This appendix presents case studies of the three instances in recent years where federal credit has been utilized on major surface transportation projects pursuant to special legislation: San Joaquin Hills Toll Road, Foothill/Eastern Toll Road, and the Alameda Corridor.
The Transportation Corridor Agencies (TCA) are multi-jurisdictional authorities charged with construction of new toll road facilities in Orange County, California. TCA has funded the pre-construction costs of these facilities largely with development impact fees; little (or no) direct state and federal financial assistance has been required for this project phase. To finance construction of its corridor toll roads, TCA has sold two separate bond issues, each raising well in excess of $1 billion, for the San Joaquin Hills Corridor in 1993 and the Foothill/Eastern Transportation Corridor in 1995.
In each case, project financing was supported with federal credit enhancement provided in the form of a standby line of credit. This pioneering and novel credit enhancement mechanism provided important assistance in attracting private capital to the project bond issues. In the underlying legislative provisions, DOT was authorized to provide a credit line of up to $120 million to the San Joaquin Hills Corridor and another line of up to $120 million (subsequently increased to $145 million) to the Foothill/Eastern Transportation Corridor as partial security underpinning each bond issue. These federal lines of credit, available for a ten-year period upon completion of each facility, are intended to provide limited supplemental capital in the event that traffic shortfalls arise with an adverse impact on revenues (impairing debt service coverage) during the ramp-up phase.
The San Joaquin Hills Corridor (SJC) toll road is the first new public toll facility being developed by TCA. The SJC is a 15-mile, six-lane, limited access highway in southwestern Orange County (see Figure D.1). The new toll road is designed to relieve congestion on the heavily trafficked I-405, I-5, and Pacific Coast Highway, as well as other major arterial roads in the county. The toll road's initial design includes six travel lanes (three in each direction) and associated facilities with a median to allow for the future construction of proposed exclusive high occupancy vehicle (HOV) lanes as well as possible transit options.
The project was constructed pursuant to a design-build contract with a guaranteed maximum price and guaranteed completion date. The six-lane highway will operate as a toll facility until the bonds are retired. The State of California assumed ownership of the SJC with the opening of the toll road to commercial traffic in November 1996 and its formal acceptance by the California Department of Transportation (Caltrans). Caltrans will be responsible for traffic operations, maintenance, and liability, pursuant to a cooperative agreement between TCA and Caltrans. The toll collection facilities and equipment have been provided by Lockheed Information Management Services Company, Inc. Lockheed is responsible for system design, installation, operations, and maintenance of the toll facilities under a purchase agreement and operations contract with TCA. TCA will continue to own or lease the toll collection facilities.
Total costs for the project are approximately $1.45 billion. Financing sources included a combination of senior- and junior-lien tax-exempt toll revenue bonds, vendor financing, development impact fees, and federal and state funding as outlined in Table D.1.
Nearly $1.1 billion of senior-lien toll revenue bonds were issued in 1993, consisting of $766 million in Current Interest Bonds, $150 million in Convertible Capital Appreciation Bonds, and $163 million in Capital Appreciation Bonds. The senior bonds were rated BBB by Fitch. An additional $91 million of non-rated bonds were issued on a junior-lien basis and sold to institutional investors.
Table D.1 San Joaquin Hills Corridor Sources of Funds (In Millions)
Senior-lien Revenue Bonds | $1,079 |
Junior-lien Revenue Bonds | 91 |
Project Revenue Certificates | 38 |
Advance-funded Development Impact Fees | 31 |
California Transportation Commission Grant | 40 |
State and Local Transportation Partnership Program | 71 |
Interest Earnings | 106 |
Total | $1,456 |
Almost $38 million of third-lien vendor financing notes were purchased by the project's developers as part of their compensation under the design-build contract in lieu of cash. This served to align the interests of the developers with those of the senior and junior bond holders in seeking a commercially successful project.
State and local funding support for the project was provided through the 1992 State Transportation Improvement Program (STIP) and the California State and Local Transportation Partnership Program (SLTPP). Approximately $40 million was allocated under the STIP for the purpose of funding a portion of the construction costs of connecting the SJC to I-5. The SLTPP is expected to contribute approximately $71 million.
On September 25, 1997, TCA sold $1.45 billion of Toll Road Refunding Revenue Bonds, which will refund all but $220 million of the outstanding 1993 Toll Road Revenue Bonds. The 1997 issue consists of $605 million in Current Interest Bonds, $404 million in Convertible Capital Appreciation Bonds, and $439 million in Capital Appreciation Bonds. Of the bonds issued, 51 percent are insured by MBIA and carry ratings of AAA, Aaa, and AAA from Fitch, Moody's, and Standard & Poor's, respectively. The uninsured bonds were issued with ratings of BBB, Baa3, and BBB- from Fitch, Moody's, and Standard & Poor's, respectively. The refinancing lowered the debt interest rate by 1.8 percent and will generate $270 million in cash flow savings between 2000 and 2012.
The SJC was able to secure federal support for the project in the form of a standby line of credit. In the 1987 Surface Transportation Act, Congress designated this toll road as one of a limited number of projects eligible for up to 35 percent federal funding. In fiscal year 1993, acting on that designation, Congress appropriated $9.6 million to fund (pay the subsidy costs of a $120 million federal line of credit available to TCA to help cover debt service, if necessary, during the first five years of the toll road's operation. This represents a budgetary cost of only eight percent of the face amount of credit assistance. Because of uncertainty as to whether the line would be deemed a "federal guarantee," TCA informed bond holders it would not utilize the line unless it obtained an unqualified legal opinion from bond counsel. A provision in the fiscal year 1996 DOT appropriations act subsequently extended the availability of the credit line to ten years and broadened the purposes for which the line could be used. The federal line of credit is available in the event toll operations revenues and standard reserves (including the Use and Occupancy Fund) are not sufficient to cover debt service, costs of extraordinary repair and replacement, costs of complying with unexpected federal or state environmental restrictions, operating and maintenance expenses, and capital expenditures. The broadened purposes enabled bond counsel to render an approving opinion.
Only ten percent of the line ($12 million) is available in any one year. Any draws for capital expenditures, debt service, or other expenses (excluding operations and maintenance) must be repaid within 30 years at the rate on the 30-year Treasury bond at the time the draw is made. Draws for operations and maintenance expenses must be repaid within three years at the corresponding three-year Treasury rate at the time the draw is made.
At a budgetary cost of only $9.6 million, therefore, the federal government is providing a $120 million line of credit that is helping advance a $1.4 billion transportation facility. This represents a leveraging ratio of 150 to 1 in terms of capital investment induced to budgetary resources consumed.
The Foothill/Eastern Transportation Corridor (FETC) is the second new public toll facility being constructed by TCA. FETC is comprised of two principal segments, the Eastern Transportation Corridor and the Foothill Transportation Corridor. The Eastern Transportation Corridor is a 24-mile limited access toll road consisting of three segments connecting with the northern segment of the Foothill Transportation Corridor (see Figure D.1).
Upon its completion, the Foothill Transportation Corridor will be a 27.7-mile toll road, consisting of northern and southern segments connecting the Eastern Transportation Corridor with I-5 near the San Diego County line.
The Foothill Transportation Corridor's 12.1-mile northern segment is made up of two completed and operating portions (of 7.5-miles) plus two extensions (of 4.6-miles) which are currently under construction and known as "Foothill North." A separate 15.6-mile southern segment known as "Foothill South" will be financed by a future bond issue and is currently expected to begin construction in 2000 and be completed by 2003.
The 36.1-mile Foothill North/Eastern Transportation Corridor system will provide direct access between Riverside County's residential areas and Orange County's southeastern suburbs. The toll system is designed for two to three lanes initially in each direction, depending upon the segment, with future expansion capacity in the median available for general purposes, HOV lanes, or transit use.
As with the SJC, the FETC is being developed by a design-build consortium pursuant to a guaranteed maximum price and guaranteed completion date. Upon substantial completion of the project and acceptance by Caltrans, the toll road will become part of the existing state highway system. The road will, however, operate as a toll facility until the bonds are retired. As with the SJC, Caltrans will be responsible for traffic operations, maintenance, and liability, pursuant to a Cooperative Agreement between TCA and Caltrans. Pursuant to the terms of an agreement between Lockheed Management Information Services Company, Inc. and TCA, Lockheed will design, construct, operate, and maintain the integrated toll collection and management system. Upon completion of both SJC and FETC, the operations of the two corridors will be integrated into one and managed under the terms of a Multiple Use Agreement. TCA will retain ownership of the toll collection system and equipment for the FETC.
Total project costs of $1.8 billion were financed in 1995 through a variety of sources, including a combination of fixed and variable rate revenue bonds, state and federal funds, vendor financing, and a contribution from TCA. The sources of funds are outlined in Table D.2.
A total of $1.26 billion of tax-exempt fixed rate toll revenue bonds were issued in 1995, consisting of $907 million in Current Interest Bonds, $152 million in Convertible Capital Appreciation Bonds, and $205 million in Capital Appreciation Bonds. The fixed rate bonds were rated BBB, Baa3, and BBB- by Fitch, Moody's, and Standard & Poor's, respectively. The variable rate bonds were secured by development impact fees and further backed by direct pay letters of credit provided by a consortium of banks.
Table D.2 Foothill/Eastern Transportation Corridor Sources of Funds (In Millions)
Fixed Rate Bond Proceeds | $1,263 |
Variable Rate Bond Proceeds | 246 |
State & Local Transportation Partnership Program | 35 |
Project Revenue Certificates | 24 |
1993 Bond Funds | 36 |
TCA Contribution | 6 |
Interest Earnings | 198 |
Total | $1,808 |
The California State and Local Transportation Partnership Program provides state matching funds for certain locally funded and constructed highway and mass transit projects. Funding for the SLTPP is provided from the State Highway Account and is made available on a pro rata basis among all the projects which satisfy specific programmatic requirements. Approximately $35 million was allocated under the SLTPP for the purpose of funding a portion of the construction costs.
The Project Revenue Certificates are bonds issued by TCA to the contractor for a portion of the design-build contract price (up to $16 million) and for potential design-build contract price increases ($8 million) as deferred compensation. These certificates issued for the design-build contract will be repaid from the project contingency fund, to the extent funds are available, or from net toll revenues subordinate to any payments made with respect to the revenue bonds. Certain change order provisions in the design-build contract may increase the amount of certificates issued to the contractor.
As in the case of the SJC, the FETC was able to secure federal support for the project in the form of a standby line of credit . In the 1987 Surface Transportation Act, Congress also designated this toll road as one of a limited number of projects eligible for federal funding. In the fiscal year 1995 DOT appropriations act, Congress appropriated $8 million to fund (pay the subsidy costs of) a $120 million federal line of credit available to TCA for the FETC. A provision in the fiscal year 1997 DOT appropriations act subsequently allowed DOT to increase the FETC line to $145 million. This represents a budgetary cost of only 5.5 percent of the face value of credit assistance.
Similar to the amended SJC line, the FETC line of credit can be used to help pay debt service, the costs of extraordinary repair and replacement, costs of complying with unexpected federal or state environmental restrictions, operating and maintenance expenses, and capital expenditures in the event that toll operations revenues, capitalized interest, and reserve funds are not sufficient to cover such costs during the first ten years of the toll road's operation.
Only ten percent of the line is available in any one year. Any draws for capital expenditures, debt service, or other expenses (excluding operations and maintenance) must be repaid within 30 years at the rate on the 30-year Treasury bond plus 53.5 basis points at the time the draw is made. Draws for operations and maintenance expenses must be repaid within three years at the rate on the three-year Treasury bond plus 53.5 basis points at the time the draw is made.
In this case, at a budgetary cost of only $8 million, the federal government is providing a $145 million line of credit that is helping advance the $1.8 billion FETC. This represents an even larger leveraging ratio of 225 to 1 in terms of capital investment induced to budgetary resources consumed.
Alameda Corridor Project
In January 1997, DOT and the Alameda Corridor Transportation Authority (ACTA) entered into a loan agreement that will provide $400 million in project financing for the Alameda Corridor Project. The project is comprised of rail and road improvements that, once completed, will consolidate port-related freight traffic onto a 20-mile high speed, high capacity, and fully grade-separated transportation corridor linking the San Pedro Bay Ports with key transcontinental rail yards near downtown Los Angeles (see Figure D.2).
Figure D.2 Alameda Transportation Corridor
The San Pedro Bay port complex consists of the adjacent Ports of Los Angeles and Long Beach. Together, they represent the nation's largest port facility, handling about 25 percent of the nation's international waterborne trade valued at $120 billion per year. The ports are a key gateway to the burgeoning Pacific Rim, handling cargo for numerous industries that is shipped to virtually every region of the country. In addition to relieving local congestion and creating 10,000 construction-related jobs, the project will expedite the nationwide delivery of freight and generate far-reaching economic benefits.
As the San Pedro Bay seaports have grown as centers of international commerce, the current transportation infrastructure has become increasingly unable to accommodate approximately 108 million tons of freight cargo passing through the ports on an annual basis. That is why, after 20 years of discussion and analysis, city leaders and port officials, with the help of the federal government, are beginning construction on rail and road facilities that will vastly improve the connection between the two ports and the region's rail hub near downtown Los Angeles. Once completed, the $2 billion Alameda Corridor will include the following features:
The high cost of the Alameda Corridor ($2.04 billion) and the project's unusual revenue sources (container fees and port charges) presented a substantial barrier to ACTA's ability to advance the project in a timely manner. Though the Alameda Corridor was designated as a High Priority Corridor on the National Highway System, the size and scope of the project made it difficult for ACTA to attract sufficient capital from traditional sources. Thus, the need to find a supplementary means of financing the project became a priority. Initially, ACTA sought federal assistance in the form of a special $700 million grant. Due to federal budgetary constraints, however, the grant was not deemed to be a fiscally or politically viable option.
The fiscal year 1997 Omnibus Consolidated Appropriations Act (Public Law 104-208) provided $58.7 million for DOT to pay the capital charges (subsidy costs) associated with making a direct loan of up to $400 million to ACTA for the Alameda Corridor Project. This represents a budgetary cost of only 14.7 percent subsidy cost of the face value of credit assistance. The legislation also provided that the loan be repaid within 30 years from the date of project completion and that the interest rate on the loan not exceed the 30-year Treasury rate.
The federal loan represents permanent financing for approximately 20 percent of project costs. The first $140 million of loan proceeds were drawn down in September 1997. The loan is secured by a rate covenant, but is structured to include flexible repayment provisions that allow scheduled principal and interest payments to be deferred (with interest), in the event of insufficient project revenues. The federal loan's claim on revenues is junior to that of ACTA's senior bonds, which are expected to be issued in 1998. The combination of the flexible payment structure and the subordinate-lien will enhance the coverage ratio on ACTA's senior bonds. This will facilitate ACTA's ability to obtain a favorable rating on its senior debt, and substantially reduce its interest expenses and transaction costs.
At a budgetary cost of $59 million, the federal government is providing a $400 million loan that will help advance a $2 billion project with significant local, regional, and national benefits. With regard to the federal credit assistance, this represents a leveraging ratio of 35 to 1 in terms of capital investment induced to budgetary resources consumed.
As shown in Table D.3, the federal loan is but one piece of a complex financial package. The Los Angeles and Long Beach port commissions have already paid $400 million in right-of-way costs for the property located along the corridor route. Additionally, ACTA plans to issue approximately $735 million of senior revenue bonds in 1998, a portion of which will be tax-exempt and a portion of which will be taxable. The Los Angeles County Metropolitan Transportation Authority is supplying another $347 million from its allocation of the state's regular federal-aid funds.
Table D.3 Alameda Corridor Sources of Funds (In Millions)
Federal Loan | $400 |
ISTEA Demonstration Funds | 45 |
State of California | 68 |
Los Angeles County MTA | 347 |
Port of Los Angeles | 200 |
Port of Long Beach | 200 |
ACTA Revenue Bonds | 735 |
Interest and Other Income | 42 |
Total | $2,037 |