# Presentation: 925495

## Expanding the State Infrastructure Bank ProgramCommercial Lending ConduitsCommunity Reinvestment Act 

***Expanding the State Infrastructure Bank Program******Commercial Lending Conduits******Community Reinvestment Act ***

***Robena Reid ***
***Federal Transit Administration***
***March 2, 2007***

## USDOT Lending Programs

**Transportation Infrastructure Finance and Innovation Act (TIFIA, Public Law 105-78, 1998)**
- Supports Title 23 and 49 surface transportation projects
- Direct Loans
- Loan Guarantees
- Lines of Credit
**Railroad Rehabilitation and Improvement Financing **
- Direct Loans for passenger and freight rail infrastructure
**Maritime Guaranteed Loan Program**
- Loan Guarantees to support shipping industry
**Minority Business Resource Center Short-Term Lending Program **
- Short-Term Working Capital Loans to small businesses

## USDOT Credit Council 

**Created in 2004 via USDOT Order 2301.1**
- Established oversight for all DOT lending programs
- Provides policy direction for all lending programs
- Reviews financial analysis
- Reviews loan portfolios
- Enacting guidelines for special services
- Recommends approval of pending credit applications
**Voting members include DOT modal administrators**
- FHWA, FTA, FRA, MARAD, OSDBU, OST (CFO, Policy Under and Assistant Secretary, General Counsel)
**Support provided by working group modal liaisons**

## USDOT Credit Council (2)

**Credit Council working group liaisons perform :**
- Independent Financial Analysis and loan review
- Due diligence research, risk analysis
- Modal Administrator briefings
- Policy analysis; legislative interpretations (e.g., refinance)
- Legislative recommendations

**February 2007:**
**Direct loan of $2.3 billion via the RRIF loan program**
**Exceeds the 1979-80 Chrysler $1.2 billion loan guarantee**
**Required additional financial analysis**
**Pending lawsuit**

## Other Policy Issues

**Loan guarantee or direct loan preferences**
**Appropriate role of public credit assistance and risk**
- Requirement for investment grade rating
- Financially sound projects don’t need assistance
**Privatization of public infrastructure**
- Appropriate uses and models
- Recent deals:
- Indiana Toll Road, Chicago Skyway, Pocahontas Parkway
**Can public infrastructure attract investors?**
- Some infrastructure is an attractive investment
- Proven revenue stream
- Near monopoly with established demand
- Low completion and construction risk
- Long term investment horizon

## PAY-GO v.  Infrastructure LoansBorrowing Is Attractive When:

**Low interest rate environment**
**Insufficient grant funds for project**
- Appropriation risk for multiyear project
- Delays in budget schedule
- Change in earmark status
**High inflation rate environment **
- construction materials
- right of way costs
**Time sensitive delivery **
- Must meet safety standard (air quality)
- Disaster recovery (restore service)
- External pressure to meet a deadline

## What is a State Infrastructure Bank ?

_***State controlled***_** revolving fund**
**Capitalized with Federal and State matching funds**
**Governed by mutually signed cooperative agreement**
**SIB Products:**
**Transportation project financial assistance**
- Direct loans (most common assistance type)
- Credit enhancement products
- Loan Guarantees
- Bond insurance
** ****All or partial project financing**

## State Infrastructure Bank (SIB)Pilot Program History

**National Highway System Designation Act (1995)**
- Capitalization: 10% of Intermodal Surface Transportation Efficiency Act (ISTEA) apportionments
-  Federal requirements: Apply to first round assistance
- Eligible States: 39 SIBs approved
**TEA-21 (1998)**
- Capitalization: Unlimited % of apportionments
- Federal requirements: Apply to all Federal money
- Eligible States: CA, RI, MO, FL, TX

## SAFETEA-LU SIB Program Changes

**Current authorizing legislation effective 2005-2009**
**Capitalization: Up to 10% of eligible apportionments **
**Federal requirements: Apply to all Federal money**
**Program is open to all 50 States and US territories**
**Increased options for regional (multi State) banks**
**Annual report requirement**
**Matching requirements differ by modal account type**
**Maximum 30 year repayment period**

## Creating and Operating a SIB

**Program Commencement:**
**State enabling legislation may be necessary**
**Signed cooperative agreement with each Federal agency**
**Program can be tailored to State needs**
**SIB Operations:**
**Similar to commercial banks**
**Marketing and outreach activities**
**Lending priorities and procedures**
**Accounting and loan monitoring activities**
**Other issues**
- Fund management
- Interest rate policy

## USDOT SAFETEA-LU SIB Program

**Increase Existing SIB Lending Activity**
- Assist with new capitalization efforts
- Identify projects suitable for SIB assistance
- Identify and solve program utilization impediments
**Identify and Assist NEW SIBs:**
**Identify interested in program participants****	**
**Negotiate cooperative agreements**
**Provide technical assistance****	**
**	****	**

## SIB Flow of Funds

***SIB Flow of Funds***

**Federal Aid**

**Initial**
**Projects**

**Second Round**
**Projects**

*Capitalization*
*Grants*

*Loans*

*Loans*

*Repayments*

*Repayments*

**2**

*Initial*

*Second *
*Round*

**SIB**

-     Typical Direct Loan Product

**State funds**

## Federal Credit Requirements

**Below market interest rates**
**35 year maximum repayment period**
- 30 year maximum under SAFETEA-LU
**Investment grade rating on SIB debt, or sufficient bond insurance **
**Investment income is credited to the SIB**
**Loan repayment must commence not later than 5 years after project completion**

## State Infrastructure Banks:

**MT**

**WY**

**ID**

**WA**

**OR**

**UT**

**CA**

**AZ**

**ND**

**SD**

**NE**

**CO**

**NM**

**TX**

**OK**

**KS**

**AR**

**LA**

**MO**

**IA**

**MN**

**WI**

**IL**

**IN**

**KY**

**TN**

**AL**

**GA**

**FL**

**SC**

**NC**

**VA**

**WV**

**OH**

**MI**

**NY**

**PA**

**MD**

**DE**

**NJ**

**RI**

**MA**

**ME**

**VT**

**NH**

**AK**

***State Infrastructure Banks:***
***Pilot Program Participation***

**PR**

- 1998 TEA-21 Authorized SIBs

- 1995 NHS SIBs

- 1998 TEA-21 Approved SIBs

## SIB Accomplishments

**Lending activity:**
- Transit:  $94.5 million; 8 SIBs out of 21 authorized
- Total as of June 30, 2005:
- 457 loan agreements
- More than 5 billion dollars
- 33 States
**Reduced project financing costs:**
- Provided below market interest rates for projects
**Accelerated project delivery:**
- Funded project match requirements for transit projects
**Partnered with other DOT programs:**
- TIFIA Credit Program

## EPA State Revolving Fund program

**Similar to USDOT State Infrastructure Bank program**
**Started in 1987 (Clean Water State Revolving Fund)**
**Provides low interest loans for safe water projects**
**Supported by Council of Infrastructure Financing Authorities and Environmental Finance Center Network (10 schools)**
**Developed many financing innovations:**
- Link deposit
- Compensating balances
- Loan participation
- Partnership arrangements

## SRF Program Goal

**“****To balance the sometimes conflicting objectives of funding over time the largest dollar amount of the most environmentally beneficial eligible projects as timely as possible, yet at the same time providing a meaningful financial subsidy to borrowers, while maintaining the fund’s contributed capital, unadjusted for inflation”**

## Commercial Bank Conduit Lending 

**Link Deposit Example:**
**SRF deposits funds in a commercial bank**
**SRF receives reduced interest rate on deposit**
**Bank loans equal amount of funds to qualified projects at below market interest rates**
**Bank receives interest rate spread between below market deposit rate and below market loan rate**
**At end of loan term, SRF deposit is withdrawn and account is closed**

## Commercial Bank Conduit Lending (2)

**Link deposit advantages for SRFs:**
**SRF receives a nominal return on investment **
- Similar to interest received on a loan to a municipality
**Deposit is covered by FDIC insurance**
- Limits risk to SRF funds; coverage up to $100,000
**Credit analysis, risk, and loan servicing is transferred**
- Commercial bank is responsible for mitigating a default
- SRF credit rating is not imperiled
**Link deposit advantage for commercial bank:**
**Receives interest rate spread**
_***Assists infrastructure investment in community***_

## Future Infrastructure Investment Needs

**Surface Transportation 2004 Estimated Funding Gap:**
**	****Average annual cost to maintain current conditions (2005-2024)****	****	****	**
**	****	****	****	****	**_**Funding shortfall**_
**	****Highways and Bridges****	****$8.5 billion**
**	****Transit****	****	****	****$3.2 billion**
**Clean and Drinking Water 2003 Annual Needs Estimates**
**	****Environmental Protection Agency****	****$15 billion**
**	****Congressional Budget Office****	****$12.2-21.2 billion**
**	****Water Infrastructure Network****	****$21 billion**
**	**
**	**

## Community Reinvestment Act (CRA)

**Public disclosure of commercial lending practices and activity in low income, minority, distressed areas**
**Services must meet needs of local community**
**Bank examiners determine compliance**
**Established in 1977 (Public Law 95-128)**
**Four Federal agencies involved in compliance**
- Federal Deposit Insurance Corporation
- Office of the Controller of the Currency
- Federal Reserve Board
- Office of Thrift Supervision

## CRA Infrastructure Investment

**Revised Guidance issued on March 10, 2006**
- Federal Regulations (70 FR 44256)
- FDIC RIN 3064-AC97
**Qualifying activities include infrastructure :**
_***Disaster area***_:
- 	“providing financing or other assistance for essential community-wide infrastructure”
_***Underserved non metropolitan middle income area***_: “financing the construction, expansion, improvement, maintenance or operation of essential infrastructure...for public safety, public services”

## CRA Research Interest

**Did the CRA revisions result in increased infrastructure lending by commercial banks?**
**If yes, by how much? If not, why not?**
**Could link deposit or other commercial bank conduit lending techniques stimulate infrastructure investment?**
**Could SIBs or other revolving funds partner with commercial lenders interested in CRA compliance and infrastructure investment?**

## Contact Information:

**THANKS!**
**Robena Reid, Federal Transit Administration**
**(202) 366-1973**
_**[Robena.Reid@dot.gov](mailto:Robena.Reid@dot.gov)**_