DALLAS — More than $5 billion in private activity bond capacity remains available from the U.S. Department of Transportation to provide part of the funding solution for public-private partnerships that invest in large surface transportation projects.
Up to $15 billion of these tax-free bonds, which are not subject to state PAB volume caps, were authorized by the previous transportation reauthorization law in 2005 to encourage private investment in transportation infrastructure.
Additional capacity may become available if Congress approves a request for an additional $4 billion of new P3 private activity bonds included in President Obama’s proposed budget for fiscal 2014.
“The PAB program is able to make provisional allocations for qualified projects, providing private partners flexibility in designing their financial plans and ensuring public sponsors receive competitive bids” a DOT spokesman said. “We believe that private activity bonds have a valuable role to play in encouraging private sector investment in our nation’s transportation infrastructure.”
About $4.5 billion of the $15 billion of PABs have been issued under this program as of Nov. 7, according to the DOT, and another $5.3 billion have been allocated but not yet issued. Some of the projects have issued fewer bonds for which they were approved. Any unused capacity is returned to the pool for later allocations.
Proceeds must be expended within five years of the bonds’ issuance.
With the popularity of P3s increasing as state and local governments deal with budget and revenue constraints, the DOT is increasingly working with the public sponsors of infrastructure projects to get the financing outlined before private partners are selected.
Eligible projects include surface transportation infrastructure that qualifies for federal assistance, including international bridges and freight transfer facilities as well as highways and bridges. Projects that receive federal loans under the Transportation Infrastructure Finance and Innovation Act are also eligible for these private activity bonds. DOT officials said they are seeing more projects that use both funding options.
A technical paper prepared for the National Surface Transportation Policy and Revenue Study Commission in 2007 estimated, in present value terms, the federal tax-exemption subsidy for PABs to be approximately 15% to 20% of the amount borrowed.
The P3-earmarked bonds probably would be used by only a few large projects that could generate enough revenue to support the debt service, the report said. Other limitations cited in the report included restrictions in the federal tax code about how PAB issues can be structured, and the often-narrow yield spreads between taxable and tax-exempt debt,
The single largest allocation has gone to the I-4 Ultimate project in central Florida that has been authorized to issue $2 billion of the P3 PABs for the state’s first privately operated expressway. Florida Municipal Loan Council, operated by the Florida League of Cities, will be the conduit issuer for project.
Almost $405 million of the bonds have been issued for the $1.5 billion Goethals Bridge replacement effort in New York. An allocation of $795.2 million of the private activity bonds remain to be issued for the Goethals project.
The new bridge is being constructed through a private, long-term development contract with NYNJ Link, a consortium of Macquarie Infrastructure Real Assets and Kiewit Construction, which will design, build, finance and maintain the new bridge. The Port Authority of New York and New Jersey will set and collect tolls.
More than $1.2 billion of the P3 bonds have been issued for road projects in Texas.
The $2.7 billion project to rebuild the I-635 LBJ Freeway project that arcs across north Dallas has received proceeds from $615 million of bonds from the P3 program. The LBJ Express is expected to take five years to complete.
The LBJ Infrastructure Group that is building the project was selected by the Texas Transportation Commission after a competitive public-bidding process. The consortium’s lead partners are Cintra US, a Texas-based division of Spanish toll way developer Cintra, Meridiam Infrastructure, a global public-private partnership investor and developer of public facilities, and the Dallas Police and Fire Pension System.
Cintra, Meridiam, and the Dallas pension system are also involved in building a P3 expressway north of Fort Worth that has issued $674 million of the PAB bonds, and has an allocation of another $176 million. The $2.5 billion North Tarrant Express is expected to be completed in 2015.
Projects funded with federal PAB allocations in the Virginia suburbs of Washington include $589 million to add high-occupancy toll lanes to the I-495 Beltway and $252.6 million of bonds to help fund 29 miles of high-occupancy toll lanes on I-95.