Chairman of the House Committee on Transportation and Infrastructure John Mica (R-FL) released a summary of his transportation reauthorization proposal. The proposal outlines several elements that are expected in the upcoming legislation such as program consolidation, restrained funding based on existing revenue streams, and project streamlining.

Taxpayers for Common Sense will use this space to analyze some of the ideas proposed.

——————————————————————————–

Harbor Maintenance Trust Fund: Increasing Spending on Harbors Without a Plan

Rep. Mica proposes modifying the Harbor Maintenance Trust Fund (HMTF) to boost spending on operations and maintenance of the nation's waterways. The bill does not appear, however, to offer taxpayers anyguarantee that they will receive significant returns for their increased investments. In addition it does not address the issue of ports that require many more dollars in maintenance than they contribute to the HMTF.

In 1986, Congress passed the Water Resources Development Act of 1986 establishing the HMTF to fund the operation and maintenance (O&M) of harbors and deepening of channels. Since 1990, the HMTF is supported by a 0.125% harbor maintenance tax (HMT) on the value of imported and domestic cargo handled at ports and on cruise ship tickets. The HMT is charged on the value of imported cargo only, because in 1998 the U.S. Supreme Court found the tax on exports unconstitutional. HMT revenues pay for all the maintenance dredging costs at ports up to 45 feet deep; for deeper ports, the incremental maintenance cost is 50% from the HMTF and 50% from the local sponsor (the port).

For fiscal year 2010, the HMTF's balance was approximately $5.65 billion (surplus) with revenues exceeding Congressionally approved spending for port dredging and maintenance. The Trust Fund's balance is estimated to grow to $6.93 billion in fiscal year 2012. The Congressional Research Service (CRS) estimates that tax revenues to the HMTF are more than sufficient to cover USACE's port O&M expenditures for the long-term future.

In an attempt to bring the nation's ports and channels to their authorized depths–it is estimated that authorized full channel dimensions at the nation's 59 busiest ports are available only 35% of the time– Rep. Mica's proposal ties HMTF expenditures to revenues and ensure that we invest funds for harbor maintenance as intended. In addition it seeks to streamline and expedite the USACE project and planning processes. Furthermore, the proposal states “that ports seeking to deepen channels are not penalized for trying to attract the larger vessels becoming more common in shipping.”

In light of the nearly completed expansion of the Panama Canal, ports on the East Coast are in a race to the bottom to attract these larger deep draft vessels. The Corps has not, however, conducted a multiport analysis to determine which ports in fact need to be maintained at a 50-foot depth.   In addition, a recent report by the Congressional Research Service finds ports handling large amounts of imported cargo are likely to contribute exceptional amounts of revenue to the HMTF, yet receive less than a penny on the dollar in HMTF expenditures. Furthermore, the CRS finds over the last ten years, 16% of HMTF expenditures have been spent on the maintenance of shallow draft channels. Users of shallow draft channels are not contributors to the HMTF nor do O&M expenditures on these waterway users benefit shippers — payees into the HMTF — in any way.

Because the actual legislative text has not been released, we are unable to determine if this part of the bill would lead to taxpayer friendly investments in our ports, or continue unchanged the current system of cross-subsidization and lack of national prioritization in port deepening efforts.

——————————————————————————–

TIFIA and RRIF

Rep. Mica’s proposal contains several sections related to innovative financing mechanisms, including expansion of the Transportation Infrastructure Finance and Innovation Act (TIFIA) program and reforming the Railroad Rehabilitation & Improvement Financing (RRIF) Program.

TIFIA

TIFIA was adopted by Congress in 1998 in order to leverage federal resources to attract private and other non-Federal capital into transportation infrastructure. The TIFIA program provides loans, loan guarantees, and lines of credit to public or private borrowers for projects of national or regional significance, including highway and transit facilities, intelligent transportation systems, international bridges or tunnels, and intercity passenger rail and bus infrastructure.

Eligible projects must be greater than $50 million in cost and backed by a dedicated revenue stream (tolls, dedicated tax, user-fees etc.),TIFIA can cover no more than one-third of project costs, must be junior to investment-grade senior debt obligations, and must have parity lien in the case of bankruptcy or insolvency (this simply means that the government, as a lender, would have equal rights to collect on its debt as the other lenders involved).

The TIFIA program is currently supported by an annual $122 million congressional appropriation that covers the subsidy cost of TIFIA credit assistance. According to the Federal Highway Administration, the TIFIA program has offered $8.3 billion in credit assistance since 1998 with $30.7 billion in total project costs. Additionally, each dollar put into TIFIA can provide approximately $10 in loans and supports up to $30 in transportation investment. Of the 22 nationwide projects that have received TIFIA assistance, recent examples include the Denver Union Station rebuild and Virginia’s Pocahontas Parkway/Richmond Airport Connector. The only default in TIFIA’s 13-year history was South Bay Expressway, a toll road project in Southern California, which declared bankruptcy in 2010 after failing to meet forecasted toll revenues. During reorganization, TIFIA’s “springing lien” provision was triggered, placing the federal loan to the project on par for collection as the private debt, allowing taxpayers to avoid substantial loss. The reorganization resulted in a new board representing both TIFIA and private lenders which will oversee the new company and retain any surpluses generated by the toll road.

RRIF

Similar to the TIFIA program, The Railroad Rehabilitation & Improvement Financing (RRIF) Program provides low-interest federal loans and loan guarantees to finance development of railroad infrastructure.

RRIF financing can be used in a variety of ways including the acquisition, improvement, and rehabilitation of rail equipment and infrastructure. Additionally, the financing can be used to refinance outstanding debt or develop new railroad infrastructure.

The entire program is capped at $35 billion maximum in outstanding loans, but requires no federal subsidy due to the requirement for a Credit Risk Premium (CRP). This mitigates the government’s risk of the applicant’s potential for default.

Since 2002, RRIF has provided a total of $1.024 billion in loans under 28 agreements with 22 railroads and public entities. Outstanding loans currently amount to $430 million, far less than the $35 billion maximum allowed under law. The RRIF program has never experienced a borrower default on a loan package..

Proposed changes to TIFIA and RIFF

Rep. Mica’s proposal would dedicate $1 billion annually to the TIFIA program for 6 years. This is eight times the programs funding current level of $122 million annually. Rep. Mica proposal estimates this will result in $60 billion in low interest loans over 6 years and at least $120 billion in state, local, and private-sector transportation investment over that same period. 

It is unclear if such a dramatic expansion of TIFIA would actually leverage the estimated $120 billion worth of investment. The Bipartisan Policy Center (BPC) conducted a review of major projects and found those most worthy of financing would require an annual cap of only $450 million cap for the TIFIA program. According to BPC, any more than this would be likely to go unutilized unless TIFIA’s criteria and credit-worthiness standards were reduced, which would increase the risk of default.

Reps. Mica and Bud Shuster (R-PA) have criticized the RRIF program for its lack of subscribership (current outstanding loans amount to only $430 million versus the $35 billion program limit.) and more than 13 month loan processing time — far beyond what the RRIF’s 90-day statutory guidelines call for. Rep. Mica’s proposal calls for a streamlined loan application process, provides for increased flexibility in loan terms, and makes high speed passenger rail projects eligible for RRIF financing.

——————————————————————————–

State Infrastructure Banks

To leverage greater use of what are expected to be declining transportation dollars, Rep. Mica proposes several innovative financing mechanisms, including “reward[ing] states that capitalize state Infrastructure Banks” by increasing the percentage of federal highway funding that a state can dedicate to a state Infrastructure Bank.

Since the 1990’s, many states have established State Infrastructure Banks (SIBs) as a means to leverage additional investment into transportation infrastructure and encourage public-private partnerships. This type of revolving infrastructure invest­ment fund operates much like a private bank and may offer a range of loans, credit assistance and other financial products to public and private project applicants. The primary reason for an SIB’s establishment is to fill the financing gap where public dollars are constrained and commercial financing is non-existent. To date, 32 states and Puerto Rico have established SIB’s.

Although some SIBs were established under a federal pilot program, all states were ultimately given the authority to create SIBs under the 2005 transportation bill known as SAFETEA-LU. Under the legislation, states could use federal and state matching funds from each fiscal year (2005-2009) to capitalize SIB accounts. Federally-sponsored SIB’s have strict guidelines for project eligibility and only 10% of specific federal program funds from highway and transit appropriations can be used to capitalize SIB accounts. States are free to contribute additional funds if they wish. SIB interest rates are set by the state but max out at the market rate (and are typically set below market). Maximum loan term is capped at 35 years or less.

Projects eligible for funding from federally-sponsored SIBs include highway projects (roads, signals, intersection improvements, and bridges), transit capital projects (buses, equipment, maintenance, or passenger facilities), and bikeway or pedestrian access projects on highway right of way. This also includes projects eligible for CMAQ funding (Congestion Mitigation and Air Quality). After a state DOT determines project financing from an SIB, the USDOT will confirm eligibility. 

Virginia, Kansas, Ohio, Georgia, and Florida have opted to capitalize SIBs with only state dollars and operate under their own guidelines and regulations. In some cases, this structure has allowed states to avoid federal regulations that would otherwise be in place if federal dollars were included. These include “Buy America” requirements and the federal environmental review processes, which can have the effect of driving up costs and delaying implementation.

The FHWA reported in 2010, U.S. SIBs had 712 loan agreements leveraging $6.5 billion in both public and private infrastructure investment. 87% of these loan agreements were located in just five states: South Carolina, Arizona, Florida, and Ohio.

Rep. Mica’s proposal would increase the amount of federal funds that could be placed into an SIB from 10% to 15%, in an attempt to garner additional resources and leverage greater value per dollar.