Innovative Finance for Freight Transportation

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Innovative Finance for Freight Transportation

• Jennifer Mayer
• FHWA Resource Center
• Talking Freight Webinar
• September 2006

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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

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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

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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_at_dot.gov), or to Julie Strawhorn,
  202-366-4415 (Julie.Strawhorn_at_dot.gov) of the
  Office of Freight Management and Operations.

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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

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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

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Three Leading IF Tools

• State Infrastructure Bank (SIB)
• Transportation Infrastructure Finance and
  Innovation Act (TIFIA)
• Private Activity Bond (PAB)

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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

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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.
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Advantage of SIB Loans To Borrowers, and to
State DOTs

• 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)

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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

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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
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Advantage of TIFIA Loans To Borrowers, and USDOT

• 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)

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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

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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
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Advantage of PABs To Sponsors and USDOT

• 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

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Additional Resources on IF

• Jennifer Mayer, FHWA Resource Center Innovative
  Finance Team
• jennifer.mayer_at_fhwa.dot.gov [phone]
• TIFIA http//tifia.fhwa.dot.gov
• SIBs www.fhwa.dot.gov/innovative
  finance/sibs.html
• PABs www.fhwa.dot.gov/ppp