Greasing the skids: how federal lending programs can move your transportation projects forward.

• Author: Reid, Robena

Surface transportation plays a critical role in community and regional economic development. It enables the safe and efficient delivery of goods and services, and provides citizens with the ability to access tangible and intangible resources external to their community. Reductions in travel times, transportation costs, and inventory control expenses are among the many economic benefits of improved transportation systems. It is also postulated that diverse and accessible transportation links improve property values and invite additional economic development investments. Indirectly, transportation investment decisions can enhance tourism, improve land use options, complement community planning programs, and buttress community aesthetic improvement efforts.

Surface transportation projects have historically received significant levels of federal grant assistance. This assistance is derived from various user fees, including gasoline, tire, and motor fuel taxes levied at the national level. Despite this funding, many transportation projects face significant financial hurdles prior to and during construction. For example, local governments frequently encounter discrepancies between local fiscal year funding and the availability of federal surface transportation dollars. This timing mismatch can result in project delays. The perennial and unique funding gaps for surface transportation have initiated the inception of several U.S. Department of Transportation lending programs designed to assist projects with both temporary and long-term funding requirements.

This article describes the federal lending programs that have evolved as a result of unmet demand for additional credit facilities for surface transportation projects. As summarized in Exhibit 1, the programs vary by the amount of credit assistance available, the percentage of project costs eligible to receive credit assistance, and the minimum dollar amount of anticipated project expenses. These programs include the Transportation Infrastructure and Finance Innovation Act, state infrastructure banks, Section 129 loans, the Railroad Rehabilitation and Improvement Financing program, and various methods to meet project match requirements.

A SURVEY OF FEDERAL PROGRAMS

Although most project sponsors prefer to receive grant funds instead of loans or other forms of credit assistance, lending programs offer some distinct advantages. Lending facilitates project acceleration. For high priority projects, credit assistance is often preferable to uncertain grant funding that may not materialize for many years in the future. Lending also supports cost efficient project delivery by speeding construction and avoiding construction cost increases due to inflation. For maintenance projects, borrowing funds to perform rehabilitation activities may decrease overall costs by protecting the infrastructure asset before additional deterioration significantly compromises the asset. Lines of credit permit greater flexibility in a project's financial plan, and enable the sponsor to better manage cash flows. Loan guarantees reduce credit risk for lenders and support competitive interest rates. Finally, credit assistance may improve project fiscal discipline and cost containment strategies. The need to competitively apply for and repay funds presents a strong incentive to carefully monitor and control project costs and to meticulously plan all aspects of project financing and delivery.

The sections that follow describe the major federal transportation lending programs and their reauthorization status.

TIFIA. The first example of federal credit assistance occurred in 1993 via legislative appropriations that enabled the Department of Transportation to offer two lines of credit to the Transportation Corridor Agencies of Orange County, California. The lines of credit were used to support the sale of revenue bonds, the proceeds of which were used to construct the Foothill Eastern and San Joaquin Hills toll roads. In 1997, another federal appropriation was used to lend funds to the Alameda Corridor, a project to improve rail and truck access to the Ports of Los Angeles and Long Beach, California (see sidebar). Credit assistance for the Transportation Corridor Agencies and the Alameda Corridor set a precedent in the transportation sector and demonstrated the viability of and market sector demand for a federal credit program designed specifically to assist transportation projects requiring significant financial resources. To provide a more formal program format to meet the growing interest in credit assistance, TEA-21 established a new program known as the...