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Funding Sources & Financial Strategies for Regional Freight Projects Mr. Prabhat A Diksit FHWA Funding Sources & Financial Strategies for Regional Freight Projects Mr. Prabhat A Diksit FHWA Resource Center Ohio Conference on Freight Toledo, OH Sep 18 2007

The challenge of funding freight ! o o Putting together a freight project of The challenge of funding freight ! o o 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. o The Federal Govt. , particularly the USDOT, has several old funding sources and several new financial instruments which could potentially be directed towards freight.

Grant based approaches! Grant based approaches!

Federal agencies with possible freight funding programs o FHWA n n o Formula grants Federal agencies with possible freight funding programs o FHWA n n o Formula grants to States Allocations Earmarks Money flexed to other modes o n n o n Formula grants (5307) Capital grants (5309) o FAA n Airport Improvement Grants Title 11 loan guarantees Dept. of Commerce n o RRIF Credit program Sec. 330 earmarks MARAD n FTA n FRA Economic Development Administration (EDA) grants o o EPA, Brownfield Revitalization programs o Army Corps of Engineers, Harbor Maintenance Programs Earmarks n n Transportation and water authorization bills Annual appropriations bills

FHWA formula grants o The FHWA with it’s $39 ½ b appropriation in 2007, FHWA formula grants o The FHWA with it’s $39 ½ b appropriation in 2007, in mostly formula grants awarded to the states, earns pride of place. n n The formula grants are in the form of familiar categories: IM>NHS>STP>Bridge>CMAQ>Safety… 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.

CMAQ (Congestion Mitigation & Air Quality) o o o First established in 1991 it CMAQ (Congestion Mitigation & Air Quality) o o o First established in 1991 it is meant to fund projects and programs which bring air quality (CO, O 3, Particulates) in non-attainment areas up to national ambient standards. Nationally funded at about $1. 6 b a year. For OH, around $87 m /yr. Any project reducing emissions is potentially eligible for these monies.

CMAQ & Freight o Many projects which improve freight mobility, have the benefit of CMAQ & Freight o Many projects which improve freight mobility, have the benefit of improving emissions and are likely to be eligible for CMAQ. n n n n 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

Examples o Columbia Slough Intermodal Bridge, Portland, OR: Railroad bridge to access deep water Examples o Columbia Slough Intermodal Bridge, Portland, OR: Railroad bridge to access deep water port, eliminating truck trips. n o $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. n Remove 54, 000 truck trips from the NY/NJ streets annually.

The flexibility of CMAQ o o o Can be used for multi-modal projects! Can The flexibility of CMAQ o o o 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 multimodal & public private partnership deals in the freight area. n It’s high quality money!

Funding Sources: NHS National Highway System o The NHS consists of 162, 000 miles Funding Sources: NHS National Highway System o The NHS consists of 162, 000 miles of designated US highways, which connect cities, ports and border crossings. o Nationally some $6. 1 b/yr of Fed -aid formula funds are apportioned for the NHS program. Some $237 m/yr in OH. o NHS funds can also go to some 1220 miles of “intermodal connector” roadways that tie NHS highways to rail yards , ports and intermodal facilities. o o 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.

Funding sources: STP o The largest and most flexible of the Fed-aid sources. n Funding sources: STP o The largest and most flexible of the Fed-aid sources. n o o ~ $ 6. 5 b/yr nationally, and $290 m /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. o o 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.

Safety Program (HSIP) o A new core program established by SAFETEALU. Doubled from TEA Safety Program (HSIP) o A new core program established by SAFETEALU. Doubled from TEA 21. n n o $1. 2 b annually in US; $39 m in OH. Set-asides for rail-grade improvements ($8. 5 m) , and high risk rural roads. The rail-grade improvement program is of interest to freight project designers. o Most projects aiming to improve port or rail access include rail grade improvements as a major project element. n n These monies can then be applied towards such a project. The Alameda Corridor project, & the Chicago CREATE project heavily involved rail grade improvements.

Bridge Program (HBP) o $4. 3 b nationally in 2007 for bridge improvements– mostly Bridge Program (HBP) o $4. 3 b nationally in 2007 for bridge improvements– mostly on a formula basis. n n o 15% mandatory set-aside for “off-system” bridges. In OH $176 m program. Many port access projects will include a bridge element.

Generally speaking, o o A port or rail yard or intermodal yard access roadway Generally speaking, o o 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.

Grants from other federal agencies Grants from other federal agencies

FAA Airport Improvement Program o Provides funding for planning & improvements to cargo airports FAA Airport Improvement Program o Provides funding for planning & improvements to cargo airports of >100 m pounds annual capacity. n o Most within airport improvements including capacity, safety, environmental projects eligible. Some $3. 7 b annually n Funded through taxes on airline tickets

EDA (Economic Development Administration) grants o A $300 m annual program, via the Dept. EDA (Economic Development Administration) grants o A $300 m annual program, via the Dept. of Commerce, for projects in designated economically distressed industrial sites that promote job creation. n Industrial roads, port areas, rail projects all eligible.

EPA Brownfield Redevelopment Grants o EPA program of grants and loans for the cleanup EPA Brownfield Redevelopment Grants o EPA program of grants and loans for the cleanup and redevelopment of industrial, commercial brownfield sites, including intermodal facilities. n n 20% local match Maximum $200, 000 per site

US Army Corps, Harbor Maintenance Trust Fund (HMTF) o Funding for O&M dredging of US Army Corps, Harbor Maintenance Trust Fund (HMTF) o Funding for O&M dredging of Federally authorized commercial navigation channels, including ports along these channels. n 100% funding of O&M in ports less than 45 ft deep; 50% in ports deeper.

Pulling grants from multiple sources together… FAST corridor o o Freight projects will often Pulling grants from multiple sources together… FAST corridor o o Freight projects will often require cobbling funding from many sources—public and private. The Puget Sound area FAST (Freight Action Strategy) corridor is a successful example of this approach.

FAST Corridor o Anticipating freight traffic increases to the ports of the Puget Sound FAST Corridor o 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 $318 m. o o o 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.

Direct Revenues & Credit Direct Revenues & Credit

Direct user charges o o There are projects which can have revenues attached to Direct user charges o o There are projects which can have revenues attached to them, either because this is the nature of the project—toll 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!

Financing approaches o Project revenue bonds can be issued against future revenues (tolls, for Financing approaches o 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: n n Chicago Skyway, Indiana Toll road & 5, 100+ miles of turnpikes around the nation. Alameda Corridor project

Self funding o o Project finance is a self funding (more or less) approach Self funding o o Project finance is a self funding (more or less) approach to project construction. It does not reach into a state’s or local government’s 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 project’s 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.

Two caveats: o o Project finance does require the creation (or the use of Two caveats: o o 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!!

USDOT v v credit : TIFIA provides credit for highway projects, as well as USDOT v v credit : 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 : v Minimum project size $50 m v Maximum loan limit of 33% of project size v 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) v 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/

Approved TIFIA Loans Staten Island Ferries $159 Retired – paid in full Moynihan Station 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 Total TIFIA Assistance: $3. 2 Billion Total Project Investment: $12. 7 Billion LA-1 $66 US 183 -A Turnpike $66 Central Texas Turnpike Miami Intermodal Center $917 $439 Tren Urbano Retired - paid in full $300 PR

Advantages/disadvantages o Patient Flexible Lender n n n 30 year terms. & payments can Advantages/disadvantages o Patient Flexible Lender n n n 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. o Federal Restrictions n The mandated interest rate is taxable & could be high for some borrowers. n Minimum project size possible bar to local governments. Project becomes Federalized and subject to Title 23 reviews: NEPA, n Davis-Bacon, Buy America, MBE/DBE, Section 4 f, environmental justice, no local preferences on contracts etc

RRIF loans o o o The Federal Railroad Administration has a credit assistance program RRIF loans o o o 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

Private activity tax exempt bonds, PAB o o o The privilege of issuing tax Private activity tax exempt bonds, PAB o o o 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

PAB procedures o Private project owners will need to work closely with a state PAB procedures o Private project owners will need to work closely with a state or local govt. n o 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! n n n 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 o Several freight projects have either applied for or received conditional allocations: Miami Tunnel ($900 m); Centrepoint ($500 m)-- an intermodal freight center in Crete, Il.

State Infrastructure Bank, Sib o o The Federal govt. permits states to set aside State Infrastructure Bank, Sib o o 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; n n $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.

OH Sib o Lending is available for highway, transit, rail and intermodal projects for OH Sib o Lending is available for highway, transit, rail and intermodal projects for local govts. Freight projects generally eligible. Federally ineligible projects funded thru state facility. o See OH Dot Sib website http: //www. dot. state. oh. us/sib 1/sum. htm or contact Melinda Lawrence (614 -644 -7275) o 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.

Financial Partnerships with the Private Sector Financial Partnerships with the Private Sector

Public Private Partnerships, PPP o o o In recent years an entirely new way Public Private Partnerships, PPP o o o 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.

Truck intensive highway concessions o Miami Port Tunnel $865 m tunnel project awarded as Truck intensive highway concessions o Miami Port Tunnel $865 m tunnel project awarded as a 35 year contract to designbuild finance-operate-maintain concession. Payments, are monthly following construction, based on availability. Multiple revenue streams, including tolls. State & local partnership. o o 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-financeoperate-maintain concession. Likely tolled. Both projects provide a possible model for port access intermodal connector roadway improvements.

Other types of partnerships: a) o The standard local government economic development model: n Other types of partnerships: a) o The standard local government economic development model: n n 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.

Partnerships: b) rail o o o The Heartland Corridor provides an example of a Partnerships: b) rail o o o 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. o o States too numerous to mention have revolving fund lending programs and grants available to fertilize partnerships with shortline railroads. The FHWA Freight Finance guidebook, lists many of these funding streams.

Partnerships c) cost share, contributions o o o Cost sharing on interchanges with developers Partnerships c) cost share, contributions o o o 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 O&M or signalization, or ROW, or interchanges on locally sponsored toll roads.

Partnerships d) tax exempt corporations o o A legal vehicle used occasionally to enable Partnerships d) tax exempt corporations o o A legal vehicle used occasionally to enable public private partnerships is the non- profit corporation, called 63 -20 s. 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. o o 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.

DOT credit instruments & partnerships o o o The TIFIA & RRIF credit facilities DOT credit instruments & partnerships o o o 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.

Freight finance guidebook o The FHWA “ Financing Freight Infrastructure” guidebook is now available. Freight finance guidebook o The FHWA “ Financing Freight Infrastructure” guidebook is now available. n It elaborates greatly on many of 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: o n http: //www. ops. fhwa. dot. gov/freight/publications/freightfinancin g/pdf. pdf A Freight Finance Class is also being prepared. Ready in early 2008 o See Carol Keenan, 202 -366 -6993 n Carol. [email protected] dot. gov

Thank you! For further info contact : v Mr. Prabhat A Diksit Innovative Finance Thank you! For further info contact : v Mr. Prabhat A Diksit Innovative Finance Specialist FHWA Resource Center Prabhat. [email protected] dot. gov 720 -963 -3202