Loading...
ST9904-CS 990210 (2)General Overview of the State Infrastructure Bank February 1 O, 1999 Prepared by: Innovative Transportation Solutions, Inc. 2309 Springlake Suite 630 Dallas, Texas 75234 RAMP Development P.O. Box 294743 Lewisville, Texas 75029 ylNNOVATIVE TRANSPORTATION SOLUTIONS INC. 2309 Springlake Rd. · Suite 630 · Dallas, Texas 75234 ,, (972)484-2525 · (972)484-4545 .~. MEMORANDUM TO: Denton County Commissioners Court FROM: John Polster, ITS DATE: February 8, 1999 RE: Information regarding State Infrastructure Bank Innovative Transportation Solutions, Inc (ITS) in conjunction with Mr. Jeff Carey of Ramp Development have met with Frank Smith, the Director of the Budget and Finance Division at TxDOT, who is in charge of administering the State Infrastructure Bank (SIB), to discuss the applicability of the SIB program to the County's Better, Safer Roads Program. The following is an overview of the SIB program established in the Intermodal Surface Transportation Efficiency Act of 1991 and extended in the Transportation Equity Act for the 21 st Century. The SIB is an innovative funding tool designed to help local entities fund transportation projects sooner than would otherwise be possible. The SIB operates similar to a bank. in that it loans funds for the construction of roadway projects, with principle and interest repaid over the life of the note. Enclosed is an in-depth review taken from Innovative Finance Quarterly which explains how the SIB works, including examples of project types and repayment structures from other areas of the country (TAB 1). In addition, the TxDOT SIB Applicant Handbook has also been included for your review. It provides additional background and administration information as well as the actual application for assistance from the SIB (TAB 2). To qualify for financial assistance from SIB, a project must be on the state highway system and be included in the Statewide Transportation Improvement Plan. A project may qualify for assistance in phases, which are listed in the Applicant Handbook. The terms of each loan are determined by the applicant and the TxDOT Budget and Finance Committee with final approval by the Texas Transportation Commission. The terms can extend up to 30 years with payments not being required for up to five years from the date of the approved application or the completion of the project. I trust that this information will prove useful to the County as it implements the Better, Safer Roads Program. Should you have any additional questions, please do not hesitate to contact me or Jeff Carey at 972/484-2525 or 972/315-8881 respectively. lTSDataklohnlMyFileslDENENHUBond Programl1998 Better, Safer Roads ProgramSmemo to SIB info and application.doc Federal Highway Funds and Debt Finance~ A Spectrum of Strategies from Massachusetts, New Mexico and Ohio In municipal finance, as in attire, neither one size nor one style fits all. This issue oflFQ presents a comparison of three different ways that states can structure a GARVEE-type debt instrument. A Grant Anticipation Revenue Vehicle, or GARVEE bond, refers to any financing instrument for which principal and/or interest is repaid with future Federal-aid highway funds. In essence, the debt is issued in anticipation of the receipt of Federal-aid grant reimbursements in subsequent years. The concept was fully described in IFQ Volume 3, Number 2. The three transactions profiled in this article - the Central Artery/Tunnel in Boston, Massachusetts; Corridor 44 in northwest New Mexico; and the Spring-Sandusky Interchange in Columbus, Ohio - represent the GARVEE bond's real debut in the financial markets. From all appearances, GARVEE bonds are receiving a warm welcome and may see increased use in the coming years. In fact, New Mexico is already considering a series of additional transactions that may employ this financing strategy, and other states are making inquiries as well. In considering these transactions, three points of contrast merit special mention: · The underlying source of Federal-aid highway reimbursements. · The presence and nature ofbackstop sources of payment; and · The state implementing action(s) on which those funds' availability is conditioned. Underlying Source of Reimbursements The general GARVEE bond concept can be applied in one of two ways: 1) a "direct" GARVEE bond, in which federal assistance directly reimburses debt service paid to investors in a debt- financed Federal-aid project, as permitted under 23 U.S.C. 122; and 2) an indirect reimbursement, whereby federal funds reimburse expenditures on other Federal-aid projects and the state Department of Transportation (DOT) subsequently uses a portion of those funds to pay debt service on the debt- financed project. Note that in the second instance, the debt-financed project need not be a Federal- aid project, since the reimbursements of state expenditures on other Federal-aid projects effectively transform into state funds upon receipt by the state DOT. Figure 1 on page 3 depicts the two approaches. In three subject cases, Ohio and New Mexico are employing a direct GARVEE; Massachusetts is employing the indirect reimbursement strategy. From Innnovative Finance Quarterly, Volume 4, No. 3 It should be noted that regardless of the structure selected, the enactment of the Transportation Equity Act for the 21 ~t Century (TEA 21 ) bolsters the security of the underlying source of repayment. First, the Act's minimum guarantee provision ensures that each state will receive annual apportionments of no less than 90.5 percent of its percentage contributions to the Highway Account of the Highway Trust Fund. Second, and more important, TEA 21's provisions governing the budgetary treatment of the highway program virtually eliminate appropriations risk at the federal level over the current six-year authorization period through the effective creation of minimum obligation levels. It is true that some degree of federal authorization risk still exists since theoretically the Congress could elect not to reauthorize the Federal-aid highway program when TEA 21 expires after federal fiscal year 2003. However, the risk of non.authorization in future years is considered remote, given the importance, longevity, and general popularity of the Federal-aid program. State Backstops The second major area of difference in the structure of a GARVEE-style financing instruments is the presence of alternate funding sources or revenue streams to back up the Federal-aid reimbursements should they fail to materialize or fall short of requirements. Ohio and Massachusetts have structured their debt so that other state funding sources may be sought in the event of unexpected shortfalls. In Ohio, all eligible Federal-aid highway funds will potentially be available to reimburse debt service expenditures (though subject to biennial appropriation); if these funds prove insufficient, moneys residing in the state infrastructure bank's bond service fund and other grants or state highway funds will be sought to pay debt service. As a final state backstop, the debt is secured by a moral obligation for the Ohio DOT to seek appropriations from the state assembly in the event that none of the preceding sources is available to meet debt service. The presence of such strong non-federal backstops - which some characterize as a triple-barreled structure - was of greater importance in Ohio because its debt issue represented the first GARVEE bond of its kind and occurred before enactment of TEA 21. In Massachusetts, under very limited - and unlikely - circumstances, the Commonwealth will direct 10 cents of its 21-cent state fuel tax to the Grant Anticipation Note (GAN) Trust Funds for the purpose of paying debt service on the Central Artery instruments. This limited backstop is triggered only if: 10 annual Federal-aid highway funding falls to less than $17.1 billion nationwide; and 2) Massachusetts' share of such funding is projected to provide less than 120 percent coverage of aggregate debt service on the CANs in the following year. Municipal bond insurance, which safeguards bondholders against the repercussions of a revenue shortfall by covering up to 100 percent of debt service payments, serves as a way of enhancing the creditworthiness of a transaction, and can allay investors' concems regarding the security of their investment. Bond insurance is a form of "external" credit enhancement, in contrast to a state make- up, which represents a form of "intemal" credit enhancement. If cost-effective, New Mexico may purchase bond insurance for the Corridor 44 issues, which would raise the rating on the issues to AAA. New Mexico is not, however, planning to structure internal credit enhancement through a state backstop. Implementing Actions The third variation in potential GARVEE structures is the extent to which the availability of the underlying Federal-aid reimbursements and backstop sources is subject to others' actions. From a ratings standpoint, the need for implementing actions such as appropriations may be of less consequence than the unde~ying and backstop sources of repayment. Nonetheless, the extent to which these sources of funds are conditioned on specific actions stands as a clear point of contrast in the way that Ohio, New Mexico, and Massachusetts are approaching the GARVEE concept. In Ohio, the availability of federal funds and all backstop sources is subject to biennial appropriations by the Ohio General Assembly. In New Mexico, federal ~mds are automatically available to the state highway and transportation department; no state-level appropriations action is required. In Massachusetts, where an indirect reimbursement is the mechanism of choice, the availability of the Federal-aid reimbursements (i.e., federal funds "eamed" on other projects) to the newly-created CAN Trust Fund is not conditioned upon annual appropriation by the state legislature. Rather, pursuant to state legislation establishing the CAN Trust Fund, all future federal highway reimbursements flow directly to the Trust Fund without further state action. However, in the unlikely event that the backstop source is triggered, associated revenues would be subject to appropriation. So Which Is Best? As demonstrated by the variety of transactions structured by Massachusetts, New Mexico, and Ohio, GARVEE-type transactions can be arranged in various ways. So far it appears that no one structure is inherently preferable to others, as each of the three states profiled in this article has created a highly-rated and very marketable debt instrument. Instead, circumstances specific to each state will help determine which strategies are most desirable. Factors contributing to the design of the GARVEE instmrnent include, for example, projected population growth; this projections suggests how well a state will fare under the Federal-aid apportionment formulas. Other considerations include flexibility within the State Transportation Improvement Program, the stability of the non- federal contribution to the project's construction costs, legal or political constraints on the availability of gas tax receipts or other funds to backstop Federal-aid ~mds, and the assurance of the debt-financed project's eligibility for Federal-aid (Title 23) funds. Pattems of Federal-aid cash flows are of special importance when deciding whether to use a direct GARVEE or indirect reimbursement strategy. In Massachusetts, for example, the high volume of Federal-aid projects, and especially those built under advance construction, creates a favorable environment for an indirect reimbursement strategy. This is because the volume of projects creates plenty of liquidity, which is necessary to demonstrate to bondholders that debt service payments can be made in a full and timely fashion. A high volume of advance construction projects is especially beneficial, since these projects can be readily converted to Federal-aid, creating "quick cash" that can be applied to debt service. (Note: Advance construction is a grants management strategy whereby a state DOT constructs a project with non-federal funds, but preserves the project's eligibility for future Federal-aid funding.) The indirect reimbursement strategy might not work so well in cases where a state has comparatively few advance construction projects and 1) a short construction season or 2) a limited number of large and financially "bulky" Federal-aid projects. These conditions suggest a less liquid stream of Federal-aid reimbursements, and the unpredictability of the stream might limit the apparent security of the credit. If an indirect reimbursement strategy is neither advantageous nor feasible, the direct GARVEE may be structured to establish a direct relationship between debt service payments and liquidating cash from the Federal-aid highway program. In this instance, the issuer may still need to concern itself with an adequate backstop, particularly to guard against federal reauthorization risk. Bond insurance is often the surest and simplest method to bring a credit rating up to a high level, but the premiums charged by the municipal bond insurer add to the financing cost. Still, depending on the underlying rating of a project, bond insurance may prove cost-effective compared to the interest expense of an "unenhanced" issue. Backstops of state highway or general funds or a moral obligation on the part of the state as a whole are another option, but again, these might face the same constraints (e.g., legislative appropriation) on which the original credit was conditioned. Also, it should be noted that a state may be reluctant to encumber its highway fund balance sheet with contingent liabilities for a variety of reasons. Pertinent considerations include: 1) legal matters, such as state debt limits; 2) financial assessments conceming the savings associated with a higher credit rating; and 3) philosophic leanings, such as a state's general disposition toward debt and risk. Massachusetts, New Mexico, and Ohio offer strong examples of three very different, but equally marketable, financing structures. Each state's experience demonstrates that regardless of an individual GARVEE bond's structure, these instruments are producing benefits by accelerating construction, adding flexibility to states' financing options, and lowering financing costs by improving ratings. As more states test the GARVEE concept with new transactions developed under altemative conditions, issuers, underwriters, rating agencies, and insurers will develop an even better sense to the investor at the lowest possible cost to the issuer. Contacts: David Seltzer, FHI/FA, 202/366-0397 and Bryan Grote, FHI/FA, 202/366-5785, and Jeff Stearns, Office of the Massachusetts State Treasurer, 61 7/367-3900, ext. 564 Gary Joseph, Ohio Department of Transportation, 614/728-7473 John Fenher, New Mexico State Highway and Transportation Department, 505/827-5446. Special thanks also to Sonia Toledo, Jeff Carey, and Pete Markle for their thoughtful review and extensive comments on this article. State Infrastructure Bank Loans and Loan Agreements as of June 1, 1998 LOANS 1 Missouri Springfield Transportation 39,360 1,180 3.70% 04.01.97 Local dedicated sales tax increment Projects financing and State Highway fund 1,690 3.50% 04.01.99 Local dedicated sales tax increment financing and State Highway fund 2 Missouri Cape Girardeau Bridge 102,196 8,000 5.30% 10.07.97 State and future federal funds 20,000 5.30% 02.06.98 State and future federal funds 3 Ohio Butler Regional Highway 150,000 10,000 6.00% 10.16.96 Bond proceeds 4 10,000 6.00% 0 I. 13.97 Bond proceeds 5 15,000 6.00% 05. ! 9.97 Bond proceeds 6 · Ohio Great Lakes Science Center 7,825 7,825 6.00% 05.01.97 Parking fees Parking Facility 7 Ohio Fort Washington Way 120,000 20,000 5.00% 03.01.98 Future city income and sales tax Relocation 8 Ohio Cleveland Transit Viaduct 25,000 6,900 4.25% 04.01.98 County sales tax 9 Ohio Project Monaco (Marion, 2,025 2,025 4.00% 04.01.98 Payment in lieu of property taxes OH) (TIF) 10 Ohio Cincinnati Industrial Park 645 645 4.00% 04.01.98 City's capital improvement fund Access Road (primarily income tax) Improvements l l Ohio 950 ~ 4.00% 06.01.98 E~Lf~3:if~ 12 Oregon Ash Creek Bridge 850 735 4.00% 04.01.98 Future federal highway funds, city Replacement r~venues 13 Oregon Signal Priority System 781 781 4.18% 05.15.98 Transit District revenues (primarily payroll tax receipts) 14 New Mexico City of Moriarty 541 541 03.31.98 Intersection Signal 15 Texas Laredo Bridge #4 61,400 27,000 16 Texas State Route 190-Bush 1,000,000 20,000 4.20% 10.01.97 Toll revenues Turnpike* SUBTOTAL 1,511,575 153,272 LOAN AGREEMENTS 1 Arizona Price Corridor Segments 56,600 26,000 3.67% 3/00/99 Earmarked sales tax revenues 2 Arizona Red Mountain Freeway 60,400 ! 3,700 3.67% 7/00/98 Earmarked sales tax revenues Segments 3 Florida Branan Field Road 27,046 4,980 0.00% 1999 State DOT District funds (deriving Construction - Clay City mainly from gas tax receipts) 4 Florida Branan Field Road 36,255 13,406 0.00% 1999 State DOT District funds Construction - Duval City 5 Florida Congress/Australian 11,529 8,365 0.00% tbd State DOT District funds Connector 6 Florida 1-275 Widening 11,801 2,327 0.00% 1999 Future federal highway funds 7 Florida SR77 Reconstruction 27,046 5,598 0.00% 2000 State DOT District funds 8 Florida SRS0 Improvements 20,448 4,366 0.00% tbd State DOT District funds 9 Florida SR540 Improvements 18,727 2,590 0.00% 1999 State DOT District funds 10 Florida SR655 Construction 14,948 6,953 0.00% 1999 State DOT District funds 11' Florida SR44 Widening and 20,500 9,800 tbd State DOT District funds Rehabilitation 12 Florida SR30 (US98) to SR73 to 12,100 2,400 tbd Future federal highway funds SR295 13 Florida Recker Highway, US!7 to 14,900 7,000 tbd State DOT funds Winterlake Construction 14 Florida Lee County Trolley Purchase 720 720 0.00% 1999 Future federal transit funds 15 Michigan Center Street Reconstruction 2,000 700 4.00% City funds 16 Missouri Cole County Highway 179 37,544 6,000 3.50% 11.01.02 Earmarked local sales tax revenues and State Highway Fund 17 New Jersey Atlantic City Expressway 1,500 1,500 tbd 06.20.05 Expressway toll revenues 18 Ohio Market Street Improvements 12,469 1,200 4.25% 07.01.98 City-pledged excess revenues (primarily (Canton, OH) income tax) 19 Texas State Route 190-Bush see above 40,000 4.20% 10.01.98 Toll revenues Turnpike* 20 see above 20,000 4.20% 10.01.99 Toll revenues 21 Wyoming Cody to Yellowstone Park 15,000 15,000 0.00% 10.01.98 Future federal highway funds and state Improvement ] highway funds SUBTOT/IL 401,533 192.605 GRAND TOTAL 1,913,108 345,877 *SR 190 received two loan disbursements under 23 USC 129, prior to establishment of the Texas SIB. Those obligations were subsequently adopted by the SIB. The two previous loan disbursements were made on 1/1/96 in the amounts of $20 million and on 10/1/96 for $35 million. It is anticipated that the full $135 million from all prior and future loan disbursements will be repaid to the Texas SIB. State Infrastructure Bank Pilot Program: Federal Financial Transactions, cumulative, October 1, 1995 through May 31, 1998 FAH S p e c i a I Total FAH S p e c i a I Obligations: O u t 1 a y s: Funds Appropriations Funds Appropriations Total S p e c i a I S p e c i a I Appropriations Appropriations Alaska $ - $ 2,490,000 $ 2,490,000 $ - $ 1,693,200 $ 1,693,200 $ - $ - Arizona 29,501,487 6,700,000 36,201,487 29,501,487 4,556,000 34,057,487 - , Arkansas - ! ,500,000 1,500,000 - ! ,020,000 1,020,000 - , Cali fore i a - 3,000,000 3,000,000 ..... Colorado - ! ,500,000 1,500,000 ..... Delaware 3,300,000 1,500,000 4,800,000 3,300,000 1,500,000 4,800,000 - , Florida~ 38,815,438 8,650,000 47,465,438 38,815,437 5,882,000 44,697,437 - . Georgia____L_- ........ Illinois~ ........ Indiana~ - 3,390,000 3,390,000 ..... lowa~ - 870,000 870,000 - 591,600 591,600 630,000 - Louisian~a ........ Maine~ - 2,540,000 2,540,000 ..... M/~ssaehusetts ........ Michiga~n - 1 ! ,050,000 I 1,050,000 - 7,514,000 7,514,000 - , Minneso~ - 3,960,000 3,960,000 ..... Missouri 25,000,000 - 25,000,000 25,000,000 - 25,000,000 7,410,000 6,224,400 Nebraska - 2,830,000 2,830,000 ..... New Jerse~y - 1,500,000 1,500,000 ..... New Mexico - 8,140,000 8,140,000 - 5,535,200 5,535,200 - _ New Yor~k - 12,000,000 12,000,000 ..... North Carolina - 480,000 480,000 - - - 1,020,000 1,020,000 North Dakota - 1,727,200 1,727,200 ..... Ohio___._~__ 35,000,000 5,100,000 40,100,000 35,000,000 1,260,000 36,260,000 6,900,000 6,900,000 Oklaho___________~__~ - 4,700,000 4,700,000 - . . 2,390,000 - Oregon~ 8,973,000 5,510,000 14,483,000 8,973,000 826,500 9,799,500 - _ pennsylvania - 1,000,000 1,000,000 - . _ 2,390,000 - Rhodc Island - 1,500,000 1,500,000 ..... South Carolina - 3,000,000 3,000,000 - 2,040,000 2,040,000 - . South Dakota - 2,830,000 2,830,000 - 1,924,400 1,924,000 - _ Tennessee - 1,500,000 ! ,500,000 ..... Tcxas~ 75,21 i ,476 ! 2,000,000 87,211,476 75,211,476 8, ! 60,000 83,371,476 - _ Utah - 2,310,000 2,310,000 ..... Vermon~t - 1,500,000 1,500,000 - 1,020,000 1,020,000 - . Virgini_____~_a 18,000,000 3,000,000 21,000,000 18,000,000 - 18,000,000 - . Washington - 1,500,000 1,500,000 ..... Wisconsi~n - i ,500,000 1,500,000 ..... Wyomin~g - 2,510,000 2,510,000 - 1,706,800 1,706,800 - . Pucrto Rico 10,748,588 1,500,000 12,248,588 ..... $ 244,549,969 $124,787,200 $ 369~337,189 $ 233,801,400 $ 45,229,700 $ 279,031,100 $ 18,350,000 $ 14,144,400 SIB UPDATE A Tale of Two Pilots Although reference to state infrastructure banks (SIBs) was inadvertently omitted from ~ Once you begin reading the provision, it seems that little has changed. Then you reach subsection (b) , which states that "...the Secretary may enter into cooperative agreements with the States of Califomia, Florida, Missouri, and Rhode Island..." If you are not from one of those four states, you may well ask, "What about my state?" In fact, there are now two SIB pilot programs. Of the 39 states currently authorized to establish SIBs, The four remaining state (Califomia, Florida, Missouri, and Rhode Island) are now effectively part of two pilots. First, they will continue to operate under SIB 95 goveming the capitalization funds deriving from fiscal year 1996 and 1997 apportionments. Second, the se four state will also have the opportunity to expand their SIB programs under the new TEA 21 pilot which we will refer to "SIB 98." SIB 98: "TEA" for Four TEA 21 establishes a new SIB pilot program under which four states - California, Florida, Missouri, and Rhode Island - may capitalize their banks with federal transportation funds authorized for fiscal years 1998 through 2003. If your state is one of the four that can participate in the new SIB 98 pilot, here are a few of the main points you need to be familiar with. Notably, SIB 98: · Removes the 10 percent limit on capitalization with eligible program categories; · Does not require separate highway and transit accounts, but does require separate tracking for the use of Interstate and rail funds; · Broadens project eligibility from highway and transit capital projects to include other surface transportation projects, as may be approved by the Secretary; · Applies federal requirements to all SIB-assisted projects, including those financed with repayments from non-federal sources (so-called "second round" projects); and · Replaces the existing 9-year disbursement schedule for federal capitalization funds with a 5-year disbursement schedule of 20 percent per year. SIB 95: Reports of SIB's Death Have Greatly Been Exaggerated Thirty-four other states and Puerto Rico, which ~~ It will not be possible for them to utilize fiscal year 1998 (or beyond) funds apportioned under TEA 21 to capitalized their SIBs. Many of the states that are limited to participation ~gj~!~ In the meantime, however, these states may wish to consider some of the following strategies. · State may be able to designate additional advance capitalization amounts in fiscal year 1998 (and beyond). The feasibility of this option is conditioned, of course, on the availability of unobligated balances of fiscal year 1996 and 1997 apportionments for eligible program categories. ~ Though Section 129 offers less flexibility than does the SIB structure, it gives states the chance to offer credit assistance to many of the same projects that SIBs can benefit. · Any state may, of course, use its won funds or private contributions to add to its SIB's seed capital. SIB Status As of May 31, 1998, $293 million in federal funds had been deposited into the banks' highway and transit accounts. The banks have signed loan agreements to assist 33 projects; for these projects it is expected that $346 million in SIB loans will support $1.9 billion in total project construction. The tables on page 6 and above display: 1) loans and loan agreements signed to date; and 2) obligations and outlays of federal funds for the SIB program as of May 31, 1998. Contact: Lucinda Eagle, FHIzFA, 202/366-5057 D: hrTSDatakKayliXSIBhrnnovative Finance Quarterly-excerpts. wpd