# Presentation: 192941

## Innovative Finance for Freight Transportation

- Jennifer Mayer
- FHWA Resource Center
- “Talking Freight” Webinar
- September 2006

## Freight in the Federal-Aid Highway Program

- Historically, federal transportation funding has been divided by mode
- Unfortunately, there is no “Federal Freight Administration”
- Over the past 2 decades, eligibility for freight and intermodal projects has been substantially expanded
- Latest transportation bill (SAFETEA-LU) continues this trend

## Freight Eligibility Under Title 23

**Example projects:**
- Intermodal freight facilities on the National Highway System
- Rail-highway hazard elimination
- Emissions reduction projects under the Congestion Mitigation and Air Quality program
- Eligibility is only a “hunting license” for the funds
- Project sponsors still have to work with regional bodies known as Metropolitan Planning Organizations, State DOTs, and FHWA Division office to secure funding and approvals

## Truck Parking Facilities Program

- Address shortage of long-term truck parking on the National Highway System
- $6.25 million annually through 2009.
- Applications must be submitted to FHWA Division Office by November 27, 2006
- Questions concerning this program should be addressed to William Mahorney, 202-366-6817 (_[Bill.Mahorney@dot.gov](mailto:Bill.Mahorney@dot.gov)__), or to Julie Strawhorn, 202-366-4415 (__[Julie.Strawhorn@dot.gov](mailto:Julie.Strawhorn@dot.gov)__) of the Office of Freight Management and Operations. _

## How Do Freight Projects Qualify for Innovative Finance?

- If you could assist with a Federal-aid funding directly, you can assist with IF tools
- Federal-aid eligibility opens the door to innovative finance eligibility
- Generally, FHWA Division has the final call on eligibility, and should be first point of contact

## What is Innovative Finance?

- Tools that help leverage funding
- Tools that attract other funding
- Tools that facilitate access to other funding (e.g., the capital markets, private equity)
- Any tool (other than traditional grants) that helps to get projects financed

## Three Leading IF Tools

- State Infrastructure Bank (SIB)
- Transportation Infrastructure Finance and Innovation Act (TIFIA)
- Private Activity Bond (PAB)

## State Infrastructure Bank (SIB)

- Provides loans, lines of credit, and other forms of credit enhancement to projects that qualify for Federal-aid
- State-Controlled, but created with Federal-aid funding
- 32 states have them; all states and territories may create them

## How Would a SIB Loan Work?

- Project sponsor applies to State SIB for loan for rail-highway crossing elimination project

- The SIB considers the loan application *(If the SIB does not currently have funds, it may choose to use some of its Federal-aid funding to “capitalize” (fund) the SIB loan*)

- If the application is approved, the SIB and the borrower negotiate terms such as interest rate, term of loan, and collateral, then the loan is made.

- The borrower constructs the project and repays the loan

- The SIB uses the repayments to assist other projects.

## Advantage of SIB Loans – To Borrowers, and to State DOTs

_**State DOTs**_
- Assist more than one project with the repaid funds (repayments go back in the program)
- Leverage – loans and credit enhancement go farther than direct Federal-aid
- Attract net new money to the system

_**Borrowers**_
- Low interest rate (zero to market)
- Flexible repayment
- Maximum 35 year term
- Repayments can be delayed up to five years after construction
- “Patient” lender (can be subordinate)

## Transportation Infrastructure Finance and Innovation Act (TIFIA)

- Provides loans, lines of credit, and other forms of credit enhancement to large projects, including intermodal freight facilities
- Apply directly to USDOT

## How Would a TIFIA Loan Work?

- Project sponsor applies to USDOT for loan for intermodal highway/rail facility

- USDOT considers the loan application

- If the application is approved, USDOT and the borrower negotiate terms such as repayment schedule, term of loan, and collateral, then the loan is made

- The borrower constructs the project and repays the loan

- USDOT modes monitor project for compliance with Federal requirements

## Advantage of TIFIA Loans – To Borrowers, and USDOT

_**USDOT**_
- Leverage (can assist more projects with loans and credit enhancement)
- Attract net new money to the system
- Enable/facilitate public private partnerships

_**Borrowers**_
- Low interest rate (Treasury)
- Flexible repayment
- Maximum 35 year term
- Repayments can be delayed up to five years after construction
- “Patient” lender (can be subordinate)

## Private Activity Bonds (PABs)

- Allows tax-exempt bonds to be issued for projects with private involvement
- Does not provide funds or loan; but allows sponsors to access capital market funds at cheaper interest rates
- Apply directly to USDOT

## How Would a PAB Work?

- Project sponsor applies to USDOT for allocation of PAB authority

- USDOT considers the application

- If the application is approved, USDOT and the project sponsor work to find a conduit issuer.

- The issuer issues the bonds, and provides proceeds to sponsor. Sponsor constructs project and makes payments.

- USDOT modes monitor project for compliance with Federal requirements

## Advantage of PABs – To Sponsors and USDOT

_**USDOT**_
- Attract net new money to the system
- Enable/facilitate public private partnerships

_**Sponsors**_
- Cheaper financing (often 1-2 percentage points cheaper than taxable private finance)
- May facilitate financing packages

## Additional Resources on IF

- Jennifer Mayer, FHWA Resource Center Innovative Finance Team
- _[jennifer.mayer@fhwa.dot.gov](mailto:jennifer.mayer@fhwa.dot.gov)__ (415)744-2634_
- TIFIA: _[http://tifia.fhwa.dot.gov](http://tifia.fhwa.dot.gov/)_
- SIBs: www.fhwa.dot.gov/innovative finance/sibs.html
- PABs: www.fhwa.dot.gov/ppp