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Resources: General

INNOVATIVE FINANCE

WILLIAM A. HYMAN, EDITOR
ESTHER STRAWDER, FHWA MANAGING EDITOR

VOL. 1, NO. 2
OCTOBER 1996

In This Issue:

ISTEA Reauthorization Process Underway

The Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 expires on September 30, 1997. The U.S. Department of Transportation (USDOT) reauthorization process is underway and has been, from the start, a multi-modal, multi-agency effort. The Federal Highway Administration (FWHA) is working with the Office of the Secretary of Transportation (OST) and other USDOT agencies to develop a reauthorization bill that builds on the original flexibility and sound aspects of ISTEA and that will help its customers, partners, and stakeholders achieve their goals.

The reauthorization process includes three phases: 1) outreach, focus groups, and analysis; 2) decisionmaking and legislative drafting; and 3) transmittal to Congress.

Outreach, Focus Groups, and Analysis

The first phase of the reauthorization process, outreach, focus groups, and analysis, began in the spring of 1996 and will continue until September 30, 1996. In this phase, the USDOT is gathering valuable input from its customers, partners, and stakeholders on the different elements of ISTEA administration and policy and their effectiveness. The goal of the outreach and focus group initiative is to obtain recommendations for reauthorization, not to resolve issues or draft legislation. This process will ensure that the reauthorization bill reflects the best thinking of customers, partners, and stakeholders, as well as the expertise of the employees who implement Federal programs. The process will help propose an efficient and effective legislation that is responsive to the needs of the country.

Both OST and FHWA are leading outreach initiatives in partnership with each other and with other modal agencies. The OST outreach effort includes 13 forums held throughout the country, each focusing on a specific theme. These sessions are designed to maximize the participation of key officials and organizations. Each session includes a panel of witnesses consisting of area Congressional leaders, state and local officials, businesses, and labor and citizen groups.

The FHWA, in conjunction with the Federal Transit Administration (FTA), has held approximately 80 small, informal focus groups to discuss specific topic areas, one of which is innovative finance. Approximately ten additional focus groups are planned. These meetings are intended to encourage more detailed discussions than can be accommodated by the format of the OST regional forums. They include a small number of invited participants from diverse groups who are practitioners in the field and who are directly affected by the legislation. Participants include members of associations, industry partners, representatives from metropolitan planning organizations (MPOs), state and local government officials, citizen activist groups, and environmental groups.

Concurrent with the outreach and focus groups, FHWA has begun analyzing reauthorization issues. FHWA has identified key authorization areas and is organizing teams to examine and develop options for each area of ISTEA based on outreach and focus group feedback, white papers, and internal expertise. Teams are comprised of representatives from several program offices, other modal agencies, and the field.

Next Steps

After the first phase is complete, two additional phases remain. The second phase is decisionmaking and legislative drafting and will take place from September 30, 1996 through January 1997. Collaboration among all modal agencies of the USDOT will ensure that the final bill benefits from the best efforts of each agency. The FHWA will play a major role in coordinating decisionmaking and legislative drafting during this phase.

The third and final phase of the reauthorization process is transmittal to Congress. The Administration's bill, assembled by USDOT, will be forwarded to Congress in February 1997 along with the fiscal year 1998 President's Budget. After transmittal, each of the modal agencies will participate in the ongoing legislative process, which will continue through the end of the fiscal year 1997.

telephone Contact: Cheryle R. Tucker, FHWA, 202/366-4072.

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Missouri Benefits From Shared Resource Project

The Missouri DOT is just one of many state and local governments that currently receive wireline and wireless transmission capacity at no cost. Known as 'shared resource projects,' public entities such as Missouri DOT work with cable and television companies, telephone service providers, electric utilities, and other telecommunications companies to offer the right to install communications infrastructure on public rights-of-way in exchange for providing valuable telecommunications services. The benefits to both the public and private sectors are significant.

For the private sector, access to public rights-of-way means that necessary communications networks and other related infrastructure can be constructed less expensively. Some capacity is provided to the public sector in exchange for this access, while the remaining capacity is used to provide communication services, or is leased or sold to others.

For the public sector, the most obvious benefit is the provision of telecommunications infrastructure. But there are other benefits as well. Under the flexible match provision of the National Highway System Designation Act of 1995, private donations of funds, materials, or assets may be applied to the state's matching share for Federal-aid projects. In the case of shared resource projects, a state can receive credit towards its matching share for a transportation project that requires the use of the shared resource. This is good news for public agencies seeking to leverage funds and private contributions in order to deploy intelligent transportation systems (ITS).

And it was good news for the Missouri DOT. The resource required by the Missouri DOT's ITS Early Deployment Study for St. Louis was a $23 million fiber optic backbone. After receiving statements of interest from several telecommunications, cable, and television companies, and assessing the concerns of potential partners, the Missouri DOT issued a request for proposals for the installation of the fiber optic backbone at no cost to the state in exchange for exclusive access to public rights-of-way. The state sought access to a minimum of six fibers for 40 years, plus a 20-year renewal. Bidders were requested to install fiber optic cable on 210 miles of St. Louis area Interstate, and also had the option of proposing to extend the network into rural areas.

The Missouri DOT accepted the bid of Digital Teleport, Inc., which proposed to install fiber optic cable (a Sonet System) on the entire 1,250-mile state freeway system. The state will be provided with its requested six strands of fiber. In addition, FHWA recognized the value of the private contribution as a $23 million credit towards Missouri's matching share required for Federal-aid ITS deployment projects in the St. Louis area.

FHWA provides assistance to states in understanding how shared resource projects can reduce transportation costs. Guidance material and a report entitled Shared Resources: Sharing Right-of-Way for Telecommunications are available from FHWA. A workshop on shared resources is also offered.

telephone Contact: Bill Jones, FHWA, 202/366-2128.

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Stark County Intermodal Facility Opened

A ribbon-cutting ceremony on June 7, 1996 marked the opening of the Stark County (Ohio) Intermodal Facility. The facility is the result of an innovative public/private partnership, including the FHWA, the Federal Railroad Administration, Ohio DOT, Flemming Companies, Inc., and the Wheeling and Lake Erie Railway.

In September 1993, Flemming Companies, Inc. announced plans to expand its Stark County food distribution facility, plans which required the relocation of the Wheeling and Lake Erie Railway main track. To make the project more attractive to both the railroad and funding sources, construction of an intermodal facility was proposed. Ohio DOT applied for an ISTEA Section 1012 loan and, as part of the FHWA's Innovative Financing Initiative (TE-045), proposed the creation of a revolving fund using eligible congestion management and air quality (CMAQ) improvement funds. Truck off-loading fees, which function as a toll-like user fee, will be charged for the use of the facility, with these fees used to pay back the Section 1012 loan. As the loan is repaid, funds can then be loaned for future CMAQ projects. FHWA's approval of this innovative financing proposal allowed the public/private partnership to complete the intermodal facility project in just 15 months and within budget.

The Stark County Intermodal Facility permits truck trailers and freight containers to be loaded and unloaded onto railroad flat cars. The facility will increase mobility by serving as an interchange between rail and highway, increase freight capacity, and reduce truck travel through three non-attainment metropolitan areas.

Innovative financing was responsible for leveraging $24 million in private funds of the $325.2 million total costs for the intermodal facility project. Construction of this facility protected existing jobs by preventing the relocation of the Flemming Companies' food distribution facility, and created new jobs with the construction of additional warehouses and distribution facilities.

telephone Contact: Marc VanderElst, FHWA, 202/366-6055.

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State Infrastructure Bank Agreements Signed

Each of the ten states designated to test the State Infrastructure Bank (SIB) Pilot Program has received a draft cooperative agreement from the USDOT. Ohio and Oregon were the first two states to sign the agreement and return it to the USDOT for concurrence. The remaining states (Arizona, California, Florida, Missouri, Oklahoma, South Carolina, Texas, and Virginia) were given a copy of the Ohio cooperative agreement to use as a guide during the review and execution of their own agreements. The FHWA is coordinating the technical assistance to these remaining states to ensure the best outcome for all participating agencies.

In response to several inquires from state DOTs regarding the SIBs, FHWA field office personnel and headquarters staff held two conference calls to respond to the questions directly and to offer additional guidance. The questions and answers of the conference calls are available through the Financial Management Division of Fiscal Services, HFS 40.

Capitalization of the SIBs is the next major step after the cooperative agreements are signed. The pilot states will be able to deposit a maximum of 10 percent of their fiscal years 1996 and 1997 Title 23 Federal-aid highway apportionment (excluding CMAQ funds and ISTEA demonstration funds). The categories of highway funds that can be deposited by states into their SIBs are:

  • National Highway System (NHS);
  • Surface Transportation Program (STP);
  • Interstate Maintenance (IM);
  • Bridge;
  • Interstate Reimbursement Segments;
  • Hold Harmless;
  • 90 Percent Payment Adjustments; and
  • Donor State Bonus.

The states must match 25 percent of the Federal contribution after the obligation of Federal funds has been made, which effectively equals 20 percent of the total deposit. States need only match the Federal cash disbursement.

telephone Contact: Lucinda Eagle, FHWA, 202/366-5057.

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Innovative Finance Home Page Postponed

Due to internal reorganization, access to the Innovative Finance home page has been postponed. The Innovative Finance Team is now a part of the Financial Management Division of the Office of Fiscal Services, which is currently in the process of acquiring its own home page under the Office of Administration. More information on the status of the Innovative Finance home page will be provided in future issues of IF.

telephone Contact: Esther Strawder, FHWA, 202/366-6949.

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Innovative Finance And Statewide Financial Planning Course Offered

FHWA's Innovative Finance and Statewide Financial Planning Course continues to be offered to states and MPOs. Upcoming sessions through November 1996 include the following:

  • October 1-2, Columbus, Ohio
  • October 7-8, Hartford, Connecticut
  • October 10-11, Madison, Wisconsin
  • October 17-18, Lincoln, Nebraska
  • October 22-23, Denver, Colorado
  • October 29-30, Minneapolis, Minnesota
  • October 31-November 1, Indianapolis, Indiana
  • November 4-5, Seattle, Washington
  • November 12-13, Kansas City, Missouri
  • November 14-15, Concord, New Hampshire
  • November 19-20, Lansing, Michigan
  • November 21-22, Lansing, Michigan

telephone Contact: For more information on this course or session dates and locations, contact Larry Dwyer, FHWA, 202/366-8560.

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Some Definitions . . .

Here is some help to understand the meaning of ...

Innovative finance: In this context, any innovative concept intended to reduce reliance on a single strategy of Federal funding on the basis of 'grants reimbursement.' A main objective is to maximize the ability of states to leverage Federal capital and to make more effective use of existing funds.

Cash flow tools: Methods to ensure that the flow of funds needed for a transportation investment occurs at the level and time required. One cash flow tool is advance construction, which allows a state to begin a project with its own capital when the need arises, rather than having to set aside obligational authority for the Federal share. By designating the project as an advance construction project, the state can later convert the project to a regular Federal-aid highway project when sufficient obligational authority has been obtained. This allows states to manage Federal-aid funds more effectively, by choosing when to seek reimbursement.

Leveraging tools: Ways to expand funds for investment. Leveraging tools include using credit enhancements (see definition below) to lower the cost of capital when issuing bonds or other debt instruments, and taking advantage of increased flexibility in the types of funds or assets that can be used to match Federal funds (see article on shared resource projects).

Pay-as-you-go: A financial policy by which a project is paid for with existing funds rather than by borrowing. Pay-as-you-go projects avoid future interest costs but can sacrifice the benefits of starting a project earlier.

Debt financing: Obtaining investment funds by borrowing. Borrowing can occur by selling bonds, obtaining loans from a bank or a revolving fund, or through other debt instruments.

Bond: A written promise to pay a specified sum of money, called the face value (or par value) at a specified date or dates in the future, together with periodic interest at a specified rate.

Note: Like a bond, except that a bond matures after a longer period of time.

Subordinate loans: A loan that has lower priority of repayment than other loans forming a funding package.

Credit enhancement: Tools that provide additional security or credit support for financing projects that, when used, result in lower interest rates. The tools include loan guarantees, letters of credit, lines of credit, and bond insurance.

Revolving fund: A fund for making loans for infrastructure investment that is replenished as borrowers repay the loans.

Bond bank: Any state level agency that provides local governments with assistance in obtaining capital finance, primarily by issuing bonds.

State Infrastructure Banks (SIB): A bank, seeded by state and/or Federal-aid funds, that has characteristics of a revolving fund, bond bank, or both. States can lend SIB funds to sponsors of transportation projects or use the funds to provide credit enhancements.

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INNOVATIVE FINANCE

William A. Hyman, Editor
Laurie L. Hussey, CS Managing Editor Cambridge Systematics, Inc.
617/234-0531
FAX: 617/354-1542
wah@camsys.com
llh@camsys.com

Esther Strawder, FHWA Managing Editor
202/366-6949 FAX: 202/366-3297
esther.strawder@fhwa.dot.gov

Reproduction (in whole or in part) and broad distribution of IF is strongly encouraged. Permission from FHWA, the editor, or any other party is not necessary.

A REMINDER TO READERS

FHWA DOES NOT MAINTAIN A MAILING LIST AND DOES NOT DISTRIBUTE IF DIRECTLY. IF IS AVAILABLE AS AN INSERT TO THE ITE JOURNAL AND AASHTO JOURNAL, AND IS AVAILABLE ELECTRONICALLY THROUGH:

IF IS ALSO PROVIDED TO THE FOLLOWING ORGANIZATIONS FOR REDISTRIBUTION AND/OR AS INFORMATION FOR THEIR MEMBERSHIP:

  • National Association of Regional Council's (NARC's) Association of MPOs (AMPO)
  • ITS America
  • American Public Transit Association (APTA)
  • Surface Transportation Policy Project (STPP)
  • State & Territorial Air Pollution Program Administrators/Association of Local Air Pollution Control Officials (STAPPA/ALAPCO)
  • Association for Commuter Transportation (ACT)

[In This Issue...]

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