Innovative Financing for Water Transportation Infrastructure Wednesday 21 September 2016 Standing Committee on Water Transportation Innovative Financing for Water Transportation Infrastructure Jennifer Brickett Director, The BATIC Institute: An AASHTO Center for Excellence American Association of State Highway and Transportation Officials

Agenda Federal Funding Opportunities Federal Financing Opportunities Resources Goal of presentation to (1) provide a snap shop of some federal and financing tools that could be used towards water infrastructure or intermodal facilities; (2) provide an overview of notable resources; (3) discuss your capacity building needs

Federal Funding Opportunities -- TIGER Grants -- FASTLANE Grants USDOT has two primary, multi-modal grant programs for providing discretionary funding assistance to project sponsors.

Transportation Investment Generating Economic Recovery (TIGER) Discretionary Grant Program The TIGER Discretionary Grant Program Opportunity provides grants for road, rail, transit, and port projects that promise to achieve national objectives and have significant impacts on the Nation, region, or a metropolitan area. Since 2009 (beginning with “the stimulus bill,” ARRA), Congress has provided nearly $4.6 billion in annual discretionary appropriations over eight grant cycles: This has supported 43 port projects across 24 states. Ports have accounted for 8% of the applications, but have received more than 11% of awards TIGER can provide capital funding directly to any public entity, including municipalities, counties, port authorities, tribal governments, MPOs, or others in contrast to traditional Federal programs which provide funding to very specific groups of applicants (mostly State DOTs and transit agencies). Two of the largest port projects receiving TIGER funding in the most recent round in July 2016 include $17.63 million for ExPORT Upstate New York thru Port of Albany Maritime Improvements and $10M for the Port of Everett (WA) – South Terminal Modernization Project.

FASTLANE Discretionary Grant Program Authorized in the FAST Act $4.5 billion over 5 years for major highway and freight projects Five port projects The FAST Act authorized a new “Nationally Significant Freight and Highway Projects” discretionary program coined the FASTLANE program. This program is designed for major highway and freight projects funded at $4.5 billion over 5 years. In FY16, $800 million was awarded for 18 infrastructure projects across the country. The largest award $165 million went to VDOT toward the Atlantic Gateway Project. Five port projects were awarded funding in FY16. Two of the largest port projects that received funding are: $44 million for Georgia Ports Authority for a Port of Savannah international multi-modal connector $42 million to Massachusetts Port Authority for Conley Terminal intermodal improvements and modernization $11 million for the Coos Bay Rail Line – Tunnel Rehabilitation Project (Oregon International Port of Coos Bay) $10,672,590 for the Cross Harbor Freight Program (Rail) – Port Authority of New York and New Jersey $7,719,173 for the Maine Intermodal Port Productivity Project

Federal Financing Opportunities -- Federal Credit Assistance (Loans / Guarantees) -- Tax Preferred (“Private Activity”) Bonds Currently there are two main types of financing assistance the federal government can provide to sponsors of surface transportation and water infrastructure projects – federal loans / guarantees and authorization to issue tax-exempt bonds for projects involving significant private participation (so-called “private activity” bonds). This financing assistance is provided through several discretionary programs…

Transportation Infrastructure Finance and Innovation Act (TIFIA) Enacted in 1998 to leverage federal funds in financing major surface transportation projects Federal credit assistance for projects of national and regional significance Highway, transit, passenger rail, intermodal freight, and port access projects Direct loans (plus loan guarantees and standby lines of credit) Public and private entities are eligible for assistance Overview slide

TIFIA (Cont.) FAST Act Funding Loan Provisions Major Requirements $275 million in 2016 to cover loan subsidy costs, rising to $300 million in 2020 Can support approximately $20 billion of lending during next five years. Loan Provisions Treasury-rate borrowing (2.44% for 35-year loan on 9/19/16) Up to 33-49% of project costs Repayment flexibility Major Requirements Minimum anticipated project costs Investment grade rating Dedicated repayment source Applicable federal requirements Details Slide Loan Provisions: Credit assistance limited to 33% of reasonably anticipated eligible project costs (unless the sponsor provides a compelling justification for up to 49 percent) Major Requirements: Minimum anticipated project costs $10 million for TOD, Local, and Rural Projects $15 million for Intelligent Transportation System Projects $50 million for all other eligible Surface Transportation Projects Investment grade rating Senior debt and TIFIA loan must receive investment grade rating from at least two nationally recognized credit rating agencies (only one rating required if less than $75 million) Dedicated repayment source The project must have a dedicated revenue source pledged to secure both the TIFIA and senior debt financing Applicable Federal Requirements Civil Rights, NEPA, Uniform Relocation, Buy America, Titles 23 and 49

TIFIA (Cont.) Eligible Sponsors State governments State infrastructure banks Private firms Special authorities Local governments Transportation improvement districts Eligible Projects Highways and bridges Intelligent Transportation Systems Intermodal connectors Transit vehicles and facilities Intercity buses and facilities Freight transfer facilities Pedestrian and bicycle infrastructure networks Transit-oriented development Rural infrastructure projects Passenger rail vehicles and facilities Surface transportation elements of port projects The TIFIA language says that money can go to port terminals if projects facilitate intermodal exchanges and port access. To the extent ports are considered to be intermodal transfer zones (by definition), TIFIA eligibility may be applied broadly. [I think this is logical, but not clear to what extent USDOT has made this an official determination – may have to wait and see how future port applications bear fruit…]

TIFIA (Cont.) PortMiami (FL) Tunnel bypass to Interstate 95 $342M in TIFIA assistance out of $1,073M in total project costs. Construction completed in 2014. Primary revenue pledge: Availability payments Port of Long Beach (CA) Gerald Desmond Bridge Replacement $325M in TIFIA assistance out of $1,288M in total project costs. Construction will be completed in late 2017. Primary revenue pledge: Port revenues Cooper River Bridge (SC) Replacement $215M in TIFIA assistance out of $675M in total project costs. Project opened in 2005. Primary revenue pledge: SC Transportation Infrastructure Bank loan repayments PortMiami Tunnel bypass The state has agreed to pay for approximately 50 percent of the capital costs (design and construction) and all operations and maintenance, while the remaining 50 percent of the capital costs will be provided by the local governments. 35-year concession agreement, which includes 55 months for design and construction. MAT Concessionaire, LLC is responsible for operating and maintaining the tunnel once construction is complete in return for the above payments, with full payment depending on performance. The Port of Miami Tunnel will improve access to and from the Port of Miami, serving as a dedicated roadway connector linking the Port (located on an island in Biscayne Bay) with the MacArthur Causeway (State Road A1A - which connects Miami to Miami Beach) and I-395 on the mainland. Currently the Port is linked to the mainland only by the Port Bridge. The tunnel will: (i) improve access to the Port helping to keep it competitive and efficient, (ii) improve traffic safety in downtown Miami by removing cargo trucks and cruise line buses from congested city streets, and (iii) facilitate ongoing and future development plans in and around downtown Miami.  Port of Long Beach - Gerald Desmond Bridge Replacement Financial close occurred in May 2014. The Gerald Desmond Bridge is a major access point to the Port of Long Beach from downtown Long Beach and surrounding communities, carrying I-710 over the Port's Inner Harbor to Terminal Island. The replacement bridge will be a six-lane, cable-stayed design, with a 205-foot clearance to allow the newest generation of cargo ships to enter the Port. Cooper River Bridge Replacement The Cooper River Bridge Replacement project was a bridge replacement project near Charleston, South Carolina. The Arthur Ravenel Jr. Bridge replaced two functionally obsolete bridges - the Grace Memorial and Pearman Bridges - along U.S. 17 over the Cooper River, connecting the cities of Charleston and Mount Pleasant. The new bridge increased roadway capacity, improved safety, reduced the frequency and cost of major bridge maintenance, and increased the vertical and horizontal navigational clearances to accommodate the current needs of seafaring vessels on the river, including permitting modern cargo vessel passage to the Port of Charleston, the second largest container cargo port on the East Coast.

Railroad Rehabilitation & Improvement Financing (RRIF) Enacted in 1998 to leverage federal funds in financing railroad projects Provides direct loans (and potentially loan guarantees) of up to $35 billion for eligible rail projects Treasury-rate borrowing; flexible repayment options (similar to TIFIA) No subsidy funding provided by Congress – credit risk premium payments required from borrowers Railroad projects range from short-line railroads and rail equipment to passenger rail facilities. Acquire, improve or rehabilitate intermodal or rail equipment or facilities, including track, track components, bridges, yards, buildings, and shops Refinance outstanding debt Develop or establish new intermodal or railroad facilities Attractive because, like TIFIA, it provides low-interest, long-term financing (interest rates equal to US Treasury rates); Direct loans for up to 100% of project cost (unlike TIFIA, which is limited to 33-49%) Credit risk premium is assessed as a percentage of the total loan amount and varies by the loan terms and overall risk of each unique transaction. Credit risk premium may be expensive (especially for low- or un-rated loans), but can be reduced with pledges of collateral.

RRIF Eligible Sponsors Railroads State and local governments Government-sponsored authorities and corporations Joint ventures that include at least one railroad Limited option freight shippers who intend to construct a new rail connection Special authorities Local governments Transportation improvement districts Eligible Projects Acquire, improve or rehabilitate intermodal or rail equipment or facilities Track, track components, bridges, yards, buildings and shops Refinance outstanding debt incurred for purposes above Develop or establish new intermodal or railroad facilities

Water Infrastructure Finance and Innovation Act (WIFIA) Credit program for Army Corps and EPA, initially authorized by the Water Resources Reform and Development Act (WRRDA) of 2014 Patterned after TIFIA, similar basic program structure Potential Army Corps-assisted projects: flood control or hurricane and storm damage reduction, environmental restoration, coastal or inland harbor navigation improvement, inland and intracoastal waterways navigation improvement. Potential EPA-assisted projects: wastewater treatment and community drinking water facilities, enhanced energy efficiency of water / wastewater facilities, repair / rehab of aging water / wastewater systems, desalinization or water recycling projects. But no subsidy funding for loan costs appropriated thus far U.S. Senate has just passed its latest version of Water Resources Development Act (WRDA, S. 2848, on 9/15/16) that includes $70 million authorization for WIFIA U.S. House still working on its version of WRDA Initially authorized by the Water Resources Reform and Development Act (WRRDA) of 2014. New financing mechanism for Army Corps-assisted projects (including flood control, environmental restoration, and coastal and inland waterways navigation) as well as EPA-assisted projects (drinking water and wastewater). It draws heavily on the TIFIA program experience and structure: Provides low interest rate financing Projects must be nationally or regionally significant Projects must be reasonably anticipated to cost at least $20 million (lower $5 million threshold for rural projects) Project Eligibility: https://www.epa.gov/wifia/learn-about-water-infrastructure-finance-and-innovation-act-program Borrower Eligibility: corporations, partnerships, municipal entities, and SRF programs Program off to slow start because Congress has not yet appropriated subsidy funding to cover the costs of making loans (unlike TIFIA, which has authorized contract authority from the HTF) EPA is setting up its program in anticipation of congressional funding, but Army Corps program appears dormant…

Private Activity Bonds (PABs) for Transportation Infrastructure Airports (public ownership, not capped) Mass Commuting Facilities (public, capped) High Speed Intercity Rail (either, private capped) Docks and Wharves (public, not capped) Highway or Surface Freight Transfer Facilities (either, special $15 billion cap) [Note there are several other categories for other purposes / sectors] Section 142 of the Internal Revenue Code authorizes tax-exempt bonds to be issued for special “exempt facilities” having significant private participation that otherwise would not be able to issue such tax-preferred bonds. Some of these special carve outs do not allow private ownership, and many are subject to the statewide PAB volume cap. States are limited in how many “exempt facility” or “private activity” bonds may be allocated to / issued by qualified projects in certain categories (as noted on this slide). In 2016, the national total of state PAB caps is $32.5 billion The 2016 cap for each state is the greater of $302.88 million (floor) or $100 times the state’s 2015 estimated population (thus California has the largest PAB volume cap of $3.914 billion) As you can see, PABs can be issued for Docks and Wharves without limit, but public ownership is required. I’m going to focus my remarks on the relatively new “Highway or Surface Freight Transfer Facilities” category that was authorized by SAFETEA-LU in 2005. This category has a separate $15 billion national cap and allows private ownership of qualified projects.

Highway / Surface Freight Transfer PABs Authorized by SAFETEA-LU in 2005, subject to special $15 billion volume cap Enables P3s to access tax-exempt debt for qualified projects USDOT can allocate up to $15 billion for qualified highway and surface freight transfer facilities (projects must receive title 23 or title 49 assistance) To date: $6.5 billion has been issued for 17 projects (including 2 transit and 2 intermodal projects) $4.7 billion has been allocated (but not yet issued) for 5 more projects (including 1 intermodal and 1 passenger rail project) $3.8 billion currently is available for allocation Section 11143 of Title XI of SAFETEA-LU amended Section 142 of the Internal Revenue Code to add a PAB category for highway and freight transfer facilities. 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 the general state volume caps that govern other PAB categories. As of July 7, 2016, nearly $6.5 billion in PABs have been issued to date for 17 projects. PAB allocations approved by USDOT total over $4.7 billion to support another five projects. Qualified projects: Any surface transportation project which receives Federal assistance under Title 23. Any project for an international bridge or tunnel for which an international entity authorized under Federal or State law is responsible and which receives Federal assistance under Title 23. Any facility for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities directly related to such transfers) which receives Federal assistance under Title 23 or Title 49. > Examples of facilities for the transfer of freight from truck to rail or rail to truck include cranes, loading docks and computer-controlled equipment that are integral to such freight transfers. Examples of facilities that are not freight transfer facilities include lodging, retail, industrial or manufacturing facilities. As indicated earlier, TIFIA eligibility is broad and can encompass a variety of projects potentially involving port access and intermodal exchanges. Since TIFIA credit is title 23 assistance, any project receiving TIFIA assistance is also eligible to receive this tax-exempt bonding authority, whether public or private ownership.

Future Financing Opportunities Future Financing Opportunities? -- National Infrastructure Bank (NIB) or Fund (credit assistance) -- Qualified Public Infrastructure Bonds (QPIBs) -- Build America Bonds (BABs) -- Qualified Tax Credit Bonds (QTCBs), America Fast Forward (AFF) Bonds -- Move America Bonds and Investment Tax Credits [Optional slide, might be good to indicate that the Institute is keeping an eye on potential developments with infrastructure financing…] Numerous other federal financing proposals have been introduced recently or are being discussed (especially in light of the Presidential candidates focusing on the need for infrastructure investment and tax reform) – the BATIC Institute is following these developments and will be prepared to help project sponsors and various stakeholders evaluate them…

Resources

About the BATIC Institute Mission To promote public sector capacity building in the analysis, understanding, and use of transportation finance techniques through a program of training, education, and outreach to all State Departments of Transportation and their local partner agencies Goals To increase the capacity of policy makers and project sponsors to: Understand project finance tools available to all types of projects Create a sound environment for partnership among project delivery stakeholders Assess projects for potential delivery via public-private partnership (P3), and, if suitable, empower their delivery of projects under this approach We are a center that builds capacity within public sector transportation agencies in the area of transportation finance (i.e., bond financing, federal credit, P3s, and other financing tools). We build capacity by providing training, facilitating peer-to-peer discussions, and sharing of best practices. Our goal is to lay the foundation for public agencies to make decisions about which financing tools work best for them. The BATIC Institute stems from MAP-21, which authorized a center for excellence in project finance. Since that time, AASHTO entered into a cooperative agreement with USDOT to run the Center. The BATIC Institute launched in October 2015, but this current initiative is really a re-iteration of previous Centers of Excellence in project finance that AASHTO has run. AASHTO self-initiated a PFI (2002-2007); work under this PFI included assorted research projects and workshops AASHTO entered into its first cooperative agreement with USDOT (2008-2012); best known service provided under this center was the annual Wharton Transportation Executives Program, which was an executive program delivered in partnership with leading universities that educated top State Dot and local government agency officials in transportation finance and management. Due to insufficient resources constraints, State DOTs and local government agencies are increasingly looking to creative and ready to use funding and financing options.

BATIC Institute Partners USDOT’s Build America Bureau AASHTO Team American Public Transportation Association (APTA) National Conference of State Legislatures (NCSL) WSP | Parsons Brinckerhoff Mercator Advisors

BATIC Institute Online Services In-person Services Customized website Webinars Video Interviews In-person Services Peer exchanges Listening sessions Training and workshops Visit our website at: http://www.financingtransportation.org/

USDOT Build America Bureau Outreach and Project Development Credit Programs FASTLANE Grants The Build America Bureau was authorized in the FAST Act. The purpose of the Bureau is to align, coordinate, and consolidate existing finance programs and FASTLane Grants. It builds upon the pre-existing BATIC which helped project sponsors looking to access federal expertise assistance in applying for federal credit programs and accessing private capital through public-private partnerships. Former BATIC worked with ports to streamline the application process for credit assistance programs such as TIFIA and RRIF. It works with the TIFIA office to determine what port projects are eligible; helps ports put together letters of interest in transportation language DOT regulators recognize; and helps them sort out compliance with requirements for things such as environmental reviews, “Buy America” requirements, and hiring disadvantaged business enterprises. [Call Roger on Monday and see if there is anything he’d like me to say]

What are your Capacity Building Needs?

Jennifer Brickett Director, The BATIC Institute An AASHTO Center for Excellence jbrickett@aashto.org 202-624-8815