It's time to expand TIFIA

Few lenders, if any, are as patient as the United States government.

In fact, without it some of the most significant transportation projects of the last 14 years would have been delayed or deferred due to their size, complexity or uncertainty over the timing of forecasted revenues.

This is most true regarding the federal credit assistance provided by the Transportation Infrastructure Finance and Innovation Act program. First enacted in 1998, TIFIA most often provides loans to help states pay for large, partially funded projects of regional and national significance. The assistance also can be in the form of a loan guarantee or a standby line of credit.

It most definitely is not a grant program. Rather, TIFIA is a loan program that must be paid back with a distinct revenue source. Often this comes in the form of user fees, such as tolls. Almost every recent toll road startup in the United States has benefited from the program.

TIFIA was designed to leverage federal funds with local or private investment by offering attractive terms and the flexibility to more efficiently finance projects with unpredictable revenue streams. The federal government acts as a "patient lender" with regard to repayment terms and also allows for a deferral of interest for five years while a project matures and advances beyond the ramp-up period.

The program can fund up to 33 percent of a project's total development cost and contains a maximum term of 35 years from substantial completion of the project. The TIFIA loan rate is fixed at the 30-year U.S. Treasury State and Local Government Series rate (3.4 percent as of Jan. 31, 2012). The attractive loan rate — combined with the U.S. Department of Transportation's willingness to offer the loan on a subordinate lien — provide for a greater amount of debt and upfront proceeds for a project. (Project revenue bonds can occupy the senior lien and achieve higher ratings.)

Funds are awarded through a competitive application process for eligible projects and can be used in traditional public financings as well as public-private partnerships. Highway, transit, passenger rail, certain freight facilities and certain port projects may receive credit assistance through TIFIA.

To date, 24 projects have received assistance, and federal assistance has totaled $8.7 billion with a total project investment of $33.1 billion. Five projects have fully repaid their TIFIA debt.

"We need TIFIA"
According to the Federal Highway Administration, which handles the program, each dollar of federal funds can provide up to $10 in TIFIA credit assistance, and leverage $30 of overall investment in transportation infrastructure. In other words, annually the current program's $110 million of credit premium is turned into $1.1 billion of federally-support loans, and go a third of the way toward leveraging private loans.

TIFIA can provide an additional debt source to capital markets and offer flexible repayment terms and more favorable interest rates. Bonding and debt capacity are optimized. The cost of capital is measurably lower. This is particularly important at a time when money available for infrastructure investments has been in short supply. The credit and liquidity crisis has made it extremely difficult to obtain debt — the capital markets simply aren't as flexible as they used to be.

In fact, TIFIA has been crucial to the successful financing of almost all P3 projects brought to market in the United States since it was introduced. It provides "low cost" debt, eliminating or at least vastly reducing the public shortfall all complex transportation projects have. One recent example was a $418 million loan to help the North Texas Tollway Authority to pay for the construction of the final phase of Texas State Highway 161 in Dallas County.

Last November at an infrastructure investment forum hosted by the U.S. Chamber of Commerce, Virginia Secretary of Transportation Sean Connaughton emphatically endorsed the program. "We need TIFIA," he said. "In fact our Midtown Tunnel project would not have been able to move forward if it wasn't for TIFIA. And the same thing with the Beltway project, and the same thing, hopefully, on the 95 HOT Lanes project we're moving forward, as well."

TIFIA is so popular among transportation agencies that it's vastly oversubscribed. Demand for credit assistance regularly exceeds TIFIA's budget authority. In 2011, requests totaled $14 billion in loans, 14 times more than what the program could support.

At a time when the gas tax is in decline and available funds are dwarfed by the country's need for simple maintenance and repair projects, let alone new capacity, TIFIA must be expanded. And on this, if not the details, Congress and President Barack Obama agree.

Expansion plans on the table
The Obama administration included expansion of the program in its proposed American Jobs Act last November. The act would have included $5 billion to be shared by the TIGER grant program and TIFIA. It also included an overhaul of the TIFIA funding application process, directing USDOT to shorten the application process for the 2012 round of TIFIA funding to "accelerate projects and put workers back on the job more quickly." The overall bill quickly went nowhere within a divided Congress.

As it worked on a proposed two-year surface transportation authorization, the U.S. Senate Committee on Environment and Public Works included an "America Fast Forward" provision in its Moving Ahead for Progress in the 21st Century (MAP-21) bill. It would dramatically expand TIFIA by:

• Increasing the program’s annual budget to $1 billion;
• Increasing credit standards;
• Increasing the maximum eligible project costs from 33 percent to 49 percent;
• Eliminating nearly all selection criteria in favor of a simply eligibility process;
• Adopting a rolling basis for applications and availability, ending the wait for annual notices; and
• Providing more flexibility in regard to budget authority.

Sen. Barbara Boxer, who chairs EPW, has said the committee has sent "a strong signal that we are serious about job creation and getting our economy back on track." Boxer also said the USDOT estimates such an expansion will create up to one million jobs.

The bill awaits full consideration by the Senate, which needs to identify $12 billion in additional revenue. Meanwhile, the U.S. House of Representatives seems to favor a five-year authorization proposal. A full House bill was introduced by Transportation and Infrastructure Committee Chair Rep. John Mica, the "American Energy & Infrastructure Jobs Act."

The act would dedicate $6 billion to the TIFIA program over five years, resulting in $60 billion in low interest loans to fund at least $120 billion in transportation projects. The proposal also states that while existing lanes on Interstate Highway System would remain tollfree, states would have the ability to toll new capacity on the system, and the bill would provide "greater flexibility" to toll non-Interstate highways.

Let’s get moving
Current momentum needs to culminate in increased funding, and soon. Even without a multi-year transportation bill, TIFIA is something elected officials, engaged voters and smart investors can all get behind. The United States must adopt — and expand — alternative financing solutions like TIFIA that aren’t costly to the government and allow greater participation by the private sector.

TIFIA is a proven winner. And it's a safe bet for American taxpayers.

To date — within a program that is intended to take on risk — 24 of 25 projects have remained solvent. And, while one project in Southern California did go into bankruptcy, TIFIA participation in the South Bay Expressway has remained intact.

This was accomplished through a "springing lien" provision, which gave a level of seniority to taxpayer dollars that would not normally have been granted given the size of loan committed. In fact, every project funded within TIFIA gets a reserve that covers a risk premium, which goes to the U.S. Treasury to protect against the risk of borrower defaults.

Greg Hulsizer, former chief executive of South Bay, has said, "The risk here was clearly transferred to the private sector."

Some transit advocates have expressed concern regarding the Senate’s proposed elimination of selection criteria that create a preference for projects that help maintain or protect the environment. While their dedication is admirable, such worries are misplaced. With so much additional money on the table, there will be room for many different types of transportation projects.

Remember, $1 billion annually will trigger $10 billion in loans. The current TIFIA backlog — totaling 44 applications and $8 billion in projects — could be cleared in the first year. In addition, streamlining the program allows more money to flow to more projects more quickly, driving job creation and economic development. Los Angeles Mayor Antonio Villaraigosa has expressed his support for expanding the program. His vision for completing 30 years worth of LA Metro transit projects in the next 10 years will need to rely in part on TIFIA support. In fact, LA Metro has advocated for allowing a master credit agreement with TIFIA to secure loan commitments on a number of related projects at one time.

By the way, along with good transit projects, don't we also want to see good road projects being built?

What's next
Expanding the program should be part of a long-term, well-funded federal surface transportation plan that includes all modes, delivery and funding options. Transportation officials need the certainty this provides to commit to major capital purchases and the kinds of complex multiyear projects that TIFIA funds and that stimulate the economy.

Matt Rose, CEO of Fort Worth-based BNSF Railway Co. and a member of the president's Council on Jobs and Competitiveness, has said "I'd find every unspent dollar in Washington, D.C., and put it into TIFIA and blast the doors off" by financing road, rail and highway projects.

TIFIA's ability to provide additional low-cost debt to projects lowers the public subsidy required to make such critical infrastructure facilities feasible.

Of course, with more money and a streamlined program, USDOT will need additional analysts to support the underwriting process. Current staff members are doing a great job, but they will need help to remain successful.

It's also important to remember not every project is right for TIFIA. It does "federalize" projects and subject them to additional union rules and environment reviews.

And, even with an expanded TIFIA program, state and federal governments cannot cover the current funding shortfall, even to simply maintain the current transportation network. It's not a panacea.

More tolls, taxes and user fees will be required. More support will need to come from local sources. But TIFIA can have a measurable, meaningful impact on significant, large scale projects that will move us to the 21st century multimodal transportation system the nation needs to be safe, secure and competitive.

Politicians of all stripes support expanding TIFIA. You just don’t see that kind of consensus today. Let's come together and make this TIFIA's time.

Additional resources
For more information about TIFIA, consult the following:

Brad Guilmino, HNTB Corporation
Chief Financial Consultant
(212) 915-9517; bguilmino@hntb.com

TIFIA
http://www.fhwa.dot.gov/ipd/tifia/

AASHTO Center for Excellence in Project Finance
http://www.transportation-finance.org/

U.S. Chamber of Commerce

Let's Rebuild America

http://www.uschamber.com/lra

Federal Highway Administration
Innovative Program Delivery
http://www.fhwa.dot.gov/ipd/

International Bridge, Tunnel and Turnpike Association
http://www.ibtta.org

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Now is TIFIA's time