1. Alternative Funding for the Inland Waterways Trust Fund Is there a “there” there? Jorge Romero

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3. 2 K&L Gates Maritime Group  One of the largest maritime law and policy practices in Washington, D.C.  Represent all major sectors of the maritime industry before Congress, Executive Branch agencies, and in the courts.  Assist clients in complex transactions, drafting legislation and supporting advocacy documents, developing comprehensive strategies to affect public policy, and advocating their interests before federal and state governments.

4. 3 Jorge Romero Background:  General corporate and financing practice  Focus on vessel construction, financing, documentation, and transactions  Clients in the inland waterways, non-profits and associations

5. 4 Agenda:  High-level look at these alternative financing options:  Long-term Bonds  Public-Private Partnerships  Other creative options

6. 5 Warning! Complexities Ahead

7. 6 To simplicity

8. 7 Long-term Bonds

9. 8 Warning: High Finance Math Ahead

10. 9 Background facts:  Resources available:  IWTF is “bankrupt,” “insolvent” – there are no reserves left.  Only money “there” is the future deposits from the fuel tax, estimated at $85 million/year.  With a 50/50 cost share for new construction and rehabilitation, this means $170 million/year.

11. 10 Background facts (cont.):  Need:  Best current number for unconstrained need is:  $17 billion over next 20 years.  Money needed to fund as of today:  (a) Unfunded portion of projects under construction +  (b) authorized projects = $7 billion  So the Corps/Users Board Inland Marine Transportation System Investment Strategy Team will come out with a figure between $7 and $17 billion  Let’s say $12 billion

12. 11 Two Basic Options:  Direct issuance of federal government obligations  E.g. Treasury bills or bonds  Federally-guaranteed obligation issued by a third party  SBA  Title XI

13. 12 How it would work: CongressTrust Fund Corps/Bank Appropriation $$Fuel Tax $$ Bond Purchasers Bond Proceeds $$ Periodic Payments $$ Collateral:

14. 13 How it would work: CongressTrust Fund Corps/Bank Appropriation $$Fuel Tax $$ Bond Purchasers Bond Proceeds $$

15. 14 Advanced Mathematics: at current levels Yearly payment for 25 years Amount that can be borrowed at: 5.5%3.5% $170 million/year$3 billion$4.8 billion  If we take the stream of funds available today and ask a banker how much we can borrow with that over 25 years, here are some answers:

16. 15 Advanced Mathematics: at historic levels Yearly payment for 25 years Amount that can be borrowed at: 5.5%3.5% $262 million/year$4.7 billion$7.4 billion  If we take the average of the funds expended over the last few years … :

17. 16 Advanced Mathematics: at double current levels  If we take double the stream of funds available today … : Yearly payment for 25 years Amount that can be borrowed at: 5.5%3.5% $340 million/year$6.2 billion$9.7 billion

18. 17 Summary Table Yearly payment for 25 years Amount that can be borrowed at: 5.5%3.5% $170 million/year$3 billion$4.8 billion $262 million/year$4.7 billion$7.4 billion $340 million/year$6.2 billion$9.7 billion

19. 18 Summary Graph

20. 19 Observations:  Bonding authority probably will not supply the total need, but don’t know how short.  Highly sensitive to interest rates.  Can’t hock the same thing twice.  If you need more money later, you need to get it  Doesn’t make much difference as to how much you can borrow if you go to 12, 25, 30 or 50 years.  In the real world:  You wouldn’t borrow all of the money at once, but in tranches;  You would have transaction costs to consider.

21. 20 Policy consideration:  Will Congress give up the annual appropriations ritual?

22. 21 Public-Private Partnerships

23. 22 Another word of Caution …  Warning! Complexities Ahead

24. 23 Another word of Caution … To simplicity

25. 24 Possibilities:  Many flavors of PPPs  Catalogued fairly exhaustively in the IWR’s Water Resources Outlook - Budget Constraints and the Corps Consideration of Public-Private Partnerships: Where Is the Money Going to Come From?, December 2008 (Wilson & Starler)

26. 25 Two likely candidates: Option One  Private party gets right to design, build, finance, operate, and maintain one or more locks and dams.  And collect revenue from operations.  What revenue?:  Tolls? Sounds like lockage fee.  Annual expenditures from IWTF plus appropriations? Is that bankable?  Plus: In setting revenue level for a lock, private operator and its investors would expect a return on investment, which would be greater than interest on debt.

27. 26 Option One, cont.:  Thoughts/questions?  Since operations and maintenance are already covered 100% by appropriations, why turn this over to private entity?  If you take away O&M, what are you really asking the private party to do?

28. 27 Two likely candidates: Option Two  Private party gets right to design, build, and finance, but not operate and maintain, one or more locks and dams.  Thoughts/questions:  How do you pay the private party? What revenue stream do you give them?  The same revenue that would pay off the bonds? Why not just write them a check with the bond proceeds?

29. 28 Possible Third Option:  Non-profits or co-ops  No profit motive  Revenue still an issue

30. 29 Final thought on privatization of infrastructure:  As IWR study points out:  Privatization is not without risk  We have been there before  Government has bailed out bankrupt agencies in the past

31. 30 Creative Ideas Department

32. 31 Miracle: Loaves and Fishes

33. 32 Magic: Harry Potter and the Inland Waterways Trust Fund?

34. 33 Climate Legislation:  House bill prohibits emitting GHG without allowances  Bill sets number of allowances that EPA will issue per year  Bill allocates allowances to certain classes of individuals (electricity consumers, etc.), states and government agencies, and programs (new technologies, etc.)  Emitters of GHG have to buy allowances; generating revenue for allocation recipients

35. 34 Climate legislation:  What if the Inland Waterways Trust Fund were be a recipient of allocations?  Inland transportation is clean tech  Supports meeting climate goals

36. 35 What Might Climate Allocations Be Worth?  CBO estimates allowances will be worth $15/ton in the first year (2012)  In 2012, the bill provides for 4.6 billion tons of GHG  4,600,000,000 x $15.00 = $69 billion  Estimated to go up to $119.6 billion by 2019  One percent of that would be between $690 million and $1.2 billion per year.

37. 36 Questions? Comments?

38. 37 Thanks!