The Transportation Infrastructure Finance and Innovation Act's loan and loan guarantee program has been touted by many as a crucial funding source for major projects, but most states have never used it and say it has little value for them.
The TIFIA program was established in 1998. Its budget next year is expected to grow to $1 billion from just $122 million in fiscal year 2012 under the most recent transportation funding law. As traditional transportation finance methods such as gas taxes have faltered due to increasingly fuel-efficient cars and stricter emissions standards, "innovative" finance methods like TIFIA have become a key talking point for transportation advocates nationwide.
But only 13 states and Puerto Rico have ever used TIFIA financing, racking up $10.5 billion in assistance and leveraging a projected $42.2 billion in investment with bonds backed by revenue from 31 projects like toll roads and ferries. California, Texas, Florida, and Virginia have been very active with TIFIA funds, as have Washington, Nevada, Colorado, Louisiana, South Carolina, North Carolina, Maryland, New York, and Rhode Island.
But TIFIA loans are not free money, like the enormously popular competitively-awarded Transportation Investment Generating Economic Recovery, or TIGER grants, and many states say the loans have no appeal. Although TIFIA loans come with exceptionally low interest rates - sometimes under 3% for a 35-year loan - the borrower still has to find a stream of revenue to repay those funds and the other bond debt associated with the project. TIFIA loans have ranged in size from $42 million for Warwick, R.I.'s Interlink intermodal facility to $900 million for the Central Texas Turnpike System.
Current law stipulates a $50 million minimum expected project cost to be eligible for a TIFIA loan, but makes the limit only half of that for rural projects. As much as 10% of available TIFIA assistance can be set aside for rural projects, defined by law as surface transportation infrastructure as projects located in any area other than a city with a population of more than 250,000 inhabitants within the city limits.
Joung Lee, associate director for finance and business development at the American Association of State Highway and Transportation Officials, said a new provision from the latest transportation law making rural projects eligible to borrow at half of the Treasury interest rate should be "a very attractive feature" for some states.
But transportation leaders in several rural states say the cost would still be too high, and other state leaders say they prefer not to take on any debt at all.
Lynn Zanto, transportation planning division administrator at the Montana Department of Transportation, said even with the low $25 million minimum set for rural loans, states like hers just do not have much use for loan programs of any kind.
"Even $25 million projects are pretty rare here," Zanto said. "We're not all that in favor of debt financing mechanisms."
Montana has made sparing use of grant anticipation revenue vehicle, or Garvee, bonds backed by federal disbursements from the highway trust fund, but generally attempts to take a conservative approach, paying for its highway system primarily with pay-as-you go funding.
Zanto said her state's sparse population, just over one million people scattered over about 147,000 square miles, makes the idea of finding a revenue stream to pay a multi-million dollar loan extremely daunting. With so few people driving so many miles of road, opportunity for reliable revenues that could be captured, necessary to garner the investment-grade ratings a TIFIA loan requires, would be slim.
"These programs seem to be a mechanism for pushing investment to the population centers," she said.
Phil Barnes, assistant director at the Minnesota Department of Transportation's office of policy analysis research and innovation, said the Gopher state's lack of huge surface transportation projects and some complicating legal factors hamper the use of loan programs like TIFIA. "I'm not even sure if we would have a project eligible," Barnes said. "Right now, we don't know if we have any of those projects on the horizon."
Barnes said that although he is "cautiously optimistic" that state-level legislative developments will allow Minnesota to become more involved in the innovative finance game soon, current law permitting a local jurisdiction to veto a public-private partnership arrangement is discouraging to the types of programs that a loan program is designed to help. It hinders TIFIA, as well as the national infrastructure bank like those proposed by the president and federal lawmakers over the past few years.
"It's kind of a deal breaker for the private sector," he said.
Barnes added that Minnesota has no desire to run up a big debt tab despite the extremely low interest rate environment, something Tennessee Department of Transportation director of finance Neal Ham echoed.
Tennessee is an entirely pay-as-you go state that eschews debt for transportation.
"This approach has worked well for Tennessee since transportation spending per capita is among the lowest in the nation, while our transportation system is consistently ranked among the best in the nation," Ham said. "While programs of credit assistance may be of benefit in certain circumstances, TDOT's preference is that funding for these programs not reduce the funds that otherwise would be attributable to Tennessee."
Zanto said that her department has enjoyed a long working relationship with neighboring states like Wyoming and the Dakotas, and has heard the same sentiments.
"That's the general take," she said of credit assistance programs. "We don't see them as a solution to the revenue issue."
A state's overall policy on transportation funding affects whether it makes a good candidate for credit assistance. Nearly all the states that have obtained TIFIA financing, use tolls as a funding tool for highways.
Lee has repeatedly urged states not to view TIFIA as a silver bullet, and not to lose sight of the need to more sustainable revenue sources as gas tax revenues continue to decline. TIFIA could become a more universal program, he said.
"Going forward, I think there is more potential to apply the so-called "innovative finance" tools to rural areas than has been previously used," Lee asserted. "It will require more creativity, but we're going to see more of that given the revenue pressures all around."
