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The New SIB (under SAFETEA-LU)

The New SIB (under SAFETEA-LU). Northern Border Finance Conference Chicago, May14-16 2007 Mr. Prabhat Diksit FHWA Resource Center. States traditionally support local highway projects through grants: Sometimes formula grants More often regional/competitive grants for projects.

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The New SIB (under SAFETEA-LU)

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  1. The New SIB(under SAFETEA-LU) Northern Border Finance Conference Chicago, May14-16 2007 Mr. Prabhat Diksit FHWA Resource Center

  2. States traditionally support local highway projects through grants: Sometimes formula grants More often regional/competitive grants for projects. But credit to local governments (or private sector projects) now provides a creative alternative to grants State alternatives to grants

  3. State Infrastructure Bank (Sib) • Sibs are revolving funds created by a state using Federal transportation dollars • The revolving fund is used to provide credit assistance (loans, loan guarantees, lines of credit etc) for local transportation projects: • The funds are revolving in that repaid loans go back into the fund for further lending.

  4. 1 3 4 State Infrastructure Banks:How they work! 2 Repayments Initial Federal Aid Loans Initial Projects Capitalization Grants Second Round SIB Second Round Projects Loans State funds • Products Available: • Direct Loans • Loan Guarantees • Interest Rate Buydowns • Other Repayments

  5. SIB Mechanics • A state would take Federal monies (say $40 m) from any of an allowed set of funding categories (NHS, STP,IM etc) • provide the local match ($10 m) and thus “capitalize” the SIB. • The funds can then be used for any Title 23 project--- even years down the line • The funds are not limited to the original funding categories drawn from.

  6. Basics! • Obviously, a project owner requesting borrowing needs a means of repaying that borrowing, i.e. a revenue stream dedicated to repayments. • Typical project revenue streams • Tolls on road and bridge projects • Pledges of taxes by local governments • Sales taxes, property taxes, motel taxes, severance taxes etc.

  7. Why should a state provide credit rather than grants for transportation? • Priorities differ: aid to projects of not high enough priority for grant assistance. (Second tier projects) • Allow local govts. to accelerate projects slated for grants in later years of a STIP. • Provide “gap” funding or initial “seed” funding for difficult to finance projects • & toll projects are always “difficult” • Assistance, short of grants, to private sector projects, • Truck stop electrification • Truck parking

  8. State’s reasons to give credit • State encouragement to local govts. to accelerate project on strategic state agenda eg • Local connectors to state highways that enhance tourism or security • Strategic state effort to encourage private investment in transportation. • The option of a credit facility allows a state many alternative ways of supporting transportation besides straightforward grants.

  9. Local govt. reasons for requesting credit • Advance a project not high on state agenda. • Boost economic development via transportation project even if it means borrowing costs. • Leverage borrowed funds to enable public private partnership • For example, a state loan may be the only way of starting a toll project important to local mobility or to economic development. • An air quality non-attainment area might want to encourage private sector projects, such as truck stop idling projects that improve emissions.

  10. Federal Transportation Sibs since 1995 • Federal-Aid Highway (and Transit) dollars have been allowed for the capitalization of Sibs since the NHS Act of 1995. • A new Sib pilot with new rules was allowed with TEA 21 in 1998. • SAFETEA-LU has once again created a new Sib program– with its own governing legislation.

  11. New SAFETEA-LU Sibs(Highway Account) • Program once again opened to all states and most territories. • 10% of major funding categories can be used to capitalize Sibs: • NHS, STP, Bridge, IM, & Equity Bonus. (Highway account) • Title 49, Sec 5307, 5309, 5311 (Transit account) • All rounds of lending have to be for either Title 23, & Title 49 eligible projects, or for surface transportation projects specifically approved by the Secretary.

  12. Other Major Provisions • There is a state match requirement of 25% of Federal capitalization monies. • Separate transit and highway accounts have to be created. • Maximum terms & interest rates are set in legislation • Maximum terms of 30 years. Payments to begin no later than 5 years after completion. • Interest rate no higher than market.

  13. Additional provisions • No grants allowed. • Investment income has to be credited to revolving fund. • Annual reports to Secretary required. • 2% limit on fraction of funds used for administration. • Guidelines on investment of Sib funds • Federal notes, bank deposits etc.

  14. Important point! • Projects receiving Federal assistance, even indirectly via credit assistance, still have to undergo due reviews, and are subject to Federal requirements regarding NEPA, Davis-Bacon, Buy-America etc • With the “new” SAFETEA-LU sibs these reviews apply to all rounds of lending i.e. even to repaid loans lent out again.

  15. Mechanics of Authorization • A cooperative agreement, or an amendment to an existing cooperative agreement , between a state wishing to create a Sib and the Secretary is necessary.

  16. Sib Activity • Some 32 states have created Sibs. • Over 520 loan agreements • $6 b+ in project lending. • But it is fair to say only a few states have used Sibs actively. • One state (So. Carolina) has disbursed half the dollar value of total loans • Six states account for 91% of dollar volume of loan disbursements.

  17. Approaches to Sib lending:Boost economic development! • Price Corridor, Chandler, AZ • Acceleration of 2.7 miles of Maricopa Freeway important to Chandler economic development. • $26 m short term loan from Sib. Chandler & private developer together pay interest on loan. • Thus, a public private partnership enabled by Sib loan.

  18. Fund HOT lanes/Express lanes • HOT/ Express lanes will become a popular answer to the urban congestion problem. • They can be publicly or privately funded, • But may need the initial funding support that a “patient” Sib loan may supply. • Lee Roy Selmon Reversible Express Lanes in Tampa: $290m project seeded by $35m Sib loan @ 3.5% and subordinated to senior debt. Project would have been difficult to get off of ground without Sib loan.

  19. Structure multimodal deal: • Sib money ideal for multimodal projects: • Once in Sib, Fed-aid funds loose “color” of origin and can be flexed to transit, or freight, or other intermodal projects. • Harrisburg Transportation Center • $2.9 m rehab funded by $1.4m Sib loan & funds from PenDOT, Amtrak, Pa Economic Development, Pa Historical Commission.

  20. Freight Finance • Intermodal freight projects, including private sector ones, have been financed with Sib loans: • Stark County intermodal Facility, OH • Transfer yard where truck trailers & containers are loaded onto railcars. • $32 m project-- $7 m Sib loan; $25m private sector. • Wellsville intermodal facility, OH • A $5.2 m local port authority project financed by a 3% $2.1 m short term Sib construction loan.

  21. Puerto Rico used $15 m from SIB to provide the debt service reserve on a $75m revenue bond issuance. Missouri’s Sib provided $1.2 m loan to Springfield for debt service reserve on a $33 m revenue bond issuance. The lifting of this requirement of a years payments as debt service reserve, allows for a smaller bond issuance; and permits a slightly lower rate on bonds. The FTA recently began a pilot program to allow up to ten recipients the use of 5307 grant money for the funding of debt service reserves. Funding debt service reserve

  22. Use Sib to encourage investments in strategic assets. • Maine uses its Sib to encourage investments in state collector roads • Qualified loans are for ten year terms and are interest free. A local match of 25% is required. • Other states look to Sib loans to enhance local roadway access to state tourist spots. • Sibs can be used to lend to CMAQ projects, such as diesel engine retrofits & truck stop idle reduction– an approach encouraged by the EPA.

  23. Boosting Sib Power: Revenues enhance! • A dedicated revenue base ( vs occasional additions to Sib capital ) enhances Sib power. • The stability afforded by dedicated funds, leads to a mature program that can be an important part of transportation funding in the state. • So. Carolina with truck registration fees and a ¼ c gas tax dedicated to the Sib has the largest volume of Sib lending in the country.

  24. Bonding Multiplies! • Issuing a bond can greatly expand monies available for disbursement: • Example: $50 m annual revenue stream supports a $700-800 m bond at 4%, 20 yrs. • Four state SIBs have issued bonds: • So. Carolina($1.2 b). • MN, FL,OH • 10 states have legislative authorization to do so. • Kansas has created its own state revolving fund for transportation, without any Federal money-- thus avoiding Federal requirements.

  25. 1. South Carolina issued revenue bonds against annual gas taxes, registration fees. 2. MN against block SIB capitalizations from state and Federal funds ($58 m cap. vs. $110 m revenue bond issuance) 3. Next Level: Fl & OH have issued bonds against repayment streams from previously issued loans. OH uses repayment stream monies to issue bonds on demand by local borrowers. This can be done with an established and mature program, but requires skilful management. Approaches to bonding

  26. PPPs & Sibs • With public private partnerships emerging strongly as an answer to transportation problems, • Sibs can be used to provide “patient capital” for difficult to finance PPP projects such as • Additional tolled lanes down median • Developer built interchanges • Intermodal freight transfer yards • Inland ports

  27. Other forms of credit assistance ! • Four excellent financial instruments not widely used: • Lines of credit/letters of credit • Loan guarantees • Bond insurance • Interest rate buy-downs • Commercial type loan programs managed by private banks. • If maximum leveraging of Federal/state funds is the goal then these instruments are the way to go.

  28. In conclusion, • The new SAFETEA-LU bill provides a great opportunity for all states and territories to use Fed-Aid funds to establish Sibs. • Sibs provide a creative and underexploited alternative to grant assistance for local transportation projects.

  29. For additional info: The FHWA Sib website http://www.fhwa.dot.gov/innovativefinance/sib.htm The innnovativefinance.org web site http://www.innovativefinance.org/ Or: Prabhat A Diksit Innovative Finance Specialist FHWA Resource Center Prabhat.diksit@fhwa.dot.gov 720-963-3202

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