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USDOT Lending Programs

USDOT Lending Programs. Transportation Infrastructure Finance and Innovation Act (TIFIA, Public Law 105-78, 1998) Supports Title 23 and 49 surface transportation projects Direct Loans Loan Guarantees Lines of Credit Railroad Rehabilitation and Improvement Financing

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USDOT Lending Programs

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  1. USDOT Lending Programs • Transportation Infrastructure Finance and Innovation Act (TIFIA, Public Law 105-78, 1998) • Supports Title 23 and 49 surface transportation projects • Direct Loans • Loan Guarantees • Lines of Credit • Railroad Rehabilitation and Improvement Financing • Direct Loans for passenger and freight rail infrastructure • Maritime Guaranteed Loan Program • Loan Guarantees to support shipping industry • Minority Business Resource Center Short-Term Lending Program • Short-Term Working Capital Loans to small businesses

  2. USDOT Credit Council • Created in 2004 via USDOT Order 2301.1 • Established oversight for all DOT lending programs • Provides policy direction for all lending programs • Reviews financial analysis • Reviews loan portfolios • Enacting guidelines for special services • Recommends approval of pending credit applications • Voting members include DOT modal administrators • FHWA, FTA, FRA, MARAD, OSDBU, OST (CFO, Policy Under and Assistant Secretary, General Counsel) • Support provided by working group modal liaisons

  3. USDOT Credit Council (2) • Credit Council working group liaisons perform : • Independent Financial Analysis and loan review • Due diligence research, risk analysis • Modal Administrator briefings • Policy analysis; legislative interpretations (e.g., refinance) • Legislative recommendations • February 2007: • Direct loan of $2.3 billion via the RRIF loan program • Exceeds the 1979-80 Chrysler $1.2 billion loan guarantee • Required additional financial analysis • Pending lawsuit

  4. Other Policy Issues • Loan guarantee or direct loan preferences • Appropriate role of public credit assistance and risk • Requirement for investment grade rating • Financially sound projects don’t need assistance • Privatization of public infrastructure • Appropriate uses and models • Recent deals: • Indiana Toll Road, Chicago Skyway, Pocahontas Parkway Can public infrastructure attract investors? • Some infrastructure is an attractive investment • Proven revenue stream • Near monopoly with established demand • Low completion and construction risk • Long term investment horizon

  5. PAY-GO v. Infrastructure LoansBorrowing Is Attractive When: • Low interest rate environment • Insufficient grant funds for project • Appropriation risk for multiyear project • Delays in budget schedule • Change in earmark status • High inflation rate environment • construction materials • right of way costs • Time sensitive delivery • Must meet safety standard (air quality) • Disaster recovery (restore service) • External pressure to meet a deadline

  6. What is a State Infrastructure Bank ? • State controlled revolving fund • Capitalized with Federal and State matching funds • Governed by mutually signed cooperative agreement SIB Products: • Transportation project financial assistance • Direct loans (most common assistance type) • Credit enhancement products • Loan Guarantees • Bond insurance • All or partial project financing

  7. State Infrastructure Bank (SIB)Pilot Program History • National Highway System Designation Act (1995) • Capitalization: 10% of Intermodal Surface Transportation Efficiency Act (ISTEA) apportionments • Federal requirements: Apply to first round assistance • Eligible States: 39 SIBs approved • TEA-21 (1998) • Capitalization: Unlimited % of apportionments • Federal requirements: Apply to all Federal money • Eligible States: CA, RI, MO, FL, TX

  8. SAFETEA-LU SIB Program Changes • Current authorizing legislation effective 2005-2009 • Capitalization: Up to 10% of eligible apportionments • Federal requirements: Apply to all Federal money • Program is open to all 50 States and US territories • Increased options for regional (multi State) banks • Annual report requirement • Matching requirements differ by modal account type • Maximum 30 year repayment period

  9. Creating and Operating a SIB Program Commencement: • State enabling legislation may be necessary • Signed cooperative agreement with each Federal agency • Program can be tailored to State needs SIB Operations: • Similar to commercial banks • Marketing and outreach activities • Lending priorities and procedures • Accounting and loan monitoring activities • Other issues • Fund management • Interest rate policy

  10. USDOT SAFETEA-LU SIB Program Increase Existing SIB Lending Activity • Assist with new capitalization efforts • Identify projects suitable for SIB assistance • Identify and solve program utilization impediments Identify and Assist NEW SIBs: • Identify interested in program participants • Negotiate cooperative agreements • Provide technical assistance

  11. 1 3 4 SIB Flow of Funds 2 Repayments Initial Federal Aid Loans Initial Projects Capitalization Grants Second Round SIB Second Round Projects Loans State funds Typical Direct Loan Product Repayments

  12. Federal Credit Requirements • Below market interest rates • 35 year maximum repayment period • 30 year maximum under SAFETEA-LU • Investment grade rating on SIB debt, or sufficient bond insurance • Investment income is credited to the SIB • Loan repayment must commence not later than 5 years after project completion

  13. State Infrastructure Banks: Pilot Program Participation WA AK ME MT ND OR VT MN NH ID WI NY SD MA MI WY RI PA IA NJ NE OH MD IN IL UT DE WV CO VA KS MO CA KY NC TN AZ OK SC AR NM GA AL TX LA 1998 TEA-21 Approved SIBs PR FL 1998 TEA-21 Authorized SIBs 1995 NHS SIBs

  14. SIB Accomplishments • Lending activity: • Transit: $94.5 million; 8 SIBs out of 21 authorized • Total as of June 30, 2005: • 457 loan agreements • More than 5 billion dollars • 33 States • Reduced project financing costs: • Provided below market interest rates for projects • Accelerated project delivery: • Funded project match requirements for transit projects • Partnered with other DOT programs: • TIFIA Credit Program

  15. EPA State Revolving Fund program • Similar to USDOT State Infrastructure Bank program • Started in 1987 (Clean Water State Revolving Fund) • Provides low interest loans for safe water projects • Supported by Council of Infrastructure Financing Authorities and Environmental Finance Center Network (10 schools) • Developed many financing innovations: • Link deposit • Compensating balances • Loan participation • Partnership arrangements

  16. SRF Program Goal “To balance the sometimes conflicting objectives of funding over time the largest dollar amount of the most environmentally beneficial eligible projects as timely as possible, yet at the same time providing a meaningful financial subsidy to borrowers, while maintaining the fund’s contributed capital, unadjusted for inflation”

  17. Commercial Bank Conduit Lending Link Deposit Example: • SRF deposits funds in a commercial bank • SRF receives reduced interest rate on deposit • Bank loans equal amount of funds to qualified projects at below market interest rates • Bank receives interest rate spread between below market deposit rate and below market loan rate • At end of loan term, SRF deposit is withdrawn and account is closed

  18. Commercial Bank Conduit Lending (2) Link deposit advantages for SRFs: • SRF receives a nominal return on investment • Similar to interest received on a loan to a municipality • Deposit is covered by FDIC insurance • Limits risk to SRF funds; coverage up to $100,000 • Credit analysis, risk, and loan servicing is transferred • Commercial bank is responsible for mitigating a default • SRF credit rating is not imperiled Link deposit advantage for commercial bank: • Receives interest rate spread • Assists infrastructure investment in community

  19. Future Infrastructure Investment Needs Surface Transportation 2004 Estimated Funding Gap: Average annual cost to maintain current conditions (2005-2024) Funding shortfall Highways and Bridges $8.5 billion Transit $3.2 billion Clean and Drinking Water 2003 Annual Needs Estimates Environmental Protection Agency $15 billion Congressional Budget Office $12.2-21.2 billion Water Infrastructure Network $21 billion

  20. Community Reinvestment Act (CRA) • Public disclosure of commercial lending practices and activity in low income, minority, distressed areas • Services must meet needs of local community • Bank examiners determine compliance • Established in 1977 (Public Law 95-128) • Four Federal agencies involved in compliance • Federal Deposit Insurance Corporation • Office of the Controller of the Currency • Federal Reserve Board • Office of Thrift Supervision

  21. CRA Infrastructure Investment Revised Guidance issued on March 10, 2006 • Federal Regulations (70 FR 44256) • FDIC RIN 3064-AC97 • Qualifying activities include infrastructure : • Disaster area: “providing financing or other assistance for essential community-wide infrastructure” • Underserved non metropolitan middle income area: “financing the construction, expansion, improvement, maintenance or operation of essential infrastructure…for public safety, public services”

  22. CRA Research Interest • Did the CRA revisions result in increased infrastructure lending by commercial banks? • If yes, by how much? If not, why not? • Could link deposit or other commercial bank conduit lending techniques stimulate infrastructure investment? • Could SIBs or other revolving funds partner with commercial lenders interested in CRA compliance and infrastructure investment?

  23. ContactInformation: THANKS! Robena Reid, Federal Transit Administration (202) 366-1973 Robena.Reid@dot.gov

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