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
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