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Financing Techniques Guide for Project Sponsors
Table of Contents
VI. Miscellaneous Financing Techniques
I. What is a Project Sponsor?
A project sponsor is any legal entity that is proposing a transportation project. In the US, project sponsors include state departments of transportation, cities, counties, bridge authorities or districts, transit authorities or districts, border authorities or districts, metropolitan planning organizations, and regional mobility authorities. Project sponsors may also be private sector firms, or legal structures incorporating both public and private components.
For a given project, the project sponsor or sponsors may be a combination of the above legal entities, such as a partnership of a state department of transportation with a metropolitan planning organization, or a partnership of several state departments of transportation, several local government units, and private sector firms. The project sponsor(s) for a given project will vary depending on the project's size, complexity, geographical reach, and range of available financing options. Since the characteristics of projects will always differ, there really is no all-inclusive or "finite" list of legal entities that could potentially serve as a project sponsor
In order to identify or better understand what legal entity can act as a project sponsor, the following questions may be helpful:
Again, there is no one size fits all solution to picking the "best" project sponsor. The needs of the project, as well as the public and private stakeholders, must be carefully considered.
II. TIFIA Credit Program
Summary of Program
TIFIA is an acronym that stands for the "Transportation Infrastructure Finance and Innovation Act". The TIFIA Program was established by the Transportation Equity Act for the 21st Century (TEA-21) and amended by the Safe, Accountable, Flexible, Efficient Transportation Equity Act - Legacy for Users (SAFETEA-LU). The strategic goal of the TIFIA program is to leverage limited Federal resources and stimulate private capital investment in transportation infrastructure by providing credit assistance in the form of direct loans, loan guarantees, and standby lines of credit (rather than grants) to projects of national or regional significance.
The key objectives of the TIFIA program are to:
The Federal budget authority available for the TIFIA credit program is $122 million/year. At this funding level, assuming a conservative loan loss rate of 5%, the budget authority should be sufficient to accommodate $2.5 billion in annual lending.
Benefits of TIFIA Program
Eight Project Selection Criteria
20% - Private participation (equity or debt)
Public or private highway and bridge projects
Public freight rail facilities
Private rail facilities providing public benefit for highway users
Intermodal freight transfer facilities; access to such freight facilities and service improvements to such facilities including capital investment for intelligent transportation systems
Inter-city passenger bus and rail facilities and vehicles (including Amtrak and magnetic levitation systems)
For projects serving a port terminal, those surface transportation infrastructure modifications necessary to facilitate direct intermodal interchange, transfer, and access into and out of the port
In addition, eligibility is specifically extended to international bridges and tunnels
Other eligibility parameters are that:
Eligible Borrowers under TIFIA Program
Project sponsors often are also the borrowers under the TIFIA Program. However, sometimes there may be multiple borrowers for a given project. Eligible borrowers include state governments, agencies and authorities; local governments, agencies and authorities; bridge, border and transit authorities; multi-state consortia; joint ventures; private companies; and international entities. Generally, any legal entity would be defined as an eligible borrower for TIFIA purposes.
How to Apply for TIFIA Credit - Application Process
TIFIA Joint Program Office (HCF-50)
Mark Sullivan, Chief
III. Private Activity Bonds
Summary of Program
The current surface transportation legislation - the Safe, Accountable, Flexible, Efficient Transportation Equity Act - Legacy for Users (SAFETEA-LU) - has established a new borrowing option for transportation project sponsors: Private Activity Bonds (PABs). Specifically, SAFETEA-LU has amended Section 142 of the Internal Revenue code to add highway, bridge and freight transfer facilities to the types of privately developed and/or operated projects for which PABs may be issued. This amendment allows private activity on these types of projects, while maintaining the bonds' tax-exempt status.
Passage of private activity bond legislation reflects the Federal government's desire to increase private sector investment in US transportation infrastructure. Providing private developers and operators with access to tax-exempt interest rates lowers the cost of capital significantly, enhancing investment prospects.
The law limits the total amount of such bonds to $15 billion and directs the Secretary of Transportation to allocate this amount among qualified facilities. The $15 billion in exempt facility bonds is not subject to any state volume caps.
In order to obtain authority to use a portion of the $15 billion in PABs, the private project sponsor must work closely with a state or local government unit, since this government unit acts as the "conduit issuer" of the bond. That is, a local government will actually issue the bond, but the private company is responsible for making the periodic debt service payments and retiring the debt. In addition, since the underlying project must be on the STIP and eligible for Title 23 assistance, the private project sponsor needs to work with a local government unit to ensure that STIP and Title 23 requirements are met.
Benefits of Private Activity Bonds
Although private project sponsors will be developing and/or operating the highway, bridge and freight transfer facilities, a unit of state or local government will act as the "conduit issuer" of the PAB and will be considered the eligible borrower. Accordingly, the private project sponsor must coordinate closely with the government unit that is actually borrowing funds.
Application Review Criteria
USDOT will consider applications in light of applicable statutory requirements and the availability of tax-exempt authority for the type and location of the project for which the allocation is requested. If additional information is needed to conduct its review, the Department will contact the applicant to arrange for the submission of such required information. In submitting an application, applicants should note that there are no specific standards, beyond those set forth in applicable laws or regulations, applying to consideration of the applications. The intent is to provide maximum flexibility in the Secretary's award of the $15 billion bonding authority. The Department is particularly concerned that once it makes an allocation, tax-exempt facility bonds are issued in a timely fashion. Hence, if the schedules agreed upon in the final allocation action are not met, the allocation may be withdrawn.
The enabling legislation requires that at least 95 percent of the net proceeds of bond issues be expended for qualified highways or surface freight transfer facilities within a five-year period from the date of issue. If this does not occur, the issuer must use all unspent proceeds to redeem bonds of the issue with 90 days after the conclusion of the five-year period. Alternatively, the issuer may request an extension of the five-year period if it can establish that the failure to expend the funds was due to circumstances beyond its control.
How to Apply for Authority to Use Portion of $15 Billion in Private Activity Bonds - Application Process
USDOT is accepting applications from project sponsors interested in receiving authority to use a portion of the $15 billion in tax-exempt PABs. While USDOT has not specified a fixed format for bond applications, it has identified a number of pieces of information that would be helpful in facilitating its consideration of applications. These data elements include:
Mr. Jack Bennett
IV. RRIF Credit Program
Summary of Program
RRIF is an acronym that stands for the "Railroad Rehabilitation and Improvement Financing" Program. The RRIF Program was established by the Transportation Equity Act for the 21st Century (TEA-21) and amended by the Safe, Accountable, Flexible, Efficient Transportation Equity Act - Legacy for Users (SAFETEA-LU). Under this program, the Administrator of the Federal Railroad Administration (FRA) is authorized to provide loans and loan guarantees up to $35 billion. Up to $7 billion is reserved for projects benefiting freight railroads other than Class 1 carriers.
Benefits of RRIF Program
Criteria for Evaluating RRIF Applications
Eligible Projects and Borrowers
RRIF funding may be used to:
Project sponsors often are also the borrowers under the RRIF Program. However, there may be multiple borrowers for a given project. Eligible borrowers include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad, and limited option freight shippers who intend to construct a new rail connection.
How to Apply for RRIF Credit Assistance - Application Process
V. BANOBRAS Credit Programs
Summary of Program
BANOBRAS is an acronym that stands for Banco Nacional de Obras y Servicios Publicos, which translates as the National Bank for Public Works and Services.
BANOBRAS provides financial assistance to state and municipal administrations for projects designed to improve public services and infrastructure, thereby improving society's well-being and stimulating local economic development.
These projects promote the planning, modernization and maintenance of roadway infrastructure, control and reduction of environmental pollution, and quality and efficiency of the roadway and transportation systems.
The public works and project financed by BANOBRAS include:
A necessary prerequisite for sustained and sustainable economic development is the existence of a suitable, extensive and efficient highway system moving both goods and services. This is especially true given the trends of globalization and economic opening that Mexico is currently facing.
A high quality network of toll highways is a critical factor that reduces costs, improves the national standard of living, and enhances competitiveness, while at the same time achieves a greater regional and sector-wide integration.
There currently is a long-term need to extend the highway network in the border zone and at certain critical communication hubs. Investments in bypasses and access roads are needed to improve highways' connectivity with urban roadway systems, seaports and border ports of entry.
Available Financial Assistance
BANOBRAS contributes to the development of highway infrastructure, through designing finance plans for federal and state toll highway projects that generate funds for repayment of debt service.
This type of project, where the source of repayment is project-related toll revenue, relates principally to concession arrangements with the private sector, whose objective is to ensure that the toll revenue is sufficient to pay for the investment needed to construct or improve toll highways, bridges and bypasses.
In addition, BANOBRAS provides support for the New Concession Plan for Toll Highways, under which the Federal Government's Secretariat of Communication and Transport and state governments grant concessions to the private sector to construct toll highways that cannot be financed solely on projected toll revenues. Under the New Concession Plan, BANOBRAS acts for the Federal Government in providing funds to the Investment Fund for Infrastructure (FINFRA). FINFRA, in turn, is used to:
Benefits of BANOBRAS Programs
Project Selection Criteria
How to Apply for Banobras Credit Assistance - Application Process
Direccion de Promocion y Proyectos
VI. Miscellaneous Financing Techniques
State Infrastructure Bank Lending
SAFETEA-LU has expanded the State Infrastructure Bank financing technique to all states. That is, all states are now allowed to establish a State Infrastructure Bank, or SIB, with FY 2005-2009 Federal and matching state funds. Up to 10% of major Federal Highway Administration and Federal Transit Administration funding categories can be used to capitalize (provide initial start-up capital) for these banks. The state must match the Federal funds used to capitalize an SIB on an 80-20 Federal/non-Federal basis.
Once established, SIBs serve as state investment banks that can loan funds and provide credit enhancement to public entities or private firms. SIBs operate as revolving funds, with interest and other income added to bank capital. Under the SIB program, loans and credit enhancement can be provided for any state approved project eligible for either Title 23 or Title 49, or for surface transportation projects specifically approved by the Secretary. Credit assistance to be provided includes below market rate loans, interest rate buy-downs, and loan guarantees. Loan repayments must begin no later than five years after project completion, with a repayment term no longer than 30 years. Interest rates are never higher than market.
For information on SIB programs available in US southern border states, contact:
Arizona State Infrastructure Bank
California State Infrastructure Bank
New Mexico State Infrastructure Bank
Texas State Infrastructure Bank
Grant Anticipation Revenue Vehicle (Garvee) Bonding
All states are allowed to issue Garvee bonds, as long as appropriate authorizing legislation has been passed at the state level. Under the Garvee bonding concept, states sell bonds to raise the cash needed to construct transportation projects, and pledge future Federal transportation funds (Federal-aid highway funds as well as some categories of Federal transit funds) to pay the debt service on these bonds. While Garvee bonds are not a source of new or additional funding, their use can significantly accelerate the construction of essential projects.
In order to be financed under a Garvee bond program, projects must be included on the appropriate state transportation plan. In addition, once the Garvee bond has been sold, the Federal project authorization relating to a given project must identify that Garvee bond proceeds will be used pay debt service.
Interstate System Construction Toll Pilot Program - Under SAFETEA-LU, a new Interstate Construction Pilot Program allows a state or compact of states to collect tolls on an Interstate highway, bridge or tunnel for the purpose of constructing Interstate highways. This Program allows three toll projects to help finance new Interstate highways. The applicant is required to show that tolling is the most efficient and economical way to advance the highway project in question.
Express Lanes Demonstration Program - SAFETEA-LU also allows fifteen demonstration projects through FY 2009 on the Interstate system to manage congestion, reduce emissions in non-attainment or maintenance areas, and finance additional lanes. A state, public authority, or public or private entity designated by a state may apply. Eligible toll facilities include existing toll facilities, existing High Occupancy Vehicle (HOV) facilities, and newly created toll lanes. Tolls charged on HOV facilities under this program must use pricing that varies according to time of day or level of traffic. Automatic toll collection is required.
HOV to HOT Lane Conversion - SAFETEA-LU also permits the conversion of HOV lanes to HOT lanes. The only requirement is that the tolls need to be variable (according to time of day or level of traffic). In addition, the tolling entity may choose to grant transit, low emission or high fuel efficiency vehicles an exemption from tolls.
Interstate System Reconstruction and Rehabilitation Toll Pilot Program - This Program was established in the Transportation Equity Act for the 21st Century (TEA-21) to allow up to three Interstate tolling projects for the purpose of reconstructing or rehabilitating Interstate highway corridors that could not be adequately maintained or improved without the collection of tolls. SAFETEA-LU makes no revisions to the program; therefore, it continues without change.
One-Stop FHWA Application Procedures - Since there are now multiple tolling initiatives, each with its own rules, FHWA has established a new "Tolling and Pricing Team" to provide a one-stop review and application process. This website is: www.ops.fhwa.dot.gov/tolling_pricing/index.htm
Other Federal Railroad Administration Funding (other than RRIF Credit Program) - Congress may provide funding for specific rail projects as part of the Department of Transportation's annual appropriations for a given Federal fiscal year or years. These funds are generally available until expended and typically are transferred to state Departments of Transportation through federal grants. The Federal Railroad Administration manages all rail related projects. Appropriated funding may also be available for research and development projects related to both passenger and freight rail.
For additional information on these and other financing techniques available to accelerate border projects, please feel free to contact:
Ms. Thay Bishop, Team Leader