Financing Techniques Briefing for Funding Working Group for the Port of the Future Federal Highway Administration Resource Center 2007

Outline Project sponsors for transportation projects Public Private Partnerships Federal credit programs Tax-exempt borrowing techniques Other funding techniques Multilateral credit programs Contacts for more information

What is a project sponsor? Any legal entity proposing a transportation project: –State or provincial DOTs –Cities, counties –Bridge/border authorities or districts –Economic development commissions –Private sector firms

What is a project sponsor? For a given project: –May be combination of legal entities –May vary depending on relationship between federal, state and provincial governments –May vary based on project size, complexity, geographic reach and available financing options

What is a project sponsor? What entity is authorized/obligated to: –Enter into contracts? –Enforce contract provisions? –Borrow funds? –Repay borrowed funds?

Public Private Partnerships Referred to as PPP, P3, or P cubed Definition: –Legally enforceable contractual agreement –Between public and private sector entity –Designed to develop and deliver surface transportation project Terms, provisions, scope of agreement vary widely

Public sector partner Most commonly, public partner is state or provincial DOT However, public partners can also include: –Local governments –Highway and toll authorities –Port or bridge authorities –Bi-state, multi-state or bi-national districts

Private sector partner Most commonly, large engineering or investment companies However, private partners can also include: –Joint ventures –Associations or alliances comprised of multiple firms –Quasi-public corporations –Individuals or companies controlled by them

Partnership arrangement Can be structured as letter of intent; memorandum of understanding; simple contract; detailed concession agreement Can address one time event, such as donation of land for ROW or guaranty of public debt Can address very long-term and complex agreements where private sector designs, builds, operates, maintains and finances transportation facility

Partnership arrangement Private sector may invest its own (equity) capital as well as borrowed funds Federal-aid grant funds are often used Federal credit programs often support PPPs Tax-exempt borrowing techniques often support PPPs as well

Recent PPPs in North America $3.85 billion 75 year lease of Indiana Toll Road $3.2 billion Texas SH 130, Austin $630 million South Bay Expressway, San Diego $233 million to improve Dakota, Minnesota & Eastern Railroad line Route 407 Electronic Toll Road in Toronto Mexico City North Bypass BUT not a silver bullet for all projects!

Federal credit programs, TIFIA Summary of ProgramSummary of Program TIFIA = Transportation Infrastructure Finance and Innovation Act Strategic goal of TIFIA is to: – Leverage limited federal resources – Stimulate private capital investment

Federal credit programs, TIFIA Federal credit assistance provided in several forms: –Direct loans –Loan guarantees –Standby lines of credit –Combinations of above For projects costing an estimated $50 million or more; $15 million threshold for ITS projects

Federal credit programs, TIFIA Benefits of ProgramBenefits of Program –Interest and principal payments may be deferred for up to five years –Repayment may extend up to 35 years –Interest rates equivalent to Treasury rates –No prepayment penalty –Eligible projects include international bridges and tunnels and approaches

Federal credit programs, TIFIA Contact InformationContact Information Mr. Mark Sullivan TIFIA Joint Program Office (HCF-50) U.S. Department of Transportation Room Seventh Street, S.W. Washington DC (202)

Federal credit programs, PABs Summary of ProgramSummary of Program PABs = Private Activity Bonds $15 billion available through end of FY 2009 PABs allow private project sponsors to issue tax-exempt bonds at low, tax-exempt interest rates USDOT must approve use of PAB authority

Federal credit programs, PABs Eligible BorrowersEligible Borrowers –Private project sponsors developing highway, bridge, rail or freight transfer facilities –Must work closely with public sector “conduit issuer” selling bonds –Must ensure project is included in appropriate STIP and is eligible under Title 23

Federal credit programs, PABs Qualified ProjectsQualified Projects –Surface transportation projects receiving assistance under Title 23 –Any project for an international bridge or tunnel managed by an international entity –Any facility for transfer of freight from truck to rail or rail to truck, including temporary storage facilities –Any TIFIA-assisted public transportation project, such as intercity bus and rail facilities

Federal credit programs, PABs Contact InformationContact Information Mr. Jack Bennett U.S. Department of Transportation Office of the Asst. Secy. for Transportation Policy P-20, Room E th Street S. W. Washington DC (202)

Federal credit programs, RRIF Summary of ProgramSummary of Program RRIF = Railroad Rehabilitation and Improvement Financing program The Federal Railroad Administrator is authorized to provide up to $35 billion in loans and loan guarantees Up to $7 billion is reserved for projects benefiting railroads other than Class 1 carriers

Federal credit programs, RRIF Eligible BorrowersEligible Borrowers –Railroads –State and local governments –Government-sponsored authorities and corporations –Joint ventures including at least one railroad –Freight shippers

Federal credit programs, RRIF Benefits of ProgramBenefits of Program –Loans for up to 100% of eligible project costs –Repayment periods up to 25 years –Interest rates equivalent to Treasury rates –Project acceleration –Avoidance of future ROW and construction cost increases

Federal credit programs, RRIF Contact InformationContact Information Mr. Joe Pomponio Federal Railroad Administration Office of Freight Programs th Street SW Washington DC (202)

State Infrastructure Bank lending SIB = State Infrastructure Bank All states and territories can now establish SIBs Initial start up capital can be provided by up to 10% of certain FHWA, Federal Transit and Federal Rail funding categories, and matching state funds SIB assistance is provided for Title 23 and Title 49 eligible projects SIBs operate as revolving funds, with interest income used to make additional loans

State Infrastructure Bank lending SIBs provide direct loans and credit enhancement to public entities or private firms Credit enhancement includes credit guarantees, lines of credit, interest rate buy-downs Repayment provisions (term and interest rates) are often quite flexible Under the similar but separate Section 129 Program, FHWA can also loan funds for an eligible project. Loan structure is similar to SIB, but loan is made by FHWA rather than SIB.

BANOBRAS credit programs Summary of ProgramSummary of Program BANOBRAS = Banco Nacional de Obras y Servicios Publicos (Mexico’s National Bank for Public Works and Services) Provides financial assistance to state and municipal government administrations in Mexico Assistance can be used for transportation border projects

BANOBRAS credit programs Eligible Projects, examplesEligible Projects, examples –Construction and improvement of highways, bypasses and bridges –Construction of passenger and cargo terminals –Intersection improvements –Lighting and traffic signals –Planning and paving of local streets

BANOBRAS credit programs Available Financial AssistanceAvailable Financial Assistance –Direct loans to concessionaires –Other financial support to concessionaires, such as contingent and revolving credit –Long-term refinancing –Partial guarantees for a public sale or offering –Support for federal New Concession Plan for toll highways and bridges

BANOBRAS credit programs Contact InformationContact Information Direccion de Promocion y Proyectos BANOBRAS, S.N.C. Av. Javier Barros Sierra 515 Pisos 5, 6 y 8 Colonia Lomas de Santa Fe Mexico, D.F., Mexico Tel (from US)

Tax-exempt borrowing techniques GARVEE bondingGARVEE bonding GARVEE = Grant Anticipation Revenue Vehicle –All states are allowed to issue GARVEEs –GARVEEs are secured by future federal funds for federal-aid eligible projects –Expand state’s borrowing capacity –Accelerate construction of critical projects

Tax-exempt borrowing techniques Municipal (Muni) bonding Under Internal Revenue Code (IRC), states and localities can issue bonds paying tax-exempt interest –General obligation bonds –Revenue bonds General obligation (GO) bonds can be secured by full faith and credit of issuer or by tax revenues Revenue bonds can be secured by any future revenue stream

Tax-exempt borrowing techniques Muni debt service scenarios $150 million over 15 years = $13.9 million/year $300 million over 15 years = $27.9 million/year $150 million over 20 years = $12.1 million/year $300 million over 20 years = $24.1 million/year

Tax-exempt borrowing techniques Section credit Section refers to IRC section Allows corporations to issue tax-exempt debt if they are: –Organized for a public benefit –Operated on not-for-profit basis Can be used where local community is willing to i) form Section corporation and ii) accept user fees to repay borrowing Sometimes used to advance transportation projects not considered high priority by state

Other funding techniques Tolling initiativesTolling initiatives –Interstate Construction Toll Pilot Program –Express Lanes Demonstration Program –HOV to HOT Lane Conversion Program –Interstate System Reconstruction and Rehabilitation Toll Pilot Program –One-stop FHWA application procedure

Other funding techniques Trade Development Agency (TDA) funding TDA provides grant funds for feasibility, traffic and revenue, and finance studies for projects in Mexico Project must be high priority in Mexico Grant funds will support sales of US goods and services during project implementation Targeted “payback” is 100 times TDA funding

Multilateral credit programs North American Development Bank (NAD Bank) credit assistance Provides credit assistance for US/Mexico border zone projects that benefit the environment Loans and credit guarantees provided to both US and Mexican jurisdictions Environmental benefit is tied to sanitation, air and water quality

Multilateral credit assistance Export-Import (Ex-Im) Bank programs Ex-Im credit is available to finance exports of goods and services, such as design-build construction projects Ex-Im programs include the following: –Project finance –Loans –Credit guarantees –Insurance

Multilateral credit programs Overseas Private Investment Bank (OPIC) programs OPIC provides financing, loan guarantees and investments for US investments overseas OPIC provides Small Business Direct Loan Program in Mexico: –Available for US small businesses –Business must own at least 25% of investment, or be significantly involved –Loans range from $100,000 to $200 million

Additional technical assistance Contact InformationContact Information Ms. Thay Bishop, Team Leader USDOT FHWA Resource Center Innovative Finance Team 61 Forsyth Street SW, Suite 17T26 Atlanta GA (404)

Thay Bishop Atlanta, Georgia Team Leader Ph: (404) ; Keith Bishop Baltimore, Maryland Innovative Finance Specialist Ph: (410) ; Prabhat Diksit Lakewood, Colorado Innovative Finance Specialist Ph: (720) ; Jim Hatter Atlanta, Georgia Innovative Finance Specialist Ph: (404) ; Jennifer Mayer San Francisco, California Innovative Finance Specialist Ph: (415) ; Frederick Werner Atlanta, Georgia Innovative Finance Specialist Ph: (404) ; RC Innovative Finance Team contacts for followup questions