The New SIB under SAFETEALU

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The New SIB (under SAFETEA-LU)

• Northern Border Finance Conference
• Chicago, May14-16 2007
• Mr. Prabhat Diksit
• FHWA Resource Center

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State alternatives to grants

• But credit to local governments (or private
  sector projects) now provides a creative
  alternative to grants

• States traditionally support local highway
  projects through grants
• Sometimes formula grants
• More often regional/competitive grants for
  projects.

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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.

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State Infrastructure BanksHow they work!
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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
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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.

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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.

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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

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States 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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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 _at_
  3.5 and subordinated to senior debt. Project
  would have been difficult to get off of ground
  without Sib loan.

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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.

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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.

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Funding debt service reserve

• Puerto Rico used 15 m from SIB to provide the
  debt service reserve on a 75m revenue bond
  issuance.
• Missouris 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.

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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.

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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.

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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.

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Approaches to bonding

• 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.

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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

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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.

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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.

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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_at_fhwa.dot.gov
• 720-963-3202