TIFIA program for P3s is underused
Almost $1 billion in federal loan authority for public-private infrastructure partnerships remains underused because of bureaucratic delays and a lack of clarity on borrowing requirements.
This unused pool of federal lending assistance available under the Transportation Infrastructure Finance and Innovation Act could be put to work fixing the nation’s highways and transit systems if Congress enacts some budget-neutral fixes.
Bipartisan legislation to streamline TIFIA the Transportation Infrastructure Finance and Innovation Act has been introduced in Congress by two Texans.
Republican Sen. John Cornyn is sponsoring the Senate version, S. 353, with a companion version introduced in the House by Democratic Rep. Colin Allred, H.R. 2475.
Their legislation, dubbed the RAPID Act, is cosponsored by Democratic Sen. Tim Kaine of Virginia and Republican Rep. Mike Gallager, which makes it bipartisan in each chamber.
The proposed legislation calls for the Transportation Department secretary to “ implement an expedited decision timeline for public agency borrowers seeking secured loans” and for the DOT to publish monthly on the TIFIA website “ a current status report on all submitted letters of interest and applications received for assistance under the TIFIA program.”
TIFIA, which provides long-term, low-interest loans and other types of credit assistance for the construction of surface transportation projects, is an acronym for The Transportation Infrastructure Finance and Innovation Act.
Jase Cabrera, a financial policy advisor at the DOT's Build America Bureau recently acknowledged the underuse of TIFIA by stating it "is currently tapped into a fraction of the total authority.”
Cabrera spoke at a National Association of Bond Lawyers workshop in Chicago where he encouraged more use of the program and observed that TIFIA is available for transit and smaller rural transportation projects.
Barney Allison, a partner at the Nossaman law firm in Los Angeles who often represents public agencies in P3s and participated in the same panel discussion, said TIFIA needs some improvements.
“What I think would help the program is streamlining the process, more objective lending criteria,” Allison told The Bond Buyer. “If you could get more objectivity in the program I think you’d get more people interested in it.”
The major advantages of TIFIA are that the borrowing rate is the Treasury rate so there’s no spread, it is a drawdown loan, payment can be delayed until after completion and there’s no underwriter fees, Allison said.
“But if it takes you a year and a half to get through the credit process and the negotiation of commercial terms, we’re all waiting to get a deal closed,” Allison said.
In the meantime, the project is subject to construction inflation and interest from the private sector partner could wane.
Cabrera didn’t specify how much of TIFIA authority is unused, but the FAST Act authorized $300 million for TIFIA in the current fiscal year and another $300 million in the 2020 fiscal year that starts Oct. 1.
Unused money accumulates from year to year and the unobligated budget authority in the TIFIA program had a balance of $1.65 billion at the end of fiscal 2018.
That adds up to $2.25 billion in TIFIA authority through the end of fiscal 2020.
Since the beginning of this year, the Transportation Department’s Build America Bureau lists closing on only two loans of $657.9 million for the Lynnwood Extension administered by the Central Puget Sound Regional Transit and $605.33 million for the Grand Parkway Segments H&I Project in the Greater Houston area administered by the Texas Department of Transportation and Grand Parkway Transportation Corporation.
That would leave roughly $987 million in unused authority.
It was enacted in 1998 and most recently reauthorized for fiscal 2016 through 2020 in the larger Fixing America’s Surface Transportation (FAST) Act.
The nonpartisan Congressional Research Service reported in February that government involvement remains more important in TIFIA-supported projects than P3s.
About one-third of TIFIA-supported projects were developed as P3s through 2016 while the other two-thirds were governmentally procured, CRS found.
The P3 projects had total project costs of $33 billion, of which 29% came from government grants, 28% TIFIA loans, 28% other debt, 13% private equity, and 1% other capital.
In addition, the FAST Act also allows states to use funds from three other highway programs to pay for the subsidy and administrative costs of credit assistance: the discretionary Nationally Significant Freight and Highway Projects Program, known as INFRA grants; the formula National Highway Performance Program; and the formula Surface Transportation Block Grant Program.
“The TIFIA program has provided assistance of $32 billion to 74 projects with a total cost of about $117 billion (in FY2018 inflation-adjusted dollars),” CRS said.
Seventy three of the TIFIA credit agreements have been loans and only one has been a loan guarantee.
The average project is $1.5 billion and the average TIFIA loan is $430 million.
About two-thirds of TIFIA loans have gone to highway and highway bridge projects, and another quarter to public transportation, CRS said.
The program also can be less expensive than using tax-exempt bonds to finance a project. The Riverside County Transportation Commission in California estimates that using a $150 million TIFIA loan to finance building the I-15 Tolled Express Lanes Project saved $25 million for the $471 million project compared to traditional bond financing, CRS reported.
TIFIA loans can also be used in conjunction with traditional bond financing.
TIFIA has supported at least one project in 21 states, the District of Columbia, and Puerto Rico.
Projects eligible for TIFIA assistance include highways and bridges, public transportation, transit oriented development, intercity passenger bus and rail, intermodal connectors, intermodal freight facilities, and the capitalization of a rural projects fund. Eligible applicants for TIFIA assistance include state and local governments, railroads (including Amtrak), transit agencies, and private entities.
Generally, a project must cost $50 million or more to be eligible for assistance, but the threshold is $15 million for intelligent transportation system projects and $10 million for transit-oriented development projects, rural projects, and local projects. Loans must be repaid with a dedicated revenue stream, typically a project-related user fee, such as a toll, but sometimes dedicated tax revenue.
CRS said criticisms of the program and its implementation include the often slow decision making process, the program’s increasing risk aversion, and the limitation of the federal share of project costs to 33%, despite a statutory limit of 49%.
USDOT said in 2016 that 86% of TIFIA loans were performing as expected, 8% were exceeding expectations, and 6% were performing below expectations. Two of the projects have gone into bankruptcy, the South Bay Expressway toll road project in San Diego, Calif. while the segments five and six of the SH-130 toll road project near Austin, Texas.
The San Diego Association of Governments bought the South Bay Expressway project after it went bankrupt, and, according to DOT, repaid all outstanding TIFIA indebtedness. The SH-130 TIFIA loan was converted to 34% ownership of the new company that will operate the toll road until 2062.