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Trouble In Paradise For PPPs In 2010

Federal TIFIA loan support for P3s for 2010 to be closed Dec 31 – though protests may see deadline pushed back
Posted on Thu, 2009-12-17 04:24

* P3s
* PPP
* tifia
* usdot

USDOT’s TIFIA office is short of money and has announced it is closing the open door to loan applications that it has operated back to passage of the original Transportation Infrastructure Finance Innovation Act (TIFIA) of 1998. A surprise announcement Dec 3 (see bottom of this article) requires applicants for TIFIA loans next year to submit letters of interest by close of business Dec 31.

The sudden cut-off Dec 31 has generated protests. Word is the USDOT deadline will likely to be pushed back into the new year.

Projects for which letters of interest have already been submitted are required to resubmit on a revised form:

see http://tifia.fhwa.dot.gov/guide_apps/loi_form.cfm

TIFIA is a US Government program of loans, loan insurance and guarantees designed to support private investment in toll roads and other user fee based transport projects.

It has played a major role in so-called public-private partnerships PPPs or P3s by lowering overall borrowing costs with subordinated debt, deferred repayments, and loans indexed to Treasury bond rates.

New fees

The Dec 3 announcement provides for a new set of fees for aspiring borrowers under the US Government program:

– a non-refundable application fee of $50k

– a transaction or credit processing fee to cover the TIFIA office’s costs negotiating the credit agreement typically $200k to $300k

– an annual servicing fee of $11.5k/year

– an annual monitoring fee to be defined in the credit agreement to cover the TIFIA office’s monitoring costs

Pilot program for full cost loans

In addition the TIFIA Office proposes a pilot program in which all subsidies normally inherent in a TIFIA loan are eliminated and borrowers pay “full cost.” A number of applicants have apparently said they’d be happy to go without the subsidy elements of TIFIA in return for approval now.

Deeper green

The Dec 3 announcement involves other changes. Environmental impact is given 20% rating along with ‘national or regional significance’ and ‘private participation’ ahead of ‘credit worthiness’ only 12.5% weighting.

The new green buzzword ‘livability’ is introduced into the criteria for loan support. It is defined as “providing transportation options that are linked with housing and commercial development to improve the economic opportunities and quality of life for people in communities across the U.S.”

There are codewords within codewords here.

“Transportation options” means almost anything except the single occupant motor vehicle or automobile.

“Sustainability” means “improving energy efficiency, reducing dependence on oil, reducing greenhouse gas emissions, and reducing other transportation-related impacts on ecosystems.”

Creditworthiness not a factor in early stage

The Nossaman law company which is closely associated with the TIFIA Joint Program Office reports:

“USDOT has indicated that it plans to disregard project creditworthiness and the federal budget allocation cost of assistance in its evaluation of TIFIA letters of interest, as information on those requirements will likely be unavailable at this early stage. In eliminating these criteria the USDOT may place more emphasis on the new requirements…”

Background on TIFIA from TIFIA Joint Project Office (edited slightly for style)

“Strategic goal – to leverage limited federal resources and stimulate private capital investment in transportation infrastructure by providing credit assistance in the form of direct loans, loan guarantees, and standby lines of credit (rather than grants) to projects of national or regional significance.

“Key objectives:

– facilitate projects with significant public benefits

– encourage new revenue streams and private participation

– fill capital market gaps for secondary/subordinate capital

– be a flexible, “patient” investor willing to take on investor concerns about investment horizon, liquidity, predictability and risk

– limit Federal exposure by relying on market discipline

“Major requirements

– large surface transportation projects ($50m general minimum, $15m minimum for intelligent transportation systems – ITS)

– TIFIA contribution limited to 33 percent

– senior debt must be rated investment grade

– dedicated revenues for repayment

– applicable federal requirements, including but not limited to civil rights, NEPA, uniform relocation, Titles 23/49

– public or private highway, transit, rail and port projects are eligible to apply for TIFIA assistance

“Application process

– applicants must submit letters of interest and, after invitation from the TIFIA Joint Program Office (JPO), a formal application including financial plans and ratings, to DOT for consideration.

The black cloud of Jim Oberstar’s STAA bill

The 775-page Surface Transportation Authorization Act of 2009 (STAA) a proposed ‘reauthorization bill’ introduced in the Congress in June by house transportation committee chair James Oberstar would be “a major setback for the use of tolls and PPPs,” Ron Utt of Heritage Foundation points out in a recent analysis.

Utt notes that Section 1301 of STAA:

– deletes several key provisions in existing law that were enacted to enable states to use tolls under certain conditions, including several pilot projects on existing interstates

– places a number of limits on new tolled facilities, including a prohibition of noncompete clauses

– has a requirement that the U.S. Transportation Secretary review and approve toll rates and any subsequent increases

– a provision that limits private partners to a “reasonable rate of return on investment,” and

– a requirement that tolled facilities have “no substantial negative impacts on interstate commerce or travel.”

– requires that any toll revenues collected from HOT (high occupancy/toll) lanes that were converted from HOV (high occupancy vehicle) lanes be devoted to public transportation in the same corridor

Section 1204 creates an Orwellian styled ‘Office of Public Benefit’ in USDOT to administer all of these new federal toll road responsibilities and regulations.

The purpose of the new office is to “protect the public interest” in any new PPP toll project on any federal-aid highways. It would review and approve all toll rate schedules. This assumes that all state and local governments are incompetent and incapable of protecting the public interest (editor – we can think of a number which this is true, but then we’re not sure the feds always do a better job.)

The so-called federal Office of Public Benefit would consider impacts on interstate commerce, “provision of operational improvements and transit service sufficient to accommodate travel diverted from the facility due to the collection of the toll,” and “provision of measures to mitigate the impact of the toll on low-income travelers.”

The office would judge whether the use of a public-private partnership agreement “provides value compared with traditional public delivery methods.”

In addition, it would monitor compliance with the prohibition on noncompete agreements and the requirement that PPP agreements allow the government to buy back projects before the end of the agreement.

Utt writes: “Some experts on transportation PPPs believe that the enactment of these provisions would substantially deter the use of PPPs, thus severely limiting the volume of funds that the private sector would willingly invest in U.S. transportation projects. A PPP proposal usually takes several years of negotiation with a state DOT, and the engineering, economic analysis, legal review, and administrative costs required to bring the process to a final agreement are considerable.

“Under STAA, new federal regulations would undermine the rights of the private-sector partner or investor and could subject the final agreement to substantial federal changes, increasing the risk that the project as finally approved (if approved) by the new Office of Public Benefit would not be economically viable. As a consequence, few PPPs would be initiated, and motorists would become even more dependent on the federal government and higher taxes to fund transportation investment.”

Text of STAA bill:

http://t4america.org/docs/062209_STAA_fulltext.pdf

Utt’s analysis in full:

http://www.heritage.org/Research/SmartGrowth/bg2348.cfm

The Oberstar STAA bill has not moved because healthcare socialization and global warming legislation have been given higher priority by the congressional leadership. But it still forms the basis for a possible new legislative environment inhospitable to tolling and P3s. (CORRECTION: The STAA bill has no number. Earlier we had it as HB44, but it seems we misinterpreted a computer file number 44 for the bill number. Appreciate the emails that corrected us – editor)

Full text of Dec 3 USDOT Notice of TIFIA changes and Dec 31 deadline:

http://www.gpo.gov/fdsys/pkg/FR-2009-12-03/html/E9-28860.htm

also see: see http://tifia.fhwa.dot.gov/

TOLLROADSnews 2009-12-16 SMALL REVISIONS 12-17 12:00

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