within 30 years.

Lines of Credit

If the line of credit has not been drawn upon after the terms of the project agreement have been exhausted, the amount of funds supporting the line of credit may be transferred into a repayment account. Those funds may then be used for eligible Title 23 project activities advanced with funds from a repayment account.

V. ANNUAL REPORT

The State must submit an Annual Report to the FHWA Regional Administrator and make the report available to recipients of SIB financial assistance no later than 90 days after the end of the Federal fiscal year. This report will identify recipients of financial assistance, amounts of financial assistance, financial assistance interest and repayment terms, and project categories, with emphasis on how the State has met the goals set forth in its application and the financial condition of the highway and transit accounts and any repayment accounts.

VI. DISPOSITION OF THE SIB

The State will notify DOT if it wishes to discontinue the SIB. Any Federal-aid highway funds which have not been used to assist a project must be returned to FHWA and credited to the appropriation from which the funds were transferred.

Funds that have been used to assist projects and repaid to the SIB shall be used for Title 23 purposes and may be in the form of a grant.