CHICAGO - Ohio is launching a new federal bond fund program under the state infrastructure bank to finance highway and transit projects, a move that comes as officials have named transportation funding a top priority for the state.
The new federal bond fund will operate under the state infrastructure bank program and will closely resemble a state bond fund established two years ago. Officials decided to establish the funds after a transportation infrastructure loan program ran out of money after roughly 10 years in operation.
The program is dubbed the federal bond fund program because an earlier iteration was capitalized as part of the state infrastructure bank with federal transportation money, while another program, capitalized with state money, is known as the state bond fund program.
The new bond fund will finance projects eligible for dollars under the federal Title XXIII Highway Act, largely highway, road, bridge, and infrastructure projects. The state bond fund will continue to finance transportation-related projects that are not eligible for Title XXIII dollars, including aviation, roadway, and rail projects. The new fund will finance projects up to $20 million, while the current state bond fund finances projects estimated to cost up to $10 million. Eligible borrowers for both include political entities, transit districts, and public agencies in the state.
Ohio later this month will privately place $5.2 million in taxable transportation revenue bonds that will be used to set up a reserve fund for the program. The state plans to publicly offer the fund's debt in the future, but decided to tap into Ohio's "set universe of buyers" to launch the new fund, said Jake Wozniak, director of debt management in the treasurer's office.
Ahead of the pricing, Fitch Ratings assigned an AA rating to the debt, saying the program's structure provides ample security and underwriting guidelines.
The Ohio Department of Transportation is operating the program. The state treasurer will issue the bonds. Michael DiPerna and Tim Long with Robert W. Baird & Co. are acting as financial advisers on the new bond fund. Fifth Third Securities is acting as placement agent on the issue. Bond counsel is Bricker & Eckler LLP. The program's trustee will be Bank of New York Mellon NA.
The fund is being established a few months after officials created the Ohio 21st Century Transportation Priorities Task Force, aiming to increase public investment in transportation-related projects as well as generate economic development and promote a "multi-modal" transportation system.
The task force has held a series of meetings across the state and this fall will present Gov. Ted Strickland with a list of recommendations. Ohio Treasurer Richard Cordray heads up a subcommittee on maximizing public investment.
"This is one of the things that the state can do very easily to help local governments to fund transportation in the midst of the federal government being in [fiscal] trouble," said Wozniak. "This is another tool that the state is offering."
Like the current state bond fund, bonds issued under the federal bond fund program will be secured with all loan repayments made under the original loan program. Bonds will also be secured with the program's equity - estimated at $40 million - and its reserves.
Since it was started in 1997, the loan program has issued 64 loans totaling $231 million. It now has 48 loans outstanding totaling $77.2 million that are secured by various revenue sources, including gas and sales tax revenues and passenger facility charges.
Fitch analysts praised the new bond fund, saying its structure provides multiple layers of security and that the transportation department limits borrower concentration.
The program's AA rating is one of several reasons municipalities might be interested, according to Wozniak.
"We have a set transaction team, a defined process of four to eight weeks, and a set trustee," he said. "And they can pledge unconventional revenue streams, without their general obligation pledge, such as parking meter revenue."
Officials have identified at least five possible projects eligible for the new bond fund, including Cincinnati's $10 million project for an intermodal transit facility and Toledo's plan to build a $10 million bridge.
