WASHINGTON — At a time when the federal government is putting a tourniquet on one of the hottest transportation financing instruments available to municipal issuers and private investors in the current market, the Department of Transportation’s chief may decide to release $200 million of additional funding to help meet the program’s demands.

The American Recovery and Reinvestment Act, otherwise known as the stimulus package, allows the transportation secretary to use as much as $200 million of funding to subsidize and pay administrative costs of credit assistance provided under the Transportation Infrastructure Finance and Innovation Act program. That funding would come out of the $1.5 billion of supplemental discretionary grants made available in the stimulus package for surface transportation infrastructure capital investments.

The 10-year-old TIFIA program provides loans, loan guarantees, or standby lines of credit to transportation projects with a dedicated revenue stream. Since its inception in 1998, the program has provided $6.4 billion in credit assistance, which is used by transportation departments and private investors and is coupled with other low-cost sources such as private-activity bonds.

Interest rates for TIFIA are pegged to Treasury rates, making the loans highly sought after. The TIFIA rate yesterday was 3.68% for a 35-year loan.

Recently, the program has been so oversubscribed that DOT officials had to put a “moratorium” on new loan applications, TIFIA director Mark Sullivan said at a public-private partnerships conference here yesterday.

All of the program’s lending capacity is already committed for this fiscal year, which ends Sept. 30 — and most of the funds for fiscal 2010 have been committed as well, he said. The DOT earlier this month approved a $603 million loan through TIFIA to build new express lanes in Broward County, Fla., on Interstate 595.

The program ran up against its ceiling earlier this year in part because Congress rescinded about $257 million of TIFIA’s carry-over budget authority during the last fiscal year, which ended Sept. 30, 2008, when the program was not fully subscribed. After the congressional budget rescission, the program lost its ability to help finance about $2 billion worth of projects.

The subsidies provided by TIFIA average about 8% of the total project investment, Sullivan said. But he expects that percentage to increase “as riskier loans enter the TIFIA portfolio,” adding, “We are poised to grow.”

But TIFIA officials are waiting for direction from Transportation Secretary Ray LaHood on whether the program will receive $200 million of stimulus funding, which could help finance about $2 billion of transportation project costs. The DOT is required to decide how to use the funds within 90 days of the stimulus package’s enactment.

“The office of the secretary is now developing a strategy for implementing the [discretionary program], under which the TIFIA program may receive some ARRA funding,” Federal Highway Administration spokesman Jonathan Mueller told The Bond Buyer. The DOT expects to meet its statutory deadline, he said.

Other market participants from Fluor Enterprises, First Southwest Co., and Katten Muchin Rosenman LLP also weighed in on TIFIA yesterday.

Tom Boast, senior vice president for First Southwest, noted that the ratio between 30-year Treasury rates and the MMD index for BBB-rated bonds was almost 200% and suggested a number of changes to the program that could make it more flexible.

In the next surface transportation authorization bill, Congress could amend the program’s rules to allow TIFIA to finance a larger percentage of eligible project costs, or allow TIFIA amounts to exceed the par amount of senior debt — particularly for public-private partnerships wherein the capital structure includes equity and if credit parameters are met, he said.

He also suggested charging different rates for TIFIA credit to borrowers who bring different debt structures to their projects, likening such a process to private lending. Charging differential credit fees based on the characteristics of a project could also give the program more lending flexibility, he said.

Meanwhile, stakeholders as well as former and current federal officials discussed the future of federal transportation funding. Private investment may be necessary for major high-speed rail development, according to Tyler Duvall, former assistant secretary for transportation policy for the DOT under the Bush administration.

Duvall estimated that high-speed rail will receive about $25 billion of public funding from the stimulus package, President Obama’s budget, and state funding.

“That’s not going to do much in the U.S.,” he said.



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