BROOMFIELD, Colo. - Budget shortfalls and lack of access to capital markets for infrastructure projects may be sparking a transition period for financing that could ultimately prove beneficial for issuers over the long term, transportation experts said yesterday.
Government leaders and analysts who spoke at The Bond Buyer's Ninth Annual Transportation Finance/P3 Conference said agencies are coping with declines in traffic growth and associated drops in gasoline and diesel fuel tax revenue, and are searching for ways in addition to debt issuance to finance transportation projects.
"I'm optimistic that were going to see a confluence of need, motivation, and lots of good ideas out there, and it's going to lead to a more robust world in project financing," said Dan Heimowitz, managing director of RBC Capital Markets.
Heimowitz and others detailed the funding gaps confronting issuers in recent years - noting a $1.6 trillion gap cited by the American Society of Civil Engineers in 2003 - and speculated on the degree of difficulty that issuers will have paying for projects during a recession.
Financing costs are being driven up by widened credit spreads, limited access to low-interest federal loans through the Department of Transportation, and dwindling gas-tax revenue at the state and federal level, panelists said.
Vehicle miles traveled in the U.S. have not significantly grown in 40 months, said Gerry Nielsten, senior principal at Stantec.
"I think that we have tough times for our whole industry," he said.
And while governments have devised a number of creative financing tools, they have run into public policy hurdles as well as a lack of public support for private-sector involvement upon which many of those tools depend. Additionally, there is doubt about whether the federal government will give states aid or debt guarantees under the $700 billion bailout package.
John Filan, executive director of the Illinois Finance Authority - who was until last week the chief operating officer for the state - said that if necessity is the mother of invention, "I think we've found the mother of all necessities."
Transportation authorities should use the "most pessimistic forecast" for national gross domestic product to develop their projections because the economy will probably not crawl out of its hole until 2012, said Mark Vitner, director and senior economist for Wachovia.
Among the suggestions from conference speakers for dealing with the tough economic conditions was a proposal for Congress to pass an economic stimulus bill that expands the borrowing capability of the Transportation Infrastructure Finance and Innovation Act program, which provides low-interest loans for projects.
That would "provide an additional catalyst" to ease issuers' decreased ability to access capital markets, said Scott Trommer of PFM Group.
Trommer said that for toll road sponsors right now, "the key is focusing on one's own credit to maximize market access and borrow at the lowest possible cost," as well as entering into public-private partnerships and using subordinate loan programs.
Also helpful are design-build contracts with fixed prices and schedules, a cashless toll system, and the ability to incrementally raise tolls, with legislation supporting the tolling strategy, he said.
Transportation agencies may begin using new tolling facilities where none had previously existed - possibly under the Federal Highway Administration's interstate toll pilot program, Heimowitz said - or raise existing tolls or lease assets.
However, panelists pointed to the $12.8 billion bid from Abertis Infraestructuras SA of Spain and Citigroup Inc. for a long-term lease of the Pennsylvania Turnpike that failed to close this year as an example of "real" asset value and lack of political and public support hindering the ability of a lease to help address a funding gap.
Heimowitz said the economic stress on projects could force governments to consider privatizations among their options.
"This may very well be the time that the ideology between public and private goes away," he said. "No one source is going to deal with the enormity of the needs that are out there."
