Innovative Project Finance National Governor s Association Utah State Planning Retreat on Public-Private Partnerships Ivan Marrero, P.E. Division Administrator, FHWA Utah October 7, 2016
The Status Quo: U.S. Infrastructure Backlog Financing and funding infrastructure has become more difficult than actually building it Not due to lack of financing dollars: U.S. DOT has over $50 billion available in Federal assistance programs Access to this financing requires complying with federal regulations, complex credit structures, and the need to coordinate with multiple points of contact within the federal government 3
A New Formula for Infrastructure Investment July 2016 USDOT unveiled the Build America Bureau. The BUILD AMERICA BUREAU 5
The Bureau s Mission 6
Current and Future Roles of the Bureau Serve as the One-Stop Shop for project sponsors to access DOT technical assistance and credit programs; Administer the Credit Programs for RRIF and TIFIA loans, PABs and the new FASTLANE Grant program; Streamline DOT credit application and review processes; Provide technical assistance and best practices and financing and funding opportunities; Reduce uncertainty and delays related to environmental reviews and permitting; Assist in mitigating project delivery and procurement risks and costs for projects financed by the USDOT infrastructure finance programs; Increase transparency and the public availability of information regarding projects financed by the USDOT infrastructure finance programs. 7
What is Innovative Finance Innovative Finance Use of project-based revenues (e.g., tolling, value capture) Use of credit to leverage future revenues Expanded private sector role in financing and delivering projects Conventional Transportation Funding Gas taxes Pay-as-you-go Issue State-backed bonds I-495 Capital Beltway, Virginia 9
Ohio River Bridges Project $2.3 billion for two new bridges across the Ohio River Kentucky and Indiana worked together, but approached their bridge projects differently: Kentucky: design-build using GARVEEs, TIFIA, and tolls to fund Indiana: a design-build-finance -operate-maintain P3 with an availability payment structure financed with PABs and TIFIA East End Bridge, Indiana Downtown Bridge, Kentucky 10
So Why Use Innovative Finance? Accelerate project delivery Ex. Florida I-595 completed almost decade sooner Spread out project costs Ex. Washington SR 520 relies on TIFIA and revenue bonds to better match life cycle cost of the asset Provide additional options for state and local agencies Ex. Minnesota s SIB provides low interest loans to cities, counties, and other transportation agencies Leverage Federal grant funds and credit Ex. Ohio s GARVEE bond program leverages future Federal funding to generate up-front capital for building critical projects sooner Leverage private sector equity and expertise Ex. Indiana East End Crossing s PABs attracted a significant portion of private investment to the project 11
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State Infrastructure Banks (SIBs) What are SIBs? State-administered revolving funds using Federal and/or State transportation dollars to provide credit assistance for transportation projects They function like banks offering loans and lines of credit to public and private sponsors 33 States have established SIBs. Issued 972 loans totaling $5.8 billion States capitalize SIBs by taking the Federal-aid funds and providing the local match Why use SIBs? Allow States to provide affordable credit assistance to local projects Leverage Federal funding Accelerate project delivery Attract local funding and revenues for projects Attractive to private investment by lowering the financial risk and creating a stronger market condition. 13
Minnesota SIB Minnesota s SIB, named the Transportation Revolving Loan Fund (TRLF), was established in 1997 Functions like a commercial bank providing low interest loans to cities, counties, and other transportation agencies Issued $50.3 million in loans which have been leveraged to finance over $160 million in transportation projects $4 million Federal general funds $31 million Federal formula funds $7 million State highway funds $8.3 million State general funds I-94, Minnesota 14
Transportation Infrastructure Finance and Innovation Act (TIFIA) of 1998 What is TIFIA? Federal program that provides loans, loan guarantees and lines of credit to transportation projects The project must cost $50 million or 33.3% of the state s annual federal apportionment, whichever is less. Projects are selected by the Secretary of Transportation. USDOT sets aside $122 million each year Program s lending capacity has grown to about $20 billion in credit assistance Why use TIFIA? Leverages Federal, State and local resources and stimulates private investment Accelerates project delivery by accessing additional upfront funds Provides low interest rates and flexible repayment terms 15
Texas IH 635 Managed Lanes Project $2.62 billion project utilizes $850 million of TIFIA funding TIFIA loan represents nearly one-third of the project s financing package TIFIA loan enabled TxDOT to structure public-private partnership (P3) project financing including: $664 million private equity $615 million Private Activity Bonds State, local and Federal funds 16
Private Activity Bonds (PABs) What are PABs? Debt instruments issued by State or Local governments Allow for tax-exempt bonds for projects with private investment Highway projects made eligible for PABs by SAFETEA-LU Limited to $15 Billion Used on 16 projects totaling $5.9 Billion. Allocations have been approved for 6 projects totaling $5.7 Billion. Why use PABs? Offset higher costs of capital generally incurred by the private sector in Public Private Partnerships (P3s) Can contribute to making P3 projects financially feasible 17
Indiana East End Crossing PABs Part of bi-state (Indiana and Kentucky) Ohio River Bridges Project East End Span financing package includes: $677 million PABs $78 million private equity $392 million payments from Indiana Finance Authority and Indiana DOT PABs represent 62 percent of the project s financing PABs attracted a significant amount of private investment 18
Grant Anticipation Revenue Vehicles (GARVEEs) What are GARVEEs? Tax-exempt bonds issued by States, backed by and repaid with future FHWA Federal-aid funding Why use GARVEEs? Accelerates construction Provides better funds management Avoids inflation costs by advancing project construction Enables large project financing Provides financing at relatively low interest rates 19
Washington SR 520 Floating Bridge Reconstruct floating bridge connecting Seattle to Redmond Raise and widen bridge $2.7 billion project GARVEE Bond financing $786 million TIFIA financing $300 million GARVEE bonds represent the largest portion (29.1 percent) of the project s funding SR 520, Washington State
What is RRIF? Railroad Rehabilitation & Improvement Financing (RRIF) Federal program that provides direct loans and loan guarantees to finance railroad infrastructure projects Program can lend up to $35 billion in credit assistance 27 states. 35 loans totaling $2.7 billion Why use RRIF? Direct loans can fund up to 100% of eligible project costs Small Loans (< $100,000) can be approved Provides low interest rates and flexible repayment terms 21
New Priority for the Bureau: Transit Oriented Development (TOD) The FAST Act makes TOD expenses and projects eligible under TIFIA and RRIF What is TOD: Promotes commercial and residential development near transit hubs Can increase transit ridership Promotes walkable, sustainable land use 22
Additional Bureau Resources Innovation in Practice Case Studies Webinar Series through BATIC Institute: Pennsylvania Rapid Bridge Replacement Denver Union Station Eagle P3 Commuter Rail TIFIA s FAST Act guidance webinars: Active Transportation Networks State Infrastructure Banks (SIBs) Ports Transit Oriented Development (TOD) Best Practices Papers: Surface Transportation P3s Availability Payment Concessions P3 Model Contract Guide Core Toll Concession P3 Model Contract Guide 23
Advances innovation FHWA Center for Innovative Finance Support (CIF$) Activities Provides Technical assistance Serves as FHWA s liaison with the Build America Bureau Development of tools and guidance on innovative finance techniques Cooper River Bridge, South Carolina SC 22, South Carolina 24
Contact Information Ivan Marrero, P.E. Division Administrator FHWA Utah Division Office (801) 955-3500 Ivan.Marrero@dot.gov Mark Sullivan Director, Center for Innovative Finance Support Office of Innovative Program Delivery 202-366-5785 Mark.sullivan@dot.gov 25
Email: BuildAmerica@dot.gov Phone: 202-366-2300 26