Innovative Finance for Freight Transportation

1. Innovative Finance for Freight Transportation Jennifer Mayer FHWA Resource Center “Talking Freight” Webinar September 2006

2. Freight in the Federal-Aid Highway Program • Historically, federal transportation funding has been divided by mode • Unfortunately, there is no “Federal Freight Administration” • Over the past 2 decades, eligibility for freight and intermodal projects has been substantially expanded • Latest transportation bill (SAFETEA-LU) continues this trend

3. Freight Eligibility Under Title 23 • Example projects: • Intermodal freight facilities on the National Highway System • Rail-highway hazard elimination • Emissions reduction projects under the Congestion Mitigation and Air Quality program • Eligibility is only a “hunting license” for the funds • Project sponsors still have to work with regional bodies known as Metropolitan Planning Organizations, State DOTs, and FHWA Division office to secure funding and approvals

4. Truck Parking Facilities Program • Address shortage of long-term truck parking on the National Highway System • $6.25 million annually through 2009. • Applications must be submitted to FHWA Division Office by November 27, 2006 • Questions concerning this program should be addressed to William Mahorney, 202-366-6817 (Bill.Mahorney@dot.gov), or to Julie Strawhorn, 202-366-4415 (Julie.Strawhorn@dot.gov) of the Office of Freight Management and Operations.

5. How Do Freight Projects Qualify for Innovative Finance? • If you could assist with a Federal-aid funding directly, you can assist with IF tools • Federal-aid eligibility opens the door to innovative finance eligibility • Generally, FHWA Division has the final call on eligibility, and should be first point of contact

6. What is Innovative Finance? • Tools that help leverage funding • Tools that attract other funding • Tools that facilitate access to other funding (e.g., the capital markets, private equity) • Any tool (other than traditional grants) that helps to get projects financed

7. Three Leading IF Tools • State Infrastructure Bank (SIB) • Transportation Infrastructure Finance and Innovation Act (TIFIA) • Private Activity Bond (PAB)

8. State Infrastructure Bank (SIB) Provides loans, lines of credit, and other forms of credit enhancement to projects that qualify for Federal-aid State-Controlled, but created with Federal-aid funding 32 states have them; all states and territories may create them

9. How Would a SIB Loan Work? Project sponsor applies to State SIB for loan for rail-highway crossing elimination project The SIB considers the loan application (If the SIB does not currently have funds, it may choose to use some of its Federal-aid funding to “capitalize” (fund) the SIB loan) If the application is approved, the SIB and the borrower negotiate terms such as interest rate, term of loan, and collateral, then the loan is made. The borrower constructs the project and repays the loan The SIB uses the repayments to assist other projects.

10. State DOTs Assist more than one project with the repaid funds (repayments go back in the program) Leverage – loans and credit enhancement go farther than direct Federal-aid Attract net new money to the system Borrowers Low interest rate (zero to market) Flexible repayment Maximum 35 year term Repayments can be delayed up to five years after construction “Patient” lender (can be subordinate) Advantage of SIB Loans – To Borrowers, and to State DOTs

11. Transportation Infrastructure Finance and Innovation Act (TIFIA) Provides loans, lines of credit, and other forms of credit enhancement to large projects, including intermodal freight facilities Apply directly to USDOT

12. How Would a TIFIA Loan Work? Project sponsor applies to USDOT for loan for intermodal highway/rail facility USDOT considers the loan application If the application is approved, USDOT and the borrower negotiate terms such as repayment schedule, term of loan, and collateral, then the loan is made The borrower constructs the project and repays the loan USDOT modes monitor project for compliance with Federal requirements

13. USDOT Leverage (can assist more projects with loans and credit enhancement) Attract net new money to the system Enable/facilitate public private partnerships Borrowers Low interest rate (Treasury) Flexible repayment Maximum 35 year term Repayments can be delayed up to five years after construction “Patient” lender (can be subordinate) Advantage of TIFIA Loans – To Borrowers, and USDOT

14. Private Activity Bonds (PABs) Allows tax-exempt bonds to be issued for projects with private involvement Does not provide funds or loan; but allows sponsors to access capital market funds at cheaper interest rates Apply directly to USDOT

15. How Would a PAB Work? Project sponsor applies to USDOT for allocation of PAB authority USDOT considers the application If the application is approved, USDOT and the project sponsor work to find a conduit issuer. The issuer issues the bonds, and provides proceeds to sponsor. Sponsor constructs project and makes payments. USDOT modes monitor project for compliance with Federal requirements

16. USDOT Attract net new money to the system Enable/facilitate public private partnerships Sponsors Cheaper financing (often 1-2 percentage points cheaper than taxable private finance) May facilitate financing packages Advantage of PABs – To Sponsors and USDOT

17. Additional Resources on IF • Jennifer Mayer, FHWA Resource Center Innovative Finance Team jennifer.mayer@fhwa.dot.gov (415)744-2634 • TIFIA: http://tifia.fhwa.dot.gov • SIBs: www.fhwa.dot.gov/innovative finance/sibs.html • PABs: www.fhwa.dot.gov/ppp