Funding Sources

1
Funding Sources Financial Strategies for
Regional Freight Projects

• Mr. Prabhat A Diksit
• FHWA Resource Center
• Ohio Conference on Freight
• Toledo, OH
• Sep 18 2007

2
The challenge of funding freight !

• Putting together a freight project of any
  complexity involves coalition building.
• The coalition may even revolve around the
  engineering of funding packages. Local, regional,
  state, federal, and private funding sources may
  be involved.

• The Federal Govt., particularly the USDOT, has
  several old funding sources and several new
  financial instruments which could potentially be
  directed towards freight.

3
Grant based approaches!
4
Federal agencies with possible freight funding
programs

• FHWA
• Formula grants to States
• Allocations
• Earmarks
• Money flexed to other modes
• FTA
• Formula grants (5307)
• Capital grants (5309)
• FAA
• Airport Improvement Grants
• Earmarks
• Transportation and water authorization bills
• Annual appropriations bills

• FRA
• RRIF Credit program
• Sec. 330 earmarks
• MARAD
• Title 11 loan guarantees
• Dept. of Commerce
• Economic Development Administration (EDA) grants
• EPA, Brownfield Revitalization programs
• Army Corps of Engineers, Harbor Maintenance
  Programs

5
FHWA formula grants

• The FHWA with its 39 ½ b appropriation in 2007,
  in mostly formula grants awarded to the states,
  earns pride of place.
• The formula grants are in the form of familiar
  categories IMNHSSTPBridgeCMAQSafety
• Freight projects, depending on type, are eligible
  for most of these grants. For instance, CMAQ
  money goes mainly to transit rides-share
  programs, yet freight projects which take trucks
  off of the roads or reduce their emissions are
  also eligible for CMAQ. Similarly, with other
  categories.

6
CMAQ

• CMAQ (Congestion Mitigation Air Quality)
• First established in 1991 it is meant to fund
  projects and programs which bring air quality
  (CO, O3, Particulates) in non-attainment areas up
  to national ambient standards.
• Nationally funded at about 1.6 b a year. For OH,
  around 87m /yr.
• Any project reducing emissions is potentially
  eligible for these monies.

7
CMAQ Freight

• Many projects which improve freight mobility,
  have the benefit of improving emissions and are
  likely to be eligible for CMAQ.
• Improvements in connector roadways to ports
• HOT lanes
• Barge Systems taking trucks off of roads
• Rail spurs, rail trenchings, rail grade
  improvements
• Truck to rail transfer yards
• Truck-stop idling facilities
• Roadway signalizations, ITS projects

8
Examples

• Columbia Slough Intermodal Bridge, Portland, OR
  Railroad bridge to access deep water port,
  eliminating truck trips.
• 6.1 million project, 1 million CMAQ ,2.1
  million in demonstration funds. Port of Portland
  1.5 million , private railroads 1.5 million.
• Red Hook Container Barge, New York, NY 1.9
  million in CMAQ funding, in 50 match for barge
  purchase operating assistance.
• Remove 54,000 truck trips from the NY/NJ streets
  annually.

9
The flexibility of CMAQ

• Can be used for multi-modal projects!
• Can be used for operating assistance for up to
  three years!
• CMAQ can be granted to profit making cos.
• CMAQ project selection is via MPO in OH.
• CMAQ can be very useful in constructing
  multi-modal public private partnership deals in
  the freight area.
• Its high quality money!

10
Funding Sources NHS

• National Highway System
• The NHS consists of 162,000 miles of designated
  US highways, which connect cities, ports and
  border crossings.
• Nationally some 6.1 b/yr of Fed-aid formula
  funds are apportioned for the NHS program. Some
  237 m/yr in OH.
• NHS funds can also go to some 1220 miles of
  intermodal connector roadways that tie NHS
  highways to rail yards , ports and intermodal
  facilities.

• It is probably the principal source of funds for
  port and railhead access roadways.
• The WA state FAST program (port access
  improvements) relied substantially on this source.

11
Funding sources STP

• The largest and most flexible of the Fed-aid
  sources.
• 6.5 b/yr nationally, and 290m /yr in OH.
• Of some 4 million miles of roads in this country
  , 3 million are Fed-aid roadways. STP comprises
  the bulk of this mileage, and goes down to the
  local collector level.

• Can be used for planning, construction,
  environmental mitigation, transit, truck stop
  idle reduction, and many other types of projects.
• In OH projects are selected by MPO.
• Safety, formerly part of STP, now is its own
  program.

12
Safety Program (HSIP)

• A new core program established by SAFETEA-LU.
  Doubled from TEA21.
• 1.2 b annually in US 39m in OH.
• Set-asides for rail-grade improvements (8.5m) ,
  and high risk rural roads.
• The rail-grade improvement program is of interest
  to freight project designers.

• Most projects aiming to improve port or rail
  access include rail grade improvements as a major
  project element.
• These monies can then be applied towards such a
  project.
• The Alameda Corridor project, the Chicago
  CREATE project heavily involved rail grade
  improvements.

13
Bridge Program (HBP)

• 4.3 b nationally in 2007 for bridge
  improvements mostly on a formula basis.
• 15 mandatory set-aside for off-system bridges.
• In OH 176 m program.
• Many port access projects will include a bridge
  element.

14
Generally speaking,

• A port or rail yard or intermodal yard access
  roadway project can draw on several Fed-aid
  funding sources.
• CMAQ, or NHS can probably apply to a whole
  project, whereas other categories like Safety or
  Bridge will have to be matched to appropriate
  expenditure elements.

15
Grants from other federal agencies
16
FAA Airport Improvement Program

• Provides funding for planning improvements to
  cargo airports of 100 m pounds annual capacity.
• Most within airport improvements including
  capacity, safety, environmental projects
  eligible.
• Some 3.7 b annually
• Funded through taxes on airline tickets

17
EDA (Economic Development Administration) grants

• A 300 m annual program, via the Dept. of
  Commerce, for projects in designated economically
  distressed industrial sites that promote job
  creation.
• Industrial roads, port areas, rail projects all
  eligible.

18
EPA Brownfield Redevelopment Grants

• EPA program of grants and loans for the cleanup
  and redevelopment of industrial, commercial
  brownfield sites, including intermodal
  facilities.
• 20 local match
• Maximum 200,000 per site

19
US Army Corps, Harbor Maintenance Trust Fund
(HMTF)

• Funding for OM dredging of Federally authorized
  commercial navigation channels, including ports
  along these channels.
• 100 funding of OM in ports less than 45 ft
  deep 50 in ports deeper.

20
Pulling grants from multiple sources together
FAST corridor

• Freight projects will often require cobbling
  funding from many sourcespublic and private.
• The Puget Sound area FAST (Freight Action
  Strategy) corridor is a successful example of
  this approach.

21
FAST Corridor

• Anticipating freight traffic increases to the
  ports of the Puget Sound area, local governments
  got together in 1996 to propose projects that
  eliminated bottlenecks, and improve freight
  access to area ports and rail. Phase I , costing
  about 550 m, consisted of 15 projects Phase II
  an additional 10 projects, costing 318m.

• Funds for Phase I included Federal earmarks, FHWA
  formula grants, State Dot grants, other state
  grants, and funds from local ports, other local
  governments, as well as from private railroads.
• Most of the Phase I projects are completed.
• Note that funds were virtually all cash grants,
  and no new institutional structures had to be
  created.

22
Direct Revenues Credit
23
Direct user charges

• There are projects which can have revenues
  attached to them, either because this is the
  nature of the projecttoll roads, port projects
  etc or because governmental revenues (sales
  taxes, property taxes, general fund sources) can
  be dedicated to them.
• Dedicated revenues open up a whole variety of
  financing options, including that commonly called
  project finance!

24
Financing approaches

• Project revenue bonds can be issued against
  future revenues (tolls, for instance) to provide
  the initial funds to build the project. Tolled
  roads, tunnels and bridges, and port authority
  projects have been built this way for 50 years.
  Examples
• Chicago Skyway, Indiana Toll road 5,100 miles
  of turnpikes around the nation.
• Alameda Corridor project

25
Self funding

• Project finance is a self funding (more or less)
  approach to project construction. It does not
  reach into a states or local governments budget
  or bonding authority. It is an approach to use
  when funding is scarce.
• If a public sector subsidy, beyond project
  financing, is needed this can be determined on a
  projects relative merits.
• The USDOT has several favorable financial
  instruments (long terms, low rates) available for
  such projects.
• Many states also have credit facilities, such as
  State Infrastructure banks for project borrowers.

26
Two caveats

• Project finance does require the creation (or the
  use of an existing) local authority that has at
  minimum, the power to levy user charges and also
  bond against future charges. Usually, this
  requires legislative action.
• Further, financing via bonds backed by project
  revenues is inherently more risky than cash,
  obviously, but also more so than financing via
  revenue bonds or G.O. bonds issued by a
  government. Interest rates are therefore higher!!

27
USDOT credit TIFIA

• TIFIA provides credit for highway projects, as
  well as for rail, transit, ferries, freight
  transfer facilities, public and private rail
  projects.
• It has about 2 billion a year to lend, and has
  provided credit for numerous transportation
  projects.
• Some basic rules are written into the legislation
  authorizing it
• Minimum project size 50 m
• Maximum loan limit of 33 of project size
• Interest rate are set at slightly above the
  Federal borrowing rate for instruments of that
  maturity at time of closing. (around 4.8 for 10
  year loan)
• Long loan terms permitted, 30 yrs. With payments
  beginning 5 years after substantial completion.
• See TIFIA web site for further info
• http//tifia.fhwa.dot.gov/

28
Approved TIFIA Loans
Staten Island Ferries 159 Retired paid in full
Moynihan Station 160

Reno Rail Corridor 74
Warwick Train Station 58
Washington Metro CIP 600
Cooper River Bridge Retired - refinanced 215
SR 125 Toll Road 140
Tren Urbano Retired - paid in full 300
Total TIFIA Assistance 3.2 Billion Total
Project Investment 12.7 Billion
LA-1 66
Central Texas Turnpike 917
Miami Intermodal Center 439
PR
US 183-A Turnpike 66
29
Advantages/disadvantages

• Patient Flexible Lender
• 30 year terms. payments can begin 5 yrs after
  substantial completion.
• Will negotiate on lending issues if not written
  into legislation. Back loaded interest, payments
  geared to revenue receipts etc.
• The mandated interest rate could be low for some
  borrowers.

• Federal Restrictions
• The mandated interest rate is taxable could be
  high for some borrowers.
• Minimum project size possible bar to local
  governments.
• Project becomes Federalized and subject to Title
  23 reviews NEPA, Davis-Bacon, Buy America,
  MBE/DBE, Section 4f, environmental justice, no
  local preferences on contracts etc etc

30
RRIF loans

• The Federal Railroad Administration has a credit
  assistance program very similar to the TIFIA
  program, meant for railroads and intermodal
  projects.
• There are no project size or project lending or
  project term rules, but there is an up-front
  project risk premium that has to be paid. Credit
  assistance is tailored to each applicant upon
  successful negotiation.
• Over 500 m in RRIF lending to date.
• http//www.fra.dot.gov/us/content/177

31
Private activity tax exempt bonds, PAB

• The privilege of issuing tax exempt bonds is
  normally reserved for state and local
  governments. However,
• IRS rules provide exemptions for private sector
  owners/leasers of certain exempt facilities
  housing, hospitals, schools, sea and air port
  facilities.
• Private owners/financiers of highways
  intermodal freight facilities have now been made
  eligible by SAFETEA-Lu

32
PAB procedures

• Private project owners will need to work closely
  with a state or local govt.
• The project will have to be on STIP/TIP and
  receiving at least 1 of Title 23 assistance.
• A local government has to act as conduit issuer
  of the bond!
• That is, a local government actually issues the
  bond but the private co. makes the payments and
  is responsible for the debt.
• Bond issuance has to be applied for thru USDOT.(
  15 billion total.)
• See Jack Bennett, Office of Under Secretary of
  Transportation for Policy. 202-366-6222
• Several freight projects have either applied for
  or received conditional allocations Miami Tunnel
  (900m) Centrepoint (500m)-- an intermodal
  freight center in Crete, Il.

33
State Infrastructure Bank, Sib

• The Federal govt. permits states to set aside up
  to 10 of highway formula grants in a revolving
  fund-- which then provides loans for eligible
  transportation projects.
• OH has used this to advantage and has a very
  active effective Sib
• 260 m in lending to date to local govts.
• Recently a new bond fund has been established
  that issues bonds based on local demand for funds.

34
OH Sib

• Lending is available for highway, transit, rail
  and intermodal projects for local govts. Freight
  projects generally eligible. Federally ineligible
  projects funded thru state facility.
• See OH Dot Sib website http//www.dot.state.oh.us/
  sib1/sum.htm or contact Melinda Lawrence
  (614-644-7275)
• Note Projects such as truck to rail container
  transfer yards have been financed with Sib loans
  in other states. Federal rules would not bar
  these or idle reduction facilities, truck only
  lanes etc from being financed via a Sib.

35
Financial Partnerships with the Private Sector
36
Public Private Partnerships, PPP

• In recent years an entirely new way of financing
  roadway projects has emerged, PPP. The new
  approach could be applied to freight
  infrastructure generally.
• It relies on corporate equity and debt,
  insurance co. and pension fund investments for
  finances-- there is said to be 250 b of private
  sector money available for investment in US
  infrastructure but these investors will require
  a return on investment (typically thru tolls on
  roadways).
• Numerous tolled projects of this type are in
  progress and a handful completed, with the
  states of Texas, Florida, Georgia, and the DC
  beltway areas most active.

37
Truck intensive highway concessions

• Miami Port Tunnel
• 865 m tunnel project awarded as a 35 year
  contract to design-build finance-operate-maintain
  concession. Payments, are monthly following
  construction, based on availability. Multiple
  revenue streams, including tolls. State local
  partnership.

• US 460 Va.
• Improvements and expansion of existing 50 year
  old road to Norfolk ports of Chesapeake Bay.
  Growth in truck traffic main driver. Will likely
  be bid out as a design-build-finance-operate-maint
  ain concession. Likely tolled.
• Both projects provide a possible model for port
  access intermodal connector roadway improvements.

38
Other types of partnerships a)

• The standard local government economic
  development model
• Roadway access, interchange improvements, water
  sewer lines to property boundary, with private
  sector doing the rest.
• Possible approach to development of well situated
  freight logistics intermodal transfer
  facilities, truck stop idling reduction
  facilities etc. Perhaps assistance from federal
  grant streams, described earlier as well as state
  grants.

39
Partnerships b) rail

• The Heartland Corridor provides an example of a
  type of partnership fueled by Federal earmarks to
  private railroads, and beneficial to local
  transportation economies.
• I see that Norfolk Southern has proposed another
  partnership with governments for a new rail line
  from Newark to New Orleans.
• It is worth noting that Class 1 railroads have
  contributed to the CREATE project, the Alameda
  Corridor project, the FAST Corridor projects etc.

• States too numerous to mention have revolving
  fund lending programs and grants available to
  fertilize partnerships with short-line railroads.
• The FHWA Freight Finance guidebook, lists many of
  these funding streams.

40
Partnerships c) cost share, contributions

• Cost sharing on interchanges with developers is
  not uncommon. Sometimes the Dot or local govt.
  takes on debt whose payments are shared among
  several parties.
• ROW contributions by local govts. or private
  developers to a road project is another approach.
• Fl Tx Dots will cost share on OM or
  signalization, or ROW, or interchanges on locally
  sponsored toll roads.

41
Partnerships d) tax exempt corporations

• A legal vehicle used occasionally to enable
  public private partnerships is the non- profit
  corporation, called 63-20s.
• These are all debt corps. created thru a
  partnership with developers to build and manage a
  project. It allows for the issuance of cheaper
  tax exempt debt.

• The Las Vegas Monorail Route 3 in Ma were
  constructed thru these approaches.
• Missouri Dot often uses these vehicles. The
  Highline Bridge the Argentine Connection were
  two projects built with bonds issued by a tax
  exempt corp. Bond payments are made with user
  fees from railroads who use these facilities.

42
DOT credit instruments partnerships

• The TIFIA RRIF credit facilities mentioned
  earlier are available to public or private bodies
  or partnerships.
• Private activity bonds, of their nature require
  close working relationships between governments
  and applying private sector entities.
• Many various are the approaches that can be
  used to create public private partnerships. These
  are often project driven, and give free room for
  local creativity.

43
Freight finance guidebook

• The FHWA Financing Freight Infrastructure
  guidebook is now available.
• It elaborates greatly on many of the themes
  touched on here. Numerous sources of freight
  funds, both Federal State, are listed. Many
  examples of funded freight projects are detailed.
  On the web at
• http//www.ops.fhwa.dot.gov/freight/publications/f
  reightfinancing/pdf.pdf
• A Freight Finance Class is also being prepared.
  Ready in early 2008
• See Carol Keenan, 202-366-6993
• Carol.Keenan_at_fhwa.dot.gov

44
Thank you! For further info contact

• Mr. Prabhat A Diksit
• Innovative Finance Specialist
• FHWA Resource Center
• Prabhat.Diksit_at_fhwa.dot.gov
• 720-963-3202