Background

Most federal highway transportation funds are distributed as grants to  states as part of the federal aid highway program through a set of  complex formulas that take into account a number of factors, including the  estimated share of taxes highway users in each state contributes. The  Highway Trust Fund is the principal source of funding for federal aid  highway programs and is funded through motor fuel and other highway  use taxes. Grants for transit projects are distributed as part of the federal  transit program through a collection of formula-based and discretionary  programs and are funded primarily by the Mass Transit Account of the  Highway Trust Fund. Supplementing these federal programs is a  collection of financing methods that allow project sponsors—such as state  DOTs and transit agencies—to borrow money through bonds, loans, or  other mechanisms. State DOTs and other project sponsors can raise  money in the bond market through, for example, revenue bonds backed  by anticipated project revenues like tolls; bonds backed by future federal  transportation funds, such as Grant Anticipation Revenue Vehicles  (GARVEE) or Grant Anticipation Notes (GAN); or general obligation  bonds backed by the full faith and credit of a state or municipality. Project  sponsors may also seek private investment through bank debt, private  equity, or private activity bonds. Through TIFIA, DOT provides loans or  other credit assistance to sponsors of surface transportation projects.  Declining Highway Trust Fund revenues and states’ budget constraints,  as well as the high cost and size of major transportation projects, have  prompted project sponsors to seek alternative methods of funding  transportation infrastructure.

		TIFIA Goals

The TIFIA program’s primary goal is to leverage limited federal resources  and stimulate private capital investment in transportation infrastructure by  providing credit assistance to projects of national or regional significance.  Underlying the TIFIA program is the notion that the federal government  can perform a constructive role in financing large transportation  infrastructure projects by supplementing, but not supplanting, existing  capital finance markets. In this role, DOT identifies five key objectives for  the TIFIA program:  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; and  limit federal exposure by relying on market discipline.

		TIFIA Credit Assistance Terms and Eligibility Requirements

DOT provides TIFIA credit assistance in three forms: direct loans, loan  guarantees, and standby lines of credit. The maximum maturity for all  types of TIFIA credit assistance is 35 years after substantial completion of  a project. Lines of credit can supplement project revenues during the first  10 years of project operations. In addition, DOT can defer the first TIFIA  repayment until 5 years after substantial completion of a project, and  most project sponsors avail themselves of this option. Other credit  assistance terms include that (1) TIFIA assistance may provide no more  than 33 percent of total project costs, (2) senior debt has an investment- grade credit rating (Baa3/BBB- or higher), and (3) TIFIA assistance can  be subordinate to the project’s senior debt, meaning that senior creditors  may receive project revenues ahead of DOT. According to DOT officials,  the TIFIA program is one of the few federal credit programs in which  federal assistance routinely takes a subordinate position to other,  nonfederal lenders with respect to cash flows. However, to protect  taxpayers, TIFIA loans may not be subordinated to the claims of other  creditors with respect to the loan recipients’ bankruptcy, insolvency, or  liquidation.
Both public and private entities are eligible to receive TIFIA assistance for  a range of surface transportation-related projects including highway,  transit, railroad, intermodal freight, and port access. Borrowers can  include entities like state DOTs, toll authorities, transit agencies, and  private concessionaires. Other eligibility requirements include that a project must have total costs of at least $50 million (or $15 million for  intelligent transportation systems projects); must be included in state and local transportation plans; and must have dedicated revenues, like tolls, user fees, or pledged taxes,  for repayment.
ITS encompasses a broad range of electronics and communication technologies to  enhance the capacity and efficiency of surface transportation systems, including traveler  information, public transportation, and commercial vehicle operations. reauthorized the TIFIA program, authorizing budget authority of $122  million for each of fiscal years 2005-2009 from the Highway Trust Fund  for the program’s credit subsidy cost and administrative expenses. The  credit subsidy is the estimated long-term cost to the government of  providing assistance. Extensions of SAFETEA-LU have authorized  budget authority of $122 million for the TIFIA program for each  subsequent fiscal year. Any uncommitted budget authority remains  available for obligation in subsequent years, unless Congress chooses to  reprogram or rescind these amounts. According to DOT, $10 million in  TIFIA budget authority can generally be leveraged to provide $100 million  in credit assistance.

		TIFIA Program History

In fiscal year 2008, total requests for TIFIA assistance exceeded DOT’s  available budgetary resources for the first time. Prior to this, when there  was lower demand for the program, DOT allowed project sponsors to  seek TIFIA assistance on a “first come, first served” basis defined by the  sponsor’s schedule. Figure 1 shows the number and amount of credit  assistance requested each fiscal year.
In its 2010 report to Congress on TIFIA, DOT attributed the increased  demand for TIFIA assistance to several factors, including the growing  demand for infrastructure investment relative to other sources of funding  (like declining fuel tax receipts), the economic downturn and difficulty  accessing capital markets, and the increasing use of innovative  approaches, like public-private partnerships, to finance and deliver  projects. After demand exceeded available budget resources, DOT  terminated the open application process and instituted an annual, fixed- date solicitation process for sponsors to submit LOIs for credit assistance.  In fiscal year 2010, DOT began evaluating and competitively selecting  projects based on how well they align with the TIFIA selection criteria and  the availability of budget resources.

		Primary Stages for Securing a TIFIA Credit Agreement

As shown in figure 2, there are four primary stages for securing TIFIA  credit assistance. For each project, the amount of time needed to  complete each stage varies. For instance, in its 2002 report to Congress,  DOT stated that the length of credit agreement negotiations is affected by  the complexities and uncertainties of large infrastructure projects as well  as the learning curve of both project sponsors and DOT as they  encounter unique legal and financial issues with projects.
After determining that a project meets the eligibility requirements, DOT  uses eight statutory criteria weighted by regulation to select projects to  receive credit assistance. Beginning in fiscal year 2010, DOT defined the  statutory criteria in the notice of funding availability (funding notice), which  included clarification of the national or regional significance and  environment criteria. (See table 1.)
In addition, projects that received funding through DOT’s Transportation  Investment Generating Economic Recovery (TIGER) grant program were  eligible for TIFIA credit assistance. Specifically, project sponsors could  use TIGER grant funds for TIFIA credit assistance, known as a TIGER  TIFIA payment. In each of the four rounds through which DOT TIGER  grants have been available, a portion of the funds could be used to  support the credit subsidy and administrative costs of projects eligible for  federal credit assistance. When a project sponsor is offered a TIFIA  award through the TIGER program, the project goes through the regular  TIFIA process, including the TIFIA credit evaluation, credit agreement  negotiation, and oversight and monitoring.
DOT implements and manages the program using internal staff and a  pool of external financial and legal advisors. There are nine internal TIFIA  office staff who are responsible for assisting with reviewing LOIs,  selecting projects to apply for credit assistance, negotiating credit  agreements, monitoring loan disbursements and the financial  performance of executed credit agreements, and tracking credit subsidy  calculations. Currently, DOT supplements its internal staff with a pool of  five financial and legal advisors, contracted for 5-year periods, who assist  in the review of applications and negotiation of credit agreements.

	TIFIA Projects Are Mostly Large Highway Projects; Performance Measures Are Needed to Better Evaluate Program Outcomes

		TIFIA Projects Are Concentrated in Five States and Tend to Be Large Highway Projects

Since the TIFIA program was created in 1998, DOT has executed 27  credit agreements for 26 projects. To date, assistance has been  provided through 26 loans and one loan guarantee. Of the 26 projects, 17  are located in 5 states—California, Colorado, Florida, Texas, and Virginia  (see fig. 3).
Overall, sponsors from 33 states, the District of Columbia, and Puerto  Rico have submitted LOIs for projects that vary by mode and purpose, but  most have high total costs. Highway projects account for a majority of all  LOIs submitted to TIFIA program. According to DOT data, highway  projects—such as building new roads and replacing bridges—accounted  for about 60 percent of the 182 LOIs submitted to the TIFIA program from  1999 to 2012. Transit and intermodal projects—such as building new  transit systems and constructing parking garages and facilities linking  various transport modes near airports—account for 18 percent and 10  percent of all LOIs, respectively. In addition, rail, ferry, and ITS projects  account for 4 percent, 2 percent, and 1 percent of LOIs during this time,  respectively. However, no projects in these three modes have received  TIFIA assistance to date. Over the history of the program, the average  total cost of projects seeking TIFIA assistance has been $1.2 billion.  Through fiscal year 2012, no sponsor in the other 17 states has submitted  an LOI to the TIFIA program. (See fig. 4.)
According to DOT data, TIFIA credit agreements have been used mostly  for large, high-cost highway projects. Overall, DOT has provided TIFIA  assistance to 17 highway projects. Some of these projects—like the  President George Bush Turnpike-Western Extension (SH 161) in Texas— were to construct new roads, and others—like the I-595 Corridor  Roadway Improvements project in Florida—to reconstruct and expand  existing roads. Projects receiving credit assistance also tend to have high  total costs. Of the 25 projects, 20 projects cost more than $500 million  and 16 projects cost more than $1 billion. The average total cost of  projects receiving TIFIA credit assistance is $1.4 billion. According to  DOT, TIFIA assistance can help advance large-scale projects that  otherwise might be delayed or deferred because of size or complexity,  and as such, TIFIA projects to date have mainly been large-scale  projects. On average, TIFIA assistance accounts for 24 percent of total  project costs, about 9 percent less than the 33 percent currently permitted  by law.
To a lesser extent, TIFIA has also been used for transit and intermodal  projects. Four intermodal projects have received credit assistance,  including the Reno ReTRAC project in Nevada, which includes rail and  roadway improvements to improve freight capacity and address  environmental and safety concerns. Five transit projects have received  TIFIA assistance. The Tren Urbano project in Puerto Rico, for example,  constructed a new, fixed-guideway transit system to relieve congestion in  the San Juan area. DOT officials told us that the balance of projects is  becoming more diverse in terms of mode. They noted that sponsors of  transit projects have been slower to use TIFIA assistance in the past,  primarily because transit projects have access to low-cost municipal debt  and do not generate revenue in excess of their operating costs to repay  assistance. Moreover, it can be difficult to integrate TIFIA assistance with  federal funding for transit provided through the New Starts program. However, in fiscal years 2010 and 2011, DOT invited the sponsors of 12  projects to apply for TIFIA assistance, which is the next stage in securing  TIFIA assistance, 4 of which were transit projects.
The Federal Transit Administration’s (FTA) New Starts program, part of the Capital  Investment Grant program, is the federal government’s primary financial resource for  supporting new major transit capital projects that are locally planned, implemented, and  operated, such as light rail and bus rapid transit. the private equity accounts for about 17 percent of total project costs.  Defining private participation more broadly, 17 projects with active credit  agreements include either private equity or debt. The average private  investment for projects with active credit agreements, including equity and  debt, is 37 percent of total project costs. The North Tarrant Express, for  example, is a public-private partnership between the Texas Department  of Transportation and a private concessionaire—NTE Mobility Partners— to design, build, finance, operate, and maintain a 13-mile section of  highway in the Dallas-Fort Worth area. Project funds include $426 million  in equity from NTE Mobility Partners and $398 million from private activity  bonds. These two sources of private investment account for about 40  percent of the project’s total cost. Projects with credit agreements  typically pledge user fees or dedicated tax revenue to repay TIFIA  assistance. For 16 credit agreements, user fees like tolls are pledged to  repay assistance, while for 8 credit agreements, tax-backed revenue  streams like local sales taxes are pledged to repay assistance. The  remaining 3 credit agreements use other dedicated revenues, like  availability payments, to repay assistance.
As of April 2012, DOT reported that it has provided nearly $9.1 billion— $8.5 billion through direct loans and $600 million in loan guarantees—to  projects at a budgetary cost of about $654 million. The budgetary cost of  TIFIA assistance is the total credit subsidy for all projects, with the credit  subsidy, as noted earlier, being the estimated long-term cost to the  government of providing assistance calculated on a net present value  basis, excluding administrative costs. As such, the credit subsidy reflects  the estimated risk of the loan or assistance. According to DOT, the  original credit subsidy cost for credit agreements ranges from less than 1  percent to over 15 percent of the amount of TIFIA assistance. Projects  that pledge user fees tend to have higher subsidy costs and, thus,  generally entail greater risk to the federal government because actual  usage and fees for a project (such as traffic and toll revenue on a new  road) may not meet projections, particularly early in its operation. In such  cases, where repayment of TIFIA assistance relies solely on revenues  from user fees, poor performance—such as less than projected use of a  facility—could result in nonpayment.

		Most Sponsors Are Drawing Funds for Projects

Project sponsors are actively drawing funds from DOT for about half of  the projects with TIFIA credit agreements. Many of these projects—14  of 26 projects—are currently under construction. As a result, many  sponsors are drawing and not yet repaying TIFIA loans. Six project  sponsors have retired their TIFIA credit agreements through early  repayment, by refinancing the loan, or because of expiration of the credit  agreement in the case of a loan guarantee. For example, the Puerto Rico  Highway and Transportation Authority refinanced its TIFIA loan for the  Tren Urbano project with tax-exempt debt about 3 years after DOT fully  disbursed the loan. The sponsor paid back the TIFIA loan 32 years ahead  of schedule and anticipated saving about $31.7 million in interest  payments to DOT by refinancing the TIFIA loan.
The sponsor of one TIFIA project—the South Bay Expressway in San  Diego County, California—declared bankruptcy in 2010 but has not  defaulted on any TIFIA payments. At the time of the bankruptcy filing, the  outstanding balance of the TIFIA loan was $172 million, including interest.  The Plan of Reorganization ordered by the U.S. bankruptcy court reduced  the value of the loan’s principal. DOT’s unsecured claim was $73 million,  or 42 percent of the outstanding loan balance. Following the sale of the  project to and the assumption of the TIFIA loan by the San Diego  Association of Governments (SANDAG) in December 2011, DOT expects  to recover the original loan value through higher interest rates charged on  the restructured loan.

		TIFIA Program Could Benefit from Use of Performance Measures to Evaluate Progress toward Goals

While DOT tracks certain aspects of a project, such as monitoring  whether the project is meeting its construction timeline and comparing  actual and projected receipts of the revenue pledged to repay TIFIA  assistance, the agency does not systematically assess whether its  portfolio as a whole is achieving the program’s goals of leveraging federal  funds and encouraging private co-investment. The Secretary of  Transportation is required to report biennially to Congress on the financial  performance of projects that are receiving or have received TIFIA  assistance and whether the goals of the TIFIA program are best served  by continuing the program under the authority of the Secretary,  establishing another entity to administer to program, or phasing out the  program.
In the past, we also recommended that a Department of Energy credit assistance  program develop performance measures to evaluate program progress. See GAO,  Department of Energy: New Loan Guarantee Program Should Complete Activities  Necessary for Effective and Accountable Program Management, GAO-08-750  (Washington, D.C.: July 7, 2008). measures to address program performance. For example, FRA set  goals to reduce the rate of train accidents in its proposed fiscal year 2013  budget, and FRA tracks these goals and actual accident rates over time  to measure whether or not it is meeting its safety goals. Also, for FHWA’s  Express Lanes Demonstration program, DOT developed performance  measures to evaluate projects’ performance along four program goals— such as travel, traffic, and air quality—and uses information collected  annually from project sponsors to report to Congress on the projects’  performance.
In its first report to Congress in 2002, DOT examined the extent to which  projects approved to receive assistance collectively met key TIFIA goals  and objectives. For instance, DOT calculated that the amount of private  co-investment in projects totaled $3.1 billion, or about 20 percent of the  projects’ total costs. DOT also calculated that TIFIA had a federal  leverage ratio of 4.8, meaning that every dollar of federal investment in  projects approved to receive assistance—including TIFIA as well as other  federal funds—represented nearly $5 in total infrastructure investment.  However, DOT has not presented similar data on its progress in meeting  the program’s goals in any of the subsequent reports to Congress. In  these reports, DOT provides only broad descriptive information on the  financial status of the projects and highlights project innovations, such as  reporting on the use of new revenue sources like availability payments to  repay assistance. DOT provides information on each project with a TIFIA  credit agreement that describes each project and lists funding sources,  but DOT does not aggregate this information for the portfolio of projects  on its website or in other program documents. Given that the agency  collects such data on projects that received TIFIA assistance, it could use  these data—in particular, the amount of federal and nonfederal funding  and financing, as well as the amount of private equity and debt—to better  evaluate the progress toward meeting program goals and objectives, like  leveraging limited federal resources and stimulating private capital  investment in transportation infrastructure.

	DOT Used a Competitive Process to Evaluate Projects, but This Process Could Benefit from Increased Transparency

		DOT Developed a Competitive, Two-Step Process to Evaluate and Select Projects Using the Statutory Criteria

In response to increased program demand and the uncertain budget  environment, DOT used a competitive, two-step process to assess LOIs  and select projects to apply for credit assistance in fiscal years 2010 and  2011. DOT officials told us that they began using the current evaluation  process—focusing on the LOIs to pre-assess a project’s alignment with  TIFIA’s statutory criteria—to address the significant increase in demand  for the program coupled with the current uncertain and limited budgetary  environment due in part to a lack of a long-term surface transportation  reauthorization bill. These circumstances, according to DOT, required the  agency to establish a process that allows the agency to choose amongst  best-qualified projects in each fiscal year instead of accepting eligible  projects on a first-come, first-served basis as was the case when the  program was undersubscribed.
DOT’s process for competitively selecting amongst LOIs involved two  steps; first, DOT convened a multimodal team to assess, score, and  group projects using statutory criteria, and second, DOT used a team of  senior-level staff—called the executive leadership team—to review the  multimodal team’s assessments and invite select project sponsors to  submit an application for credit assistance (see fig. 5).
The multimodal team—composed of staff from different DOT modal  administrations—individually assessed each LOI against the statutory  criteria to assign preliminary scores. Multimodal team members read and  assigned each LOI a numeric score of 0 to 4 for each of the six criteria,  with 0 indicating that a project was not consistent with a criterion and 4 indicating that a project was most consistent with a statutory criterion.While the funding notices defined each of the statutory criteria, they did  not describe specific project qualifications or benefits that would merit a  higher or lower score. Additionally, multimodal team members did not use  any guidance beyond the funding notices to delineate what the possible  range of scores signified in terms of project qualifications and benefits.  DOT officials said that evaluators relied primarily on content in the  submitted LOIs, as well as their own modal expertise as necessary, to  evaluate projects. Each LOI contained information to describe the project  and its proposed financial plan, identify the proposed borrower, explain  how the TIFIA statutory selection criteria are met, and describe the  benefits of the proposed project and its use of TIFIA assistance.
To finalize their individual scores for each LOI, multimodal team members  compared LOIs with one another to determine the relative merits of each  project when assigning scores. For example, if an LOI received a  preliminary score of 3.5 for the private participation criterion, but when  compared with other projects in its cohort appeared less well aligned with  the private participation criterion, its score would be lowered to reflect its  relative rank among the LOIs. Also, multimodal team members met over  several weeks to discuss and compare LOIs in an effort to help ensure  reliability in scoring across team members. To arrive at a final score for  each LOI, individual team members’ final scores were combined for each  criterion and a cumulative weighted total score based on assigned  weights in regulation was calculated for each project.
Last, the multimodal team rank ordered the LOIs by the total score and  grouped them into three categories—A, B, and C. DOT officials said that  the multimodal team grouped LOIs based on natural breaks in the  numerical scores. LOIs placed in category A were those that scored the  highest numerically, and thus were considered to be the most consistent  with the statutory criteria. Table 2 details the category grouping for LOIs  by fiscal year.
As shown in table 2, there was a threefold increase in the number of  category A LOIs from fiscal year 2010 to fiscal year 2011. DOT officials  attributed this increase to higher-quality LOI submissions as well as  improved project readiness of resubmitted projects. For projects that  submitted an LOI in fiscal year 2011, 10 of the 34 had previously  submitted an LOI in 2010. For projects that submitted an LOI in fiscal year  2012, 16 of 26 had applied in either fiscal year 2010 or 2011.
After the multimodal team grouped LOIs and provided a briefing about its  assessment of all projects to the executive leadership team, this second  team reviewed the projects and selected a subset of the category A  projects to advance. According to DOT officials, in its review of projects,  the executive leadership team was not aware of the scoring or ranking  distinctions amongst LOIs in the category because numerical scores  assigned by the multimodal team were removed. Instead, only basic  project information, including high-level project summaries and category groupings (A, B, or C), were provided to the executive leadership team.Similar to the multimodal team evaluation, the executive leadership team  did not use any guidance beyond the funding notice in its review of LOIs  and relied primarily on content in the LOIs to score projects. However, in  some cases, the team sought clarification from DOT staff, including  FHWA division offices in various states, to gather additional information  on a project’s readiness, like its status in the environmental review  process.
In the fiscal year 2012 funding notice DOT further clarified that it would use factors like  budget authority and geographic dispersion to select from amongst highly rated projects. encompasses factors like the project’s progress in completing  environmental review requirements—was an important consideration in  picking among projects that were consistent with the statutory criteria,  particularly in 2011, when there were a higher number of category A  LOIs. As a result of its review, the executive leadership team invited 4  projects in fiscal year 2010 and 8 projects in fiscal year 2011 to submit a  full TIFIA application. (See table 3.)
Overall, this two-step process ensured that projects invited to apply were  from among the highest-scoring LOIs overall—that is, from category A— but did not ensure that the projects selected were those that scored the  highest numerically by the multimodal team. According to DOT officials,  relying on numerical scores alone could provide a false sense of precision  in selecting projects to advance. To date, because only category A  projects are forwarded, no category B or C projects from the multimodal  team evaluation have advanced over category A projects in the executive  leadership team evaluation. DOT officials said that while there are no  specific requirements to do so, the executive leadership team has only  considered advancing LOIs in category A.
After the executive leadership team has invited the sponsors of projects  to apply for credit assistance, project sponsors must submit a full TIFIA  application, after which DOT conducts a full evaluation of the application  and makes a recommendation to the Credit Council. Then, the Secretary  of Transportation makes the final decision on whether to approve a  project to receive TIFIA credit assistance. Six of the 12 of the project  sponsors that were invited to apply in fiscal years 2010 and 2011 have  not yet submitted an application to DOT but all are still pursuing TIFIA  loans. (See table 4.)
DOT officials and project sponsors that had executed TIFIA credit  agreements said that the amount of time it takes for sponsors to complete  the application and negotiation process varies by project. Several  factors—such as the status of a project’s environmental review, the  complexity of the project’s finance and delivery approach, and changes to  the project—can influence the length of these processes. According to  DOT, sponsors of four invited projects that have not yet submitted an  application are completing work to comply with federal environmental  requirements. Also, some project sponsors we spoke with said that the  TIFIA application and negotiation processes can be longer for projects  that have more complex financial plans, such as having a less frequently  used revenue stream or relying on future state appropriations. For  example, after being invited to apply, one sponsor we interviewed had to  complete the process to select a private concessionaire for the project;  then, since submitting the TIFIA application, the sponsor has been  working with the TIFIA office regarding uncertainty around appropriations  from the state legislature before beginning the negotiation process.
For projects not invited to apply, staff from the TIFIA office provided  feedback to sponsors on their LOIs upon request. According to DOT  officials, the primary aim of feedback is to explain how the LOI performed  against each criterion. In addition, feedback included information on how  a project sponsor could improve an LOI for resubmission, such as  explaining that it needs to provide more details on specific project  benefits. However, through this feedback, a project sponsor is not  informed about the numeric scoring or ranking of its LOI relative to other  LOIs. In some cases, DOT officials said that the feedback provided  indicated that there was nothing “wrong” with a project’s LOI but that it  was not invited to apply given the strength of the pool of LOIs submitted  in that round.

		TIFIA Selection Process Could Benefit from Greater Transparency

While project sponsors and other stakeholders we interviewed were  satisfied with many aspects of DOT’s selection process, they cited two  areas of the TIFIA selection process that they found to be less  satisfactory—DOT’s application of selection criteria and the uncertainty of  the timing of the process. Twenty-seven of the 36 recent TIFIA applicants  that responded to our survey indicated that they were satisfied with DOT’s  explanation of the application process in funding notices, and 28 of the  recent applicants reported that the LOI format allowed them to provide  sufficient detail about their project. In addition, several applicants told us  that the TIFIA selection process was fairly simple to understand and not  overly burdensome, and many applicants and advisors we interviewed  told us that they found the TIFIA staff to be very cooperative and helpful.  Moreover, many recent applicants told us that they appreciated that DOT  gave feedback to the sponsors of unsuccessful LOIs.
DOT provided these clarifications beginning in fiscal year 2010 in the annual TIFIA  funding notices. The livability, economic competitiveness, and safety clarifications are part  of the National or Regional Significance criterion and sustainability and state of good  repair clarifications are part of the Environment criterion. unclear how one qualified project is selected over another in the  competitive process. In addition, one recent applicant we interviewed said  that it does not know what characteristics DOT looks for or uses to  determine if a project does or does not meet a criterion, particularly for  the livability clarification in national or regional significance. Some recent  applicants also indicated that the LOI evaluation and selection process  remained unclear, even after receiving feedback from DOT. Of the 21  recent applicants that indicated they received feedback, 8 reported that it  was slightly or not at all useful in understanding the scoring of their  LOIs—the primary aim of feedback.
Several financial and legal advisors as well as private concessionaires we  interviewed also said that there is a lack of transparency in the application  of the criteria. These advisors indicated that DOT could be more  transparent about the selection criteria and scoring process it uses to  select projects. As we reported previously regarding competitively  selected funding programs, were DOT to make additional information on  its selection decisions publicly available, potential applicants would have  better information on how to create and submit well-developed projects.  When such information is not made available, DOT may invite speculation  that projects were selected for reasons other than merit.
In addition, recent applicants and financial and legal advisors we  interviewed said the timing of the LOI evaluation and selection process is  inconsistent from year to year and therefore creates uncertainty.  Specifically, several applicants and advisors we interviewed told us that  the inconsistent timing in both the dates of the release of DOT’s funding  notice and LOI submission deadline, as well as the announcement of the  outcome of the selection process, contributes to this uncertainty.Because TIFIA projects are typically high-cost projects with multiple  funding and financing streams, the uncertainty about when a project can  submit an LOI and more importantly, when a project can count on a TIFIA  credit agreement to fill a funding gap, can affect the financial feasibility of  these projects. For example, one financial advisor said that because the  current LOI process occurs only once per year, it makes it difficult to plan  and to coordinate with other vital project planning pieces, like state  budget cycles, environmental reviews, and private investors’ timelines. If  a project sponsor misses the solicitation for a particular year, it has to wait  another year to submit an LOI. The uncertainty as to when the outcome of  the selection process will be announced can also affect projects.  According to one financial advisor, project delays can affect construction  costs or public support for the project, among other things. DOT officials  said that the timing of the annual solicitation is due, in part, to receiving  budget authority for the TIFIA program on a year-to-year rather than a  multiyear basis. On the basis of feedback from fiscal year 2010  applicants, DOT has also tried to shorten the LOI evaluation and selection  process in subsequent years so that applicants learn outcomes sooner.  For fiscal year 2010, this process, measured from the date LOIs were due  to the announcement of which LOIs were invited to apply, took about 6  months, but for fiscal years 2011 and 2012, the process took 5 months  and 4 months, respectively.

		DOT Is Taking Steps to Improve the LOI Evaluation Process

DOT has made changes to try to improve the LOI evaluation process  since returning to a competitive fixed-date selection process. In particular,  DOT officials said that they are applying best practices from other DOT  discretionary programs such as the TIGER program and learning from  past rounds of TIFIA solicitations. The changes include the following:  In fiscal year 2011, DOT increased its documentation of key decisions  for the LOI evaluation and selection process. For each LOI, the  multimodal team summarized its deliberations on the extent to which  a project met each statutory criterion in a standard form. In addition, to  aid in providing feedback to unsuccessful applicants, TIFIA office staff  produced an internal memo to document the multimodal team’s  rationale for LOI scores and grouping as well as the executive  leadership team’s concurrence with these evaluations.
In fiscal year 2012, DOT made changes to the LOI evaluation process  at the multimodal team level. Specifically, the team assigned  qualitative scores—”not aligned,” “somewhat aligned,” “well aligned,”  and “very well aligned”—rather than numeric scores to LOIs for each  criterion. According to DOT officials, these changes facilitate  discussion within the team and accelerate progress to consensus on  project scores and impressions. In addition, DOT officials said the  qualitative scores are more reflective of the actual evaluation process  than the numeric scoring system used in past rounds of solicitation  and prevent the team from focusing too heavily on the numeric  scores.
In fiscal year 2012, DOT further clarified the TIFIA funding notice. In  particular, DOT included the two statutory selection criteria that had  not been considered as part of the LOI selection process for fiscal  year 2010 or 2011—creditworthiness and consumption of budget  authority. It also stated that in selecting LOIs to advance, it may give  priority to projects that enhance the geographic diversity of the TIFIA  portfolio and may consider the project’s readiness and timeline to  proceed to financial close. DOT officials said it did so as part of its  efforts to improve its communication of the criteria and selection  process to applicants through the funding notices over time.
For fiscal year 2012, DOT invited the sponsors of five projects to  apply for TIFIA credit assistance. In addition, in response to concerns  raised by project sponsors as well as the lack of certainty about future  funding levels associated with the TIFIA program because of the  absence of a long-term surface reauthorization, DOT officials said that  an expedited review process would be created for additional highly- rated projects if TIFIA budgetary resources are significantly increased  based on the President’s Budget Request for fiscal year 2013.
Since many of DOT’s changes to the selection process occurred in the  fiscal year 2012 TIFIA solicitation, it is too soon to know whether these  changes will address the transparency and uncertainty concerns raised  by recent applicants and financial and legal advisors. DOT officials said  that they will continue to explore other changes to the process, such as  creating additional internal guidance on scoring projects or changing  feedback. Additionally, DOT officials said that the variety of TIFIA projects  by size and mode could make it difficult for DOT to specify how particular  benefits translate to a score for an LOI. For instance, in 2010 sponsors  submitted LOIs for projects that varied greatly in terms of benefits, size,  and mode, as exemplified by the $360 million Southeast Waterfront  project—a 5-mile bus, auto, bicycle, and pedestrian corridor that is part of  a redevelopment project in San Francisco—and the $1.5 billion Goethals  Bridge project—the replacement of a existing bridge connecting New  York and New Jersey. DOT officials said that the current LOI selection  process was developed in response to the combination of high demand  and uncertain budgetary environment, and indicated that it would likely  modify the evaluation and selection process in response to an increase in  TIFIA’s budget authority.

	Flexible Repayment Terms and Other Factors Influence whether States and Other Sponsors Seek TIFIA Assistance; Future Demand Is Difficult to Gauge

The TIFIA program’s flexibility and low interest rates are the predominant  reasons why sponsors seek TIFIA assistance. TIFIA’s flexibility extends  to both repayment terms and debt structuring. For states that have not  sought TIFIA assistance, state DOTs indicated that a variety of factors  contributed to their decision not to use TIFIA, such as a lack of projects  that met the eligibility requirements or the availability of other financing  options. Looking ahead, future demand for TIFIA is difficult to gauge  because it is influenced by a number of factors such as changes to  interest rates or state fiscal conditions.

		A Number of Factors Influence whether States and Sponsors Seek TIFIA Assistance

As shown in table 5, most recent applicants we surveyed cited TIFIA’s  repayment terms and options, low interest rate, and ability to serve as  subordinate debt as very or somewhat important in their decision to seek  assistance in fiscal years 2010 and 2011.
In addition to recent applicants we surveyed, other project sponsors,  financial and legal advisors, and private concessionaires we interviewed  consistently cited TIFIA’s flexible terms as a major benefit of the program.  According to DOT officials, the major benefits of TIFIA are that it can be a  patient, flexible lender and can help a sponsor secure a portion of the  project’s lending to attract other financing. For example, one project  sponsor said that deferring payment for 5 years after substantial  completion is very important for new toll road projects to allow time for  usage to grow and thus revenues to ramp up after opening. Beyond  favorable repayment terms, TIFIA assistance can be subordinate to other  debt, meaning that this other debt may receive project revenue ahead of   All six  DOT except in the case of bankruptcy, insolvency, or liquidation.of the private concessionaires we interviewed said that this structure is a  key benefit of the program, as it can help improve their ability to raise  senior debt. Many project sponsors we spoke to also cited TIFIA’s  relatively low interest rate as a main benefit of the program. The interest  rate of TIFIA assistance is based on U.S. Treasury securities of a similar  maturity and, since 2008, these Treasury rates have been lower than  municipal bond interest rates.
To a lesser extent, recent applicants we surveyed cited several other  factors as important in their decision to seek TIFIA assistance in fiscal  years 2010 and 2011. (See table 6.)
For instance, survey responses indicate that the TIFIA program can  provide financing to projects that is unavailable in the financial markets,  particularly for projects with unproven revenue streams. For example, one  project sponsor we interviewed that received a TIFIA loan said that  obtaining subordinate debt in the financial markets would have been  prohibitively expensive, since the project was a new toll road. In addition,  the ability of TIFIA to help accelerate the delivery of projects was also  important among recent applicants. Officials from the Florida Department  of Transportation estimated that its TIFIA loan helped accelerate  completion of the Miami Intermodal Center by 10 years. Two other project  sponsors we interviewed said TIFIA plays an important role in  accelerating not only the projects for which they received assistance but  other major capital projects too, as TIFIA assistance helps free up funds  for other projects.
However, our survey also indicated that some states have neither sought  nor plan to seek TIFIA assistance. In states where sponsors have never  sought TIFIA assistance, the extent to which certain factors affected state  DOTs’ decisions to not seek credit assistance varied, but many of these  state DOTs indicated that they have not submitted LOIs because they (1)  do not have projects that meet the eligibility requirements including the  required cost threshold, (2) get financing from other source(s), or (3) have  state restrictions on borrowing funds for transportation projects.table 7.)
Regarding lack of eligible projects, one state DOT indicated in the survey  that a lack of dedicated revenues or private investment prevents TIFIA  from being a viable option for rural states now and in the future. Several  financial and legal advisors we interviewed also said that some states  lack projects that are large enough to benefit from the TIFIA program. For  the TIFIA program, a sponsor must pay a $50,000 application fee if  invited to apply after the LOI stage. Then, if selected to receive  assistance, the TIFIA borrower must pay a transaction fee, typically  between $300,000 and $400,000, to cover the costs incurred by DOT to  negotiate and execute the credit agreement, like costs for external  advisors. Borrowers can also incur additional costs from hiring their own  advisors and obtaining a credit rating for the project. Therefore, the cost  of applying for TIFIA may outweigh the benefits of TIFIA for lower-cost  projects.
Moreover, DOT officials as well as several financial advisors, a private  concessionaire, and an industry association we spoke to said that the  TIFIA program may be better suited to states with more urban populations  and a greater need for large-scale projects. States with sponsors that  have never sought TIFIA assistance tend to have a smaller portion of  their population living in urban areas—that is, areas with a total  population of 50,000 or more—than states with sponsors that have  sought TIFIA assistance. DOT officials said that to date, TIFIA projects  have been located in states with large urban areas that have major  transportation needs and can more easily charge tolls or generate other  project revenues.
Based on our survey, it is unlikely that many of the states that have not  sought TIFIA assistance will seek such assistance in the future. Of the 16  state DOTs from states that have never sought assistance that responded  to our survey, only 1 indicated that it anticipated seeking TIFIA assistance  in the next 5 years. In addition, most of these state DOTs indicated that  changes to the program—such as making more funds available for the  program or increasing the portion of project costs that TIFIA assistance  could cover—would have somewhat or little to no increase on the  likelihood that they would seek TIFIA assistance.

		Future TIFIA Demand Exists, but Its Magnitude Is Difficult to Gauge

According to our interviews with DOT, project sponsors, advisors, and  private concessionaires, overall demand for the TIFIA program is likely to  continue. However, the magnitude of this demand is difficult to estimate  because it is influenced by a variety of external factors like changes to  interest rates, use of public-private partnerships, and state fiscal  conditions.
Changes to the TIFIA interest rate relative to municipal debt interest rates  could considerably affect the demand for TIFIA credit assistance. For the  last 3 fiscal years, sponsors submitted LOIs for credit assistance totaling  more than 10 times what the program’s current budget authority can  support. Several legal and financial advisors we interviewed said that  many project sponsors sought TIFIA in recent years because of  depressed market conditions and attractive TIFIA interest rates, relative  to interest rates on municipal debt, and a few of these advisors and one  industry association said that demand for TIFIA will likely decrease if  TIFIA interest rates become less attractive relative to municipal debt  interest rates. The relatively low TIFIA interest rates made the program  attractive to a greater number of sponsors, even those with access to  other financing options. For example, one recent applicant we interviewed  said that in the past, TIFIA was a more expensive finance option than  issuing its own debt, and its interest in TIFIA during the last few years is  primarily driven by the program’s relatively low interest rates. The  applicant noted that should interest rates on TIFIA loans increase in the  future, it will likely seek financing in the private capital markets.
Two other factors will influence the demand for TIFIA assistance.
Greater use of public-private partnerships and other alternative project  delivery approaches could result in a greater demand for TIFIA credit  assistance. Many private concessionaires we interviewed said that  TIFIA is an important financing tool for public-private partnerships.  According to DOT officials, TIFIA credit assistance has been part of  the financing package for most large-scale public-private partnership  projects in the United States in recent years. In addition, some states,  like Colorado and Virginia, have set up offices to facilitate public- private partnerships, so sponsors in such states may be more likely to  use this approach given this support.
State-specific conditions will also influence the demand for TIFIA  assistance. As federal and state fuel taxes may not be a sustainable  long-term source of transportation funding, state DOTs may make  greater use of finance tools like TIFIA to deliver projects. We have  previously reported that state and local governments face persistent  and long-term fiscal pressures.
At the same time, estimates to  repair, replace, or upgrade aging transportation infrastructure—as well  as expand capacity to meet increased demand—top hundreds of  billions of dollars. As a result, DOT anticipates more demand for the  TIFIA program as states and localities look to leverage limited funds.  One state we interviewed, for example, said that pay-as-you-go  funding—a more traditional means of funding transportation  infrastructure whereby a sponsor builds projects in phases or  increments as funds are available—no longer keeps pace with  infrastructure needs. Therefore, the state DOT has turned to TIFIA to  help finance big, high-cost projects that need federal assistance to  advance. Looking ahead, 15 of the 42 state DOTs that responded to  our survey indicated that they have projects for which they will likely  seek TIFIA in the next 5 years. Most of these state DOTs (13) have  sought TIFIA assistance in the past and indicated that they are likely  to seek TIFIA for 1-5 projects, while a few indicated they are likely to  seek TIFIA for 6-10 projects.

	Options Proposed to Modify the TIFIA Program

With the pending reauthorization of the surface transportation programs,  the tight budgetary environment, and the increase in demand for TIFIA,  government and industry officials have proffered options to modify the  program. We reviewed surface transportation reauthorization bills—H.R.  7, the American Energy and Infrastructure Jobs Act as reported by the  House Committee on Transportation and Infrastructure, and S. 1813,  Moving Ahead for Progress in the 21st Century Act (MAP-21) as adopted  by the Senate, respectively—to identify proposed changes to the  program. Based on our interviews with select project sponsors, financial  and legal advisors, and others, as well as our survey of state DOTs and  recent applicants, we identified several recurring options that have been  proposed to modify the TIFA program. Some options require  congressional action to implement, while others would require DOT to  change program-level policies. Each option has advantages and  disadvantages, and thus implementing any of these options would require  policy trade-offs. Moreover, some options could affect the overall demand  for the program and the sphere of projects that could apply for or benefit  from TIFIA.
Table 8 provides a list of proposed options to modify the TIFIA program in  the surface transportation reauthorization bills and the President’s fiscal  year 2013 budget.
Two proposed changes, increasing the amount of authorized budget  authority and allowing project sponsors to pay fees to contribute to the  credit subsidy cost, could potentially allow the TIFIA program to provide  more assistance to projects.
Increase amount of authorized budget authority. Members of Congress,  DOT, and others have proposed increasing the amount of authorized  budget authority to cover the subsidy costs for the TIFIA program.  Proposals vary from increasing this amount to $1 billion, as in the  reauthorization bills, to a smaller increase of $500 million proposed in  DOT’s fiscal year 2013 budget. Congressional support for an increase in  authorized budget authority for TIFIA is rooted in the program’s ability to  leverage funds and stretch federal dollars further than a traditional grant  program. These proposals represent significant increases to TIFIA’s  current annual authorized budget authority of $122 million. Proposals to  increase the amount of authorized budget authority for the TIFIA program  occur during an austere federal budget environment. The Budget Control  Act of 2011 places limits on discretionary spending for the next 10 fiscal  years. As a result, an increase in one area of discretionary spending,  like the TIFIA program, requires a decrease in another area of  discretionary spending.
Increasing the amount of authorized budget authority is strongly  supported by recent applicants we surveyed as well as legal and financial  advisors we interviewed. For example, 32 out of 36 recent applicants that  responded to our survey strongly support expanding funding for the TIFIA  program. An increase in funding would likely allow the program to provide  more credit assistance, in terms of the number of projects receiving credit  assistance or the amount of credit assistance provided to each project.  An increase in funding could also allow the program to come closer to  meeting the current demand for the program, which is more than 10 times  what the current budget authority could support. However, DOT officials  and other stakeholders told us that an increase in funding would need to  be accompanied by an increase in administrative resources. According to  project sponsors and other stakeholders, the TIFIA office has been very  responsive and helpful, but a few said that response time has slowed in  recent years. With increased funding, DOT would likely see an increase in  the number of applications to review, credit agreements to negotiate, and  credit agreements to monitor. DOT officials said they are prepared to  adjust staffing levels in the event that Congress provides the TIFIA  program with an increase in authorized budget authority as is proposed in  the surface transportation reauthorization bills. Further, DOT officials said  that an increase in TIFIA funding may require DOT to reexamine how it  manages the program—such as how it selects projects and negotiates  credit agreements—and issue new regulations.
Allow sponsors to pay fees to contribute to the credit subsidy cost of  assistance. H.R. 7 would mandate that DOT allow project sponsors to pay  fees to reduce the credit subsidy cost of assistance if DOT funds run  out. According to DOT, current law allows but does not require DOT to  let the approved sponsor pay a fee to reduce the credit subsidy cost of  the project in the event that there is insufficient budget authority to fund  credit assistance for a selected TIFIA project. Over the life of the TIFIA  program, three project sponsors have paid fees to reduce the credit  subsidy cost of their TIFIA assistance; all three cases occurred after the  program became oversubscribed in fiscal year 2008.
Among recent applicants we surveyed and project sponsors we  interviewed, many supported this program change. Supporters of this  option said that given the high demand for TIFIA credit assistance and  limited budget authority, allowing project sponsors to pay fees to cover  the credit subsidy cost when DOT’s budget authority runs out would allow  more eligible projects to be built and reduce the oversubscription of the  program. However, DOT previously decided against instituting this option  more broadly through a pilot program in 2010. DOT officials told us that  while allowing project sponsors to pay fees to cover the credit subsidy  cost provides flexibility, especially when demand outpaces budget  authority, it complicates the negotiation of credit agreements. While DOT  would have to follow its subsidy estimation methodology to determine a  project sponsor’s fee, the project sponsor may want to negotiate the fee.  Project sponsors we interviewed said that for this option to work, DOT  would need to provide them with more information on how the credit  subsidy cost is calculated. Under FCRA, OMB is responsible for subsidy  cost estimates. OMB may delegate this authority to the agency providing  credit assistance, but the delegation should be based on the written  guidelines or criteria developed by OMB. OMB retains the responsibility  and final approval of subsidy cost estimates. Given these complexities,  this option may be difficult to implement, though it could be done relatively  quickly. In addition, to the extent that DOT underestimates the initial  subsidy costs and does not collect enough fees from borrowers,  taxpayers will ultimately have to pay for any shortfalls.
Allowing project sponsors to pay fees to cover the credit subsidy cost  could remove the congressional limit on the size of the TIFIA program  and thus increase the federal government’s exposure. According to DOT,  SAFETEA-LU removed the cap on the amount of credit assistance the  TIFIA program could provide each year, so the only limit on the TIFIA  program’s size currently is the budget authority provided by Congress.  DOT officials said that allowing project sponsors to pay the subsidy cost  could allow the program to grow larger than Congress authorized through  budget authority. DOT officials told us that for other DOT credit programs,  such as the Railroad Rehabilitation and Improvement Financing (RRIF)  program, project sponsors are required to pay fees towards the credit  subsidies for loans because they do not have budget authority for this  purpose, but the RRIF program has a statutory limit on total outstanding  credit assistance.the government’s exposure to financial losses. Moreover, if this proposed  change were adopted in combination with other proposed changes to the  program—requiring the Secretary to approve all qualifying applications— the total size and exposure of the TIFIA program could expand  dramatically.

		Increase the Portion of Costs Covered by TIFIA

Another option in the reauthorization bills would increase the portion of  eligible project costs TIFIA assistance could cover from 33 percent to 49  percent. Among think tank and industry group proposals, project  sponsors, and other stakeholders we interviewed, support for this option  varied. Those that support increasing the TIFIA share said it would  reduce the burden on sponsors to find nonfederal sources of debt and  allow them to borrow more funds on favorable terms. For example,  several project sponsors said that for very large infrastructure projects,  finding a combination of federal, state, and private financing can be  difficult. Those that do not support this option expressed concern that it  would reduce the incentive to find private and other nonfederal financing  and potentially reduce market discipline that comes from other lenders to  projects. For example, several stakeholders we interviewed said that  increasing the percentage of total project costs that TIFIA can finance  could result in project sponsors substituting TIFIA credit assistance for  private debt or private equity investments. Others expressed concern that  increasing the share of costs TIFIA covers would potentially reduce the  availability of TIFIA assistance, especially if Congress does not increase  budget authority for the TIFIA program.
Moreover, increasing the portion of costs covered by TIFIA could  decrease the program’s ability to achieve one of its key goals—leveraging  federal funds. DOT officials told us that changing the statute to increase  the TIFIA share could reduce the number of projects supported (for a  given amount of budget authority) and reduce the leveraging of federal  funds as project sponsors seek more financing through TIFIA rather than  other sources. Currently, DOT estimates that each $10 million in budget  authority can provide up to $100 million in TIFIA credit assistance and  leverage $300 million in transportation infrastructure investment. If the  limit on TIFIA assistance were increased to 49 percent, this same amount  of budget authority could leverage about $200 million in transportation  infrastructure investment. This change could also increase the exposure  of the federal government to the risk of loan defaults if the size of the  credit assistance for each project increases.

		Eliminate or Waive the Nonsubordination Clause

The reauthorization bills propose exceptions to the nonsubordination  clause. For example, the Senate reauthorization bill, S. 1813, allows  exceptions to the nonsubordination clause for certain types of  borrowers.capital programs and have senior bonds outstanding could be exempt  from the nonsubordination clause if (1) the outstanding bonds are rated A  or higher, (2) the TIFIA assistance and outstanding bonds are secured by  revenues not affected by project performance (e.g., sales tax), and (3) the  TIFIA assistance is 33 percent or less of the total project costs. Among  recent applicants we surveyed, 22 out of 36 strongly or moderately  support allowing waivers to the nonsubordination clause. Several legal  and financial advisors and other project sponsors we interviewed support  removing the nonsubordination clause altogether.
Specifically, public agencies that are financing ongoing  While there is general support for allowing waivers to or eliminating the  nonsubordination clause, many of those we interviewed indicated that the  clause does not pose an insurmountable challenge to negotiating a credit  agreement, and that it provides needed protection for the federal  government. Eliminating or waiving the nonsubordination clause could  address some issues identified by financial advisors and credit ratings  agencies we interviewed. For example, the TIFIA nonsubordination  clause can be difficult to integrate with existing terms for outstanding  bonds secured by the same revenue stream. If the nonsubordination  clause is triggered due to project bankruptcy or insolvency, project  sponsors must make special arrangements to ensure this bond covenant  is not violated. However, despite these issues, many project sponsors  and legal and financial advisors said that the nonsubordination clause  provides an important protection to taxpayers. Moreover, few if any could  point to instances where it prevented the closing of a credit agreement.
DOT officials said that the nonsubordination clause helps protect the  federal government and taxpayers. For the TIFIA program, the  nonsubordination clause is used to lessen the risk to the federal  government. While the nonsubordination clause can cause issues for  borrowers, DOT officials said that they can work with borrowers to try to  address financial difficulties before they must legally invoke the clause.  For example, DOT can defer invoking the nonsubordination clause for up  to a year after a missed payment, but to date no sponsor has missed a  payment. In addition, DOT officials told us that removing the  nonsubordination clause would increase the federal government’s risk  because it would lower the likelihood of recovering funds. According to  DOT officials, the nonsubordination clause facilitated its involvement in  bankruptcy discussions for the South Bay Expressway and, as a result,  DOT expects to recover, through the restructuring of the project’s debt  and assumption of the loan by SANDAG, up to 100 percent of the original  loan value. Further, DOT officials said that without the nonsubordination  clause, the credit subsidy cost required for a project would increase  significantly, because of the increased risk to the federal government, and  thus reduce the amount of assistance the TIFIA program could provide.

		Modify the Selection Process

Modify selection criteria. Both the reauthorization bills propose eliminating  TIFIA’s selection criteria and adding to the current eligibility  requirements. H.R. 7 would expand eligibility requirements to include  creditworthiness, regional significance, beneficial effects, and project  readiness.eligibility requirements.
S. 1813 adds creditworthiness to the program’s current  Twenty-three of 36 recent applicants that responded to our survey  support modifying the TIFIA selection criteria, but when asked how the  criteria should be modified, these respondents most often indicated that  they want more transparency in how selection criteria are applied.
Project sponsors and advisors we interviewed said they would prefer  more transparency in the evaluation of LOIs and a better explanation of  how selection criteria are applied. Several project sponsors and advisors  expressed concern about the definitions of some criteria—in particular,  the livability and sustainability clarifications—as well as how the criteria  are applied to LOIs.
However, altering or eliminating the selection criteria could modify the  nature of the TIFIA program, changing it from a discretionary program  where select projects receive assistance to more of an eligibility-based  program where all eligible, creditworthy projects can receive assistance.  DOT supports retaining the statutory criteria to use in selecting projects to  receive credit assistance. In this way, the TIFIA program would continue  to provide assistance to projects that meet DOT’s national transportation  goals. DOT officials added that just because a project is creditworthy  does not ensure that it will have positive transportation benefits. Further,  modifying or eliminating the selection criteria could be implemented in  several ways, each entailing different trade-offs. For example, one of the  new eligibility requirements in H.R. 7 is “beneficial effects,” which  collapses some existing statutory criteria and program goals—specifically,  fostering public-private partnerships, attracting private debt or equity  investment, enabling a project to proceed faster than without the credit  assistance, and reducing federal grant assistance—into one category.  While fostering public-private partnerships, for example, is one of the  selection criteria for the current TIFIA program, projects without a public- private component are still eligible to apply. Depending on how the  beneficial effects eligibility requirement, if enacted, is defined and  implemented, it could render some projects—including some that recently  received credit assistance—ineligible.
Return to an open application cycle. The reauthorization bills propose  returning to an open application process and prohibiting a fixed-date  solicitation. Several project sponsors as well as financial and legal  advisors we interviewed support a return to an open application cycle.  Some project sponsors said this would allow sponsors to seek TIFIA  credit assistance according to a project’s schedule, rather than trying to  alter this schedule to fit the annual TIFIA solicitation. One state DOT said  that the projects applying for TIFIA credit assistance are very complex  and must manage multiple timelines for various financing stakeholders,  which is further complicated by TIFIA’s once-a-year solicitation. A few  financial advisors and one project sponsor we spoke with also indicated  that increasing the number of solicitations per year would be an  improvement if DOT did not return to an open application cycle.
Moreover, due to the fixed-date solicitation process, some project  sponsors may be submitting LOIs for projects not yet ready to use TIFIA  assistance. DOT previously reported that based on its use of an annual,  fixed-date application process from 1999 to 2001, project sponsors may  have been applying for assistance prematurely in response to the limited  application window. DOT switched to an open application process to  allow sponsors to apply based on a project’s schedule. For example, one  recent applicant told us it submitted an LOI early, as it planned and  obtained permits for the project, to familiarize DOT with the project and  improve its chances of obtaining TIFIA credit assistance in the next few  years. DOT officials told us the fixed-date application cycle is currently a  necessity because of limited resources; however, if they had more funds  to pay the credit subsidy costs for credit assistance, they would prefer to  use an open application system that allows a sponsor to seek TIFIA when  it best fits a project’s schedule.
Importantly, returning to an open application cycle removes the  competitive nature of the TIFIA program. If the TIFIA program’s  authorized budget authority remains at current levels or does not meet  total demand, a project’s order in line would determine whether it receives  assistance, not its relative merit. Further, if this option were adopted, DOT  would have to reconsider its current two-step selection process and  determine the extent to which it has the discretion to distribute assistance  based on geographic location, project readiness, or other factors not  included in the statutory eligibility requirements.

	Conclusions

Until recently, the innovative credit assistance offered by the TIFIA  program to finance the construction of large-scale surface transportation  projects was underutilized. However, demand for the program surged, in  part because of the tightening of commercial credit markets and low  federal treasury interest rates. TIFIA is increasingly becoming a more  recognized approach for filling funding and financing gaps for complex  transportation projects that can help to mitigate mobility and other  transportation issues in many congested urban areas in the United  States. DOT, project sponsors, legal and financial advisors, and other  stakeholders in the transportation industry have expressed strong support  for the program, and Members of Congress have recently developed  several reauthorization proposals aimed at greatly increasing the  authorized budget authority for the program and modifying other aspects  of the program to make it more accessible. DOT has taken some steps to  monitor and assess the program through its project oversight and credit  monitoring of individual TIFIA credit agreements and, early in the  program’s tenure, by tracking and reporting on the private investment and  leveraging effect of TIFIA to gauge its progress in meeting program goals.  However, since that time, DOT has not publicly reported on these or other  measures to assess the program as a whole. Without other measures in  place going forward, Congress will not have the complete and aggregated  data needed to make informed decisions about the program’s size and  structure.
Additionally, in response to increased demand for the program and  multiple extensions of the surface transportation reauthorization over the  last 3 years, DOT has had to adapt its process for selecting projects,  focusing its review of projects on applicants’ LOIs and selecting projects  based on their relative merits. The new process, whereby DOT balances  a limited program budget authority with selecting projects that are most  consistent with the statutory selection criteria, is a work in progress. In  response to feedback from applicants and lessons from this and other  discretionary programs, DOT has taken steps to make the TIFIA selection  process transparent by publicizing the selection criteria and other factors  that contribute to project selection and providing feedback to  unsuccessful applicants, and many think these steps have been useful.  However, many recent applicants and financial and legal advisors that  assist applicants in developing projects still feel that the process lacks  transparency, making it difficult for them to advance well-developed LOIs.  While federal agencies rarely publicly disclose the reasons for their  selection decisions in a competitive review process, the considerable  demand for TIFIA and changes to the selection process suggest that  publicly disclosing additional information about how selection decisions  are made would better enable potential applicants to identify how DOT is  using the statutory criteria to select projects and develop effective LOIs.

	Recommendations for Executive Action

To improve the implementation of the TIFIA program and enable  Congress and DOT to better assess program performance, we  recommend that the Secretary of Transportation further develop and  define performance measures to monitor and evaluate progress toward  meeting the program’s goals and objectives.
To ensure that future project selections in the TIFIA program are  transparent to Congress, applicants, and the public, we recommend that  the Secretary of Transportation better disclose information, through  notices of funding availability or other program guidance, regarding how  DOT evaluates and selects projects.

	Agency Comments

We provided a draft of this report to DOT for review and comment. In  response, DOT said it would carefully consider the results of our review  but did not take a position on whether it agreed with our  recommendations. DOT told us that it objectively evaluates applications  for TIFIA participation using comprehensive, data-driven processes to  identify the most highly qualified projects, and that DOT encourages  strong communication with applicants and offers transparent discussion  of applicants’ submittals to ensure they are fully informed of the basis for  program participation decisions. Further, the agency stated that it is  continuously reevaluating its processes to ensure they are as effective as  possible. The agency also provided technical comments, which we  incorporated, as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of  Transportation, the Administrator of the Federal Highway Administration,  and appropriate congressional committees. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)  512-2834 or flemings@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report are listed in appendix IV.

Appendix I: Scope and Methodology

To address our objectives, we reviewed Department of Transportation  (DOT) program guidance for the Transportation Infrastructure Finance  and Innovation Act (TIFIA) program, relevant legislation and regulations,  and DOT’s biennial reports to Congress on the TIFIA program. To  describe the characteristics and results of the TIFIA program, we  analyzed DOT data on past letters of interest (LOI) and applications for  assistance to describe the projects that sought credit assistance. We also  analyzed data on the projects receiving TIFIA credit agreements through  April 2012 to describe these projects, including mode of transport, total  cost, amount of TIFIA assistance, amount of private investment, and  geographic location. For mode of transport, we used DOT’s available  characterizations for all projects with credit agreements and for LOIs for  fiscal year 2011, while for the remaining LOIs we determined the mode  for projects by applying DOT’s characterization scheme. When  considering the amount of private investment, we followed DOT’s  convention established in its 2002 report to Congress on TIFIA. Namely,  (1) the project must feature investor-held debt or equity and (2) the  investment return must be derived from project-generated revenues or  other revenues levied specifically to support the project. We only included  active credit agreements—those for which sponsors had not repaid or  refinanced their credit agreements—as we did not have complete  information on the funding sources for all the retired credit agreements.  We assessed the reliability of the data by reviewing DOT’s data  documentation, interviewing knowledgeable officials, and conducting  independent validation through use of our web survey. We found the data  to be sufficiently reliable for our purposes. In addition, we interviewed  DOT officials to learn about the program’s goals and the tools DOT uses  or plans to use to track and evaluate the performance of credit  agreements and the program.
To describe and assess DOT’s process for evaluating and selecting  projects to invite to apply in fiscal years 2010 and 2011, we examined  legislation, regulations, and agency guidance, including notices of funding  availability, to describe the statutory and regulatory criteria DOT uses to  select projects for credit assistance. We also analyzed and summarized  data and documents provided by DOT—including scores assigned and  reviewers’ assessments of project letters of interest—and interviewed  DOT officials to describe the decision-making processes used by the  agency to select projects for credit assistance. We focused on federal  fiscal years 2010 and 2011, the years for which DOT used a fixed-date  competitive solicitation for projects after demand for credit assistance  exceeded the program’s budget authority and for which the evaluation  and selection processes were complete. To assess DOT’s process for  selecting projects, we compared DOT’s process with statute, regulations,  and guidance; GAO’s Standards for Internal Control in the Federal  Government; and, as appropriate, past GAO work on federal credit  assistance and grant programs.
In addition, we gathered and analyzed data on state-level characteristics,  such as federal highway apportionments and whether states have  legislative restrictions on borrowing, to determine whether such  characteristics were correlated to past demand for the TIFIA program. To  explore the potential future demand for TIFIA credit assistance, we  analyzed data from DOT on interest in the program in the last 2 fiscal  years. To identify the options proposed to modify the TIFIA program, we  reviewed reauthorization proposals for surface transportation programs  from congressional committees, DOT, and industry and research  organizations.
We also interviewed a variety of stakeholders to inform our objectives.  We interviewed select current and potential project sponsors (such as  state DOTs and transit agencies) to learn about their experiences with the  TIFIA selection process and the factors that influenced whether they  sought TIFIA assistance. In particular, we interviewed project sponsors in  the 5 states—California, Colorado, Florida, Virginia, and Texas—that  constitute the majority of TIFIA awards to date, as well as a few states  that have had little or no experience with the program—North Carolina  and Iowa—that varied in terms of geographic location and legislative  authority to borrow and use public-private partnerships. In each of these  states, we interviewed the state DOT and all project sponsors that  received TIFIA credit assistance as of April 1, 2012. In addition, we  interviewed legal and financial advisors that help sponsors apply for TIFIA  credit assistance and private concessionaires that invest in large  infrastructure projects to learn about their experiences with the TIFIA  program, including the selection process. We also interviewed credit  rating agencies and industry associations such as the American  Association of State Highway and Transportation Officials (AASHTO) and  the American Road and Transportation Builders Association (ARTBA), to  learn about their experiences with the TIFIA program and to gain  additional information about the types of projects that have sought or  received TIFIA credit assistance. In our interviews, we also asked about  the factors that would influence future demand for the program as well as  options to modify the program and the potential trade-offs of  implementing such changes to the TIFIA program. Table 9 lists the  organizations we interviewed.
In order to gather opinions of the TIFIA program from the users’  standpoint, we designed and administered a web-based survey. The  survey was administered to the state DOTs in all 50 states, the District of  Columbia, and Puerto Rico, as well as to all recent applicants that submitted an LOI to the TIFIA program in fiscal years 2010 and 2011.The survey population consisted of four unique groups of respondents:  state DOTs from states from which no sponsor had ever applied to the  TIFIA program; state DOTs from states from which a sponsor had applied  to the TIFIA program but not in recent years—that is, 2010 and 2011;  state DOTs who had recently applied to the TIFIA program; and other,  non-state DOT organizations who had recently applied to the TIFIA  program. Survey respondents were presented with different questions in  the survey depending on their past experience with the TIFIA program,  and whether or not they were from a state DOT. In general, the survey  topics included the following:  factors contributing to organizations’ decision to seek, or not to seek,  TIFIA assistance; satisfaction with the process for submitting an LOI to the TIFIA  program; opinions on proposed modifications to the TIFIA program; potential future demand for the TIFIA program; and  characteristics of the state DOTs.
In developing the survey, we took steps to ensure the accuracy and  reliability of responses. We cognitively tested the survey with  representatives from 5 state DOTs and one other organization included in  the respondent population to ensure that questions were clear,  comprehensive, and unbiased, and to minimize the burden the survey  placed on respondents. On the basis of feedback from the six pretests we  conducted, we made changes to the content and format of some survey  questions. We obtained contact information for the survey recipients from  two sources. First, we obtained contact information for the state DOTs  from AASHTO, specifically, from its Standing Committee on Finance and  Administration. Second, we obtained contact information for recent  applicants from DOT. We also contacted all of the survey recipients in  advance, by e-mail, to ensure that we had identified the correct  respondents and to request their completion of the questionnaire.
The survey was administered between January 25, 2012, and April 4,  2012. We distributed a link for the survey to the 83 organizations by e- mail and also subsequently e-mailed and telephoned nonrespondents to  encourage a higher response rate. Because this was not a sample  survey, there are no sampling errors. However, the practical difficulties of  conducting any survey may introduce errors, commonly referred to as  nonsampling errors. For example, difficulties in how a particular question  is interpreted, in the sources of information that are available to  respondents, or in how the data were analyzed can introduce unwanted  variability into the survey results. We took steps in the development of the  questionnaire, the data collection, and the data analysis to minimize these  nonsampling errors. Most of the survey questions included close-ended  response categories; however, a few survey questions asked  respondents to provide a written response to an open-ended question.  When analyzing written responses, one analyst read the responses and  assigned them to different categories, while a second analyst reviewed  this categorization. We received completed surveys from 66 respondents  for an overall response rate of 80 percent. The survey response rates for  the four groups of respondents are presented in table 10 below:  We conducted this performance audit from July 2011 to June 2012 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: Projects Receiving TIFIA Credit Assistance

DOT has awarded 27 TIFIA credit agreements to projects through 26  loans and one loan guarantee. Table 11 provides information on each  credit agreement, including the name and location of the project receiving  assistance, the amount of credit assistance, and the status of the credit  agreement.

Appendix III: Responses to Questions from GAO’s Survey on TIFIA

We distributed a survey to all state departments of transportation,as the organizations who have submitted a letter of interest for TIFIA  assistance during federal fiscal years 2010-2011, to gain insight into their  experience with and opinions regarding the TIFIA program. In total the  survey went to 83 recipients, and we received completed surveys from 66  of 83 recipients for a response rate of 80 percent. Tables 12-28 below  show responses to questions from the survey related to the TIFIA  program and project finance. We also provided examples and definitions  for certain terms used in the questions, which are reprinted below. Survey  respondents were presented with different questions in the survey  depending on their past experience with the TIFIA program, and whether  or not they were from a state DOT. For example, we only asked  organizations that submitted an LOI in 2010 or 2011 (recent applicants)  about their experience with the TIFIA evaluation and selection process.  For more information about our methodology for designing and  distributing the survey, see appendix I.

	Glossary/Examples

ITS stands for intelligent transportation system.
The nonsubordination clause (also known in the context of the TIFIA  program as the springing lien) means that the TIFIA lien on project  revenues can be subordinated to those of senior lenders except in the  event of bankruptcy, insolvency, or liquidation of the obligor. In such an  instance, the TIFIA lien would rise to parity with senior creditors. This  provision can be effected through a master trust agreement, an  intercreditor agreement, or other agreement entered into at the time of  execution of the credit agreement.
Examples of other dedicated revenue stream(s) to repay TIFIA credit  assistance may include pledged sales taxes, tax increment financing, and  availability payments.
The TIFIA eligibility requirements are (1) the project shall be consistent  with the state transportation plan, if located in a metropolitan area shall be  included in that area’s metropolitan transportation plan, and shall appear  in an approved state transportation improvement program before the DOT  and the project sponsor execute a term sheet or credit agreement that  results in the obligation of funds; (2) the state, local servicer, or other  entity undertaking the project shall submit a project application to the  Secretary of Transportation; (3) a project shall have eligible project costs  that are reasonably anticipated to equal or exceed the lesser of $50  million or 33 1/3 percent of the amount of federal aid highway funds  apportioned for the most recently completed fiscal year to the state in  which the project is located (in the case of a project principally involving  the installation of intelligent transportation systems (ITS), eligible project  costs shall be reasonably anticipated to equal or exceed $15 million); (4)  project financing shall be repayable, in whole or in part, from tolls, user  fees or other dedicated revenue sources; and (5) in the case of a project  that is undertaken by an entity that is not a state or local government or  an agency or instrumentality of a state or local government, the project  that the entity is undertaking shall be included in the state transportation  plan and an approved State Transportation Improvement Program.
The TIFIA selection criteria are (1) national or regional significance  (including consideration of livability, economic competitiveness, and  safety), (2) private participation, (3) environment (including consideration  of sustainability and state of good repair), (4) project acceleration, (5)  credit worthiness, (6) use of new technology, (7) consumption of budget  authority, and (8) reduced federal grant assistance.
Examples of user fees to repay TIFIA credit assistance may include tolls  and rental car customer facility charges.

Appendix IV: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact named above, Susan Zimmerman, Assistant  Director; Sarah Arnett; Carl Barden; Marcia Carlsen; Carol Henn; Bert  Japikse; David Lin; Joanie Lofgren; Ruben Montes de Oca; Josh Ormond;  Amy Rosewarne; Andrew Von Ah; and Elizabeth Wood made key  contributions to this report.

Summary:
Why GAO Did This Study

Created in 1998, the TIFIA program is designed to fill market gaps and leverage substantial nonfederal investment by providing federal credit assistance to help finance surface transportation projects including highway, transit, rail, and intermodal projects. Since 2008, demand for the program has surged, annually exceeding budget resources for the program by a factor of more than 10 to 1. Given the increased demand and recent proposals to expand and modify the program, GAO was asked to review (1) the characteristics of TIFIA projects and how DOT tracks progress toward the programs goals, (2) the process DOT used to evaluate and select projects that submitted LOIs to apply for credit assistance in fiscal years 2010 and 2011, (3) the factors that affect project sponsors decisions about whether to seek TIFIA credit assistance, and (4) the options proposed to modify the program. GAO reviewed laws and program guidance; interviewed DOT officials, project sponsors, and advisors involved in procuring credit assistance; and surveyed all state departments of mtransportation and other recent applicants about the TIFIA program.

What GAO Found

Projects that received credit assistance through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, administered by the Department of Transportation (DOT), tend to be large, high-cost highway projects. As of April 2012, DOT has executed 27 TIFIA credit agreements for 26 projects with project sponsors such as state DOTs and transit agencies. Overall, DOT has provided nearly $9.1 billion in credit assistance through 26 loans and one loan guarantee. By mode, there are 17 highway, 5 transit, and 4 intermodal projects. Most projects have a total cost of over $1 billion. DOT monitors individual credit agreements but does not systematically assess whether its TIFIA portfolio as a whole is achieving the programs goals of leveraging federal funds and encouraging private co-investment. DOT has identified goals and objectives for the TIFIA program, but its limited use of performance measures makes it difficult to determine the degree to which the program is meeting these goals and objectives. Given that DOT already collects project data, it could use these data to better evaluate the programs overall progress toward meeting its goals.
In fiscal years 2010 and 2011, DOT used a competitive two-step process to evaluate and invite projects to apply for TIFIA credit assistance to address the considerable increase in demand for the program. First, a multimodal team scored and grouped letters of interest (LOI) using statutory criteria. Second, a group of senior DOT staff reviewed the LOIs based on the criteria and other factors, like available budget authority, and invited a subset to applythe next step in securing TIFIA assistance. While recent applicants were satisfied with many aspects of the process, they also indicated, along with legal and financial advisors, that the selection process lacks transparency and creates uncertainty in their ability to implement projects. For example, some recent applicants told us it is difficult to understand what characteristics DOT uses to measure how well a project meets each criterion. DOT officials said the agency is taking steps to improve its evaluation process, but since many of the changes were initiated in 2012, it is too soon to tell if they will address recent applicants concerns.
Several factors influence whether project sponsors seek TIFIA assistance. More than 30 of 36 recent applicants we surveyed cited TIFIAs repayment options (like deferring repayments for 5 years after project completion), low interest rate, and flexible structure (i.e., ability to subordinate TIFIA repayment) as important in their decision to seek assistance. To date, sponsors from 17 states have never sought TIFIA assistance. State DOT respondents from these states cited various reasons for this, including lack of eligible projects and state-imposed borrowing restrictions. Many of these state DOTs indicated that regardless of options for modifying the program, they have no plans to seek TIFIA assistance.
Several options to change the TIFIA program have been proposed by, among others, Congress and DOT; these options include increasing the programs funding, increasing the portion of costs that may be covered by TIFIA from 33 percent to 49 percent of project costs, and modifying the selection process. Each option has advantages and disadvantages and, if adopted, some could alter the original goals of the programto leverage public funds and encourage private co-investment.

What GAO Recommends

GAO recommends that DOT develop and use program performance measures to better assess progress in meeting TIFIAs goals and objectives. DOT should better disclose information on how it selects projects to apply for TIFIA assistance through program guidance or other means to help ensure that the program is more transparent to Congress, applicants, and the public. DOT said it would consider the studys results.