AASHTO National Transportation Leadership Institute

AASHTO Center for Excellence in Project FinanceTransportation Finance – May 4, 2010

OVERVIEW OF HIGHWAY FINANCEAASHTO National Transportation Leadership Institute

OVERVIEW OF HIGHWAY FINANCE

Investment Requirements: Highway and Transit SystemsTransit Systems

Average Annual Capital Needs and Gap Estimates, All Levels of Government

$214

250

s

g p p ,2008‐2035 (in 2008 dollars)

$172

150

200

008 Dollars

64%

50

100

llion

s of 20

$76

56%

44% 36%0

50

M i t i I

Bi

2

Maintain ImproveRevenues Gap

Source: National Surface Transportation Infrastructure Financing Commission

Capital Funding by Level of Governmentby Level of Government

FY 2006 Highway Capital  FY 2006 Transit Capital 006 g ay Cap taFunding Sources

006 a s t Cap taFunding Sources

State32%

d l

State13%

d lFederal44%

Local

Federal44%

Local24%

oca43%

3

Revenue Sources for Investment in Surface Transportation AssetsSurface Transportation Assets 

• Federal‐aid highway program• State funds

o motor vehicle fuel taxes, license fees, registration fees, sales taxes• State general fund moniesState general fund monies• Local funds

o motor vehicle fuel taxes, registration fees, local option sales taxesT ll• Tolls

• Fare box revenues• Other

o value capture, concession/advertising programs, naming rights

4

“Funding” vs. “Financing”

FEDERAL‐AID HIGHWAY PROGRAMAASHTO National Transportation Leadership Institute

FEDERAL AID HIGHWAY PROGRAM

Key Elements of a Grant Programy g

• Fiscal Constraint

• Obligation

• ExpenditureExpenditure

• Federal Share

P j t Cl t• Project Closeout

6

STIP Fiscal Constraint

• Full funding can reasonably be anticipated to be available for the project 

7

Obligationg

• The execution of the project agreement shall be deemed a contractual obligation of the Federal Government for the payment of the Federal share of the cost of the project. (23 USC 106)

• Advance Construction

8

Expenditurep

• A State must expend and account for grant f d i d ith St t l dfunds in accordance with State laws and procedures for expending and accounting for its own fundsits own funds. 

• Applicable OMB cost principles, agency regulations and the terms of the grantregulations, and the terms of the grant agreement will be followed in determining the allowability of costs. (49 CFR 18)allowability of costs. (49 CFR 18)

• Cash Management Improvement Act

9

Federal Share

Interstate 90%, Other 80%, Except for:• Sliding Scale• Donations• Toll Credits• Emergency Reliefg y• Safety• Land Management Agency FundsLand Management Agency Funds• Federal Lands Highways Program Funds

10

Project Closeoutj

• Promptly release excess obligations

• Submit final voucher

11

Innovative Finance Research

• 23 USC 502

• Test and Evaluation 045o Expedite projects, reduce costs, leverage federal p p j , , gfunds

• Special Experimental Project 015p p jo Increase project management flexibility, improve efficiency, expedite project implementation, y, p p j p ,develop new revenue streams ‐ PPPs

12

Oversightg

• Grantees must monitor grant and subgrant d i i i li i hsupported activities to assure compliance with 

applicable Federal requirements and that performance goals are being achieved (49 CFR 18)performance goals are being achieved. (49 CFR 18)

• Major Projects o $500M: Financial Plan & Project Management Plano $500M: Financial Plan & Project Management Plan

o $100M: Financial Plan

• FIREFIRE

13

Financing Toolsg

• State Infrastructure Banks

• Section 129 Loans

• GARVEE BondsGARVEE Bonds

• Advance Construction

14

State Infrastructure Banks

• Capitalized with federal apportionments and state matching funds

• Offers loans and credit enhancements

15

Section 129 Loans

• Authorizes federal apportioned funds to be loaned to projects with a dedicated revenue source

• Allows subordination of debt

• Repaid loans used for any Title 23 projectRepaid loans used for any Title 23 project

16

GARVEE Bonds

• Allows federal grant funds to pay for interest, issuance, insurance and incidental costs

• Defined as costs of construction

• Used in conjunction with advance constructionconstruction

• U.S. is not responsible for payment of the debt

17

Advance Construction

• Federal authorization without obligation of funds

• No federal commitment  to fund the projectp j

• May convert (obligate) all or a portion of the federal share of the projectfederal share of the project

• May use any eligible category of federal funds

18

MUNICIPAL BONDMARKETAASHTO National Transportation Leadership Institute

MUNICIPAL BOND MARKET

Growth of the Municipal Marketp

Municipal Market Annual Volume

400

450

500

p

250

300

350

00

s of

Dol

lars

288 358 383 360

408 389 430 390 409 435

150

200

250

Bill

ions

201

0

50

100

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Year

Snapshot of 2009 Municipal Marketp pCredit Purpose

General Obligation

38%Revenue B d

New Refunding

Combined16%

Bonds62%

Money61%

23%

Variable Rate

Interest Rate Mode Tax Status

Tax Exempt

AMT<1%

Taxable21%

Rate10%

21

Tax Exempt79%Fixed Rate

90%

Municipal Market Sectorsp

Municipal Market 2000 Municipal Market 2009pDevelopment

4%General Purpose

22%

pDevelopment

2%

Education22%General

Education24%

Purpose31%

Electric Power3%

Environmental Facilities

3%

Utilities7%

Electric Power4%

Environmental Facilities

2%

3%

Health Care9%

Housing10%

Public Facilities

5%

Transportation13%

Health Care11%

Housing3%Public

Facilities3%

Transportation12%

Utilities10%

22

Surface Transportation Financing Toolsp g

• Highway, toll road, and transit revenue bonds

• Grant Anticipation Revenue Vehicles(GARVEE Bonds)( )

• Build America Bonds (BABs)

• Private Activity Bonds (PABs)• Private Activity Bonds (PABs)

23

Structuring a Municipal Bond Financingg p g

• Select working groupD l li i l f fi• Develop preliminary plan of finance

• Draft legal and disclosure documents• Present proposed credit/financing structure to the• Present proposed credit/financing structure to the rating agencies

• Finalize plan of finance and legal/disclosure documentsp g /• Market the bonds to investors (retail and institutional)• Price the bonds• Close the financing

24

PROJECT FINANCE STRATEGIES &AASHTO National Transportation Leadership Institute

PROJECT FINANCE STRATEGIES &PUBLIC PRIVATE PARTNERSHIPS (P3)

Discussion Outline

P3  ≠  Project Finance

Basic Project Finance Strategy

Evolution of the P3 Market

26

P3 StrategiesP3 Strategies

The term Public –Private Partnerships (P3) includes a variety of arrangements designed t t f j t i k l t b t P3 i t f f dito transfer project risk or leverage a revenue stream, but a P3 is not a source of funding

Design-Build

Project Activity

Traditional Governmental

Delivery

Design-Build with

Public Funding

Design Build with

Outsourced Operations or Maintenance

Governmental Tax-Exempt

Project Financing

Private Concession

Project Financing

Construction PublicPublic PrivatePrivate PrivatePrivate PrivatePrivate PrivatePrivateConstruction PublicPublic PrivatePrivate PrivatePrivate PrivatePrivate PrivatePrivate

Operation PublicPublic PublicPublic Public or Public or PrivatePrivate

Public or Public or PrivatePrivate PrivatePrivate

Financing PublicPublic PublicPublic PublicPublic Public or Public or PrivatePrivateFinancing PublicPublic PublicPublic PublicPublic PrivatePrivate PrivatePrivate

Ownership PublicPublic PublicPublic PublicPublic PublicPublic PrivatePrivate

27

Project FinanceProject FinanceProject finance refers to the long term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of h jthe project sponsors.    

Opportunities to apply project finance strategies in the surface

Projects with Projects with Revenue PotentialRevenue Potential

finance strategies in the surface transportation sector are limited.

Projects with Projects with Indirect Revenue PotentialIndirect Revenue Potential

Non RevenueNon Revenue--Generating ProjectsGenerating Projects

28

Basic Project Finance Project Cost Estimates

CONSTRUCTION FUND

Construction Investment

Period Beginning Draws and Earnings @ Ending

Ending Balance Expenditures 1.00% Balance

01/01/2011 $295,553,818 18,750,000 - 276,803,818

07/01/2011 276,803,818 37,500,000 1,384,019 240,687,837

01/01/2012 240,687,837 56,250,000 1,203,439 185,641,276

07/01/2012 185,641,276 75,000,000 928,206 111,569,482

01/01/2013 111,569,482 56,250,000 557,847 55,877,330

07/01/2013 55,877,330 37,500,000 279,387 18,656,716

01/01/2014 18,656,716 18,750,000 93,284 -

$300,000,000 $4,446,182

29

Basic Project FinanceProject Revenue Assumptions

$50.0

$60.0

$30.0

$40.0

$ M

illion

s

$10.0

$20.0 Toll RevenueNet Revenue

$0.0

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

30

Basic Project Finance Initial Debt Capacity

$50.0

$60.0

Interest

Principal

Net Revenue

$30.0

$40.0

$ M

illio

ns

Net Revenue

$10 0

$20.0

$0.0

$10.0

31

Basic Project FinanceInitial Debt Capacity

SOURCES OF FUNDS

Senior Current Interest Bonds $208,285,000 Investment Earnings 6 935 822Investment Earnings 6,935,822

Total Sources $215,220,822

USES OF FUNDS

Project Costs $300,000,000 Pre-Development Costs 3,000,000 Issuance Costs 5,207,125 , ,Capitalized Interest 37,491,300 Debt Service Reserve Fund 20,828,500 Contingency / (Shortfall) (151,306,103)

32

Total Uses $215,220,822

Basic Project FinanceStrategies for Closing Funding Gaps

• Subordinate All or Portion of O&M Expenses

• Lower Debt Service Coverage and/or Credit ratings

• Extend Maturity of the Debt

• Add Subordinate Debt

• Optimize Revenue (change alignment, toll schedule, value pricing)

• Modify Project Scope (value engineering, phasing)

• Third-Party Credit Enhancement

33

Basic Project FinanceRevised Finance Plan

$60.0 i iti l b d i i S b di t d O&M S b di t D bt

$50.0

initial bond sizing Subordinated O&M Subordinate DebtSenior Deferred Interest Senior Current Interest Toll Revenue

$30.0

$40.0

Milli

ons

$20.0

$ M

$0.0

$10.0

34

Basic Project FinanceRevised Finance Plan

SOURCES OF FUNDS

Senior Current Interest Bonds $272,310,000 Senior CABs 69,956,262 State / Local Investment -Subordinated Debt 50,537,231 Investment Earnings 8,766,830

Total Sources $401,570,323

USES OF FUNDS

Project Costs $300,000,000 Pre-Development Costs 3 000 000Pre Development Costs 3,000,000 Issuance Costs 10,267,988 Capitalized Interest 49,015,800 Debt Service Reserve Fund 39,280,349 Contingency / (Shortfall) 6,186

35

Total Uses $401,570,323

Basic Project FinanceRefinancings and Restructurings

Pocahontas Parkway - 1998 Tax-Exempt 63-20 Financingy p g

$100 000

$120,000

Subordinate Tax-Exempt Debt Service

Senior Tax-Exempt Debt Service

$80,000

$100,000Operating Cash Flow

Original Gross Revenue Projection

$40,000

$60,000

$0

$20,000

2008 2013 2018 2023 2028 2033 2038 2043 2048

36

2008 2013 2018 2023 2028 2033 2038 2043 2048

Basic Project FinanceRefinancings and Restructurings

Pocahontas Parkway 2007 Toll ConcessionPocahontas Parkway - 2007 Toll Concession

$100 000

$120,000

$80,000

$100,000

Affiliate Subordinate Note (ASN)TIFIABank Debt Operating Cash Flow

$40,000

$60,000

$0

$20,000

37

2008 2013 2018 2023 2028 2033 2038 2043 2048

Evolution of the P3 MarketThe Broader Context

10 00

8.00 

9.00 

10.00 

Bond Buyer Municipal Bond Index

10‐Year Treasury Yields

5.00 

6.00 

7.00 

Percen

t

2.00 

3.00 

4.00 

P

‐

1.00 

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TEA‐21 SAFETEA‐LUISTEA

38

Evolution of the P3 Market

1991 1992 1993 1994 1995 1996 1997

Teodoro Moscoso Bridgeeodo o oscoso dge Mid‐Bay Bridge, FL 

San Joaquin Hills Toll Road, CA  Foothill Eastern Toll Road, CAE‐470 Toll Road Segment 1, CO  E‐470 Toll Road Segments 2 &3, CO 

Dulles Greenway Toll Road, VA 

CPTC 91X, CA 

I‐15 Reconconstruction, UT  

JFK Terminal 4, NY 

Atlantic City‐Brigantine Tunnel, NJ y g ,

Hudson‐Bergen Light Rail, NJ 

39

Evolution of the P3 Market1998 1999 2000 2001 2002 2003 2004

Alameda Corridor, CA SH‐130 Segment 1‐4, TX Alameda Corridor, CA  SH 130 Segment 1 4, TX 

Foothill South, CA 

S th C t SC N th t P k CO Southern Connector, SC  Northwest Parkway, CO 

Pocahontas Parkway, VA 

Route 3 North, MA  Tacoma Narrows Bridge, WA 

Cooper River Bridge, SC 

JFK Airtrain, NY SR‐125, CAJFK Airtrain, NY  SR 125, CA 

Las Vegas Monorail, NV  Reno ReTRAC, NV 

Portland Airport Max Rail, OR 

40

Camino Colombia Bypass, TX 

Evolution of the P3 Market2005 2006 2007 2008 2009 2010

Indiana Toll Road, IN (75‐year lease) Dulles Metrorail Project, VA 

Pocahontas Parkway (99‐year lease) I‐595 Manages Lanes, FL  

Northwest Parkway (99‐year lease)

Chicago Skyway, IL (99‐year lease) North Tarrant Express, TX 

Capital Beltway HOT Lanes, VACapital Beltway HOT Lanes, VA 

Port of Miami Tunnel, FL 

SH‐130, Segments 5‐6, TX 

Intercounty Connector, MD 

I‐95 Widening, FL 

IROX I‐75, FL 95 Express Lanes, 

FL 

41

,

REAUTHORIZING THE SURFACE AASHTO National Transportation Leadership Institute

TRANSPORTATIONP PROGRAM

42

Vehicle Miles TraveledF b 2004 t F b 2010 (M i 12 M th T t l)February 2004 to February 2010 (Moving 12 Month Total)

3,050

3,000

les

2,900

2,950

Billion

s of M

i

2,850

2,800

43

Truck, Buses, and Trailer Retail Tax Receipts(1957 2009)(1957‐2009)

4 000

4,500

s

3,000

3,500

4,000

onstan

t Dollar

2,000

2,500

ons of 2008 Co

500

1,000

1,500

Millio

0

500

44

Highway Account Balanceg y

45Source:  Federal Highway Administration

Highway Account of the Highway Trust Fund R i t d O tl Di

$41.915

45

50

Receipts and Outlay Discrepancy

$31.65

10

30

35

40

rs

0

20

25

30

ons

of D

olla

r

-$10.3-10

-5

5

10

15Billio

-150

5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Actual Estimated

46

Negative Annual Cash Flow Highway Account Outlays*Excludes $8.017 billion transfer  from General Fund to Highway Account of HTF  in September  2008.

**Excludes $7 billion transfer  from General Fund to Highway Account of HTF  in July 2009.

Estimation of Reduced Program Spending Beyond 2011Highways Transit

37 0

40.342.2 42.0 42.5 42.8

40

45

g y

37.0

34.7 35.1 35.5

30

35

20.320

25

30

$ billions)

11.5 10.7 11.49.4

11.0 11.5 11.7

10

15

20($

7.1 7.36.9

5

10

47

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Change in National Construction Index1960 20071960 to 2007

48

Purchasing Power Loss of the Hi h PHighway Program

$51.8$55.0

60

$42.0

$

40

50

s

$32.5

30

ions of D

ollars

10

20Billi

0

FY 2003Funding Level

Actual Enactedas of May 2008

FY 2003 Inflatedfor Cost Increases (PPI)

Young‐Oberstar$375 Billion Proposal

49Source: Transportation Weekly

Funding Level as of May 2008 for Cost Increases (PPI) $375 Billion Proposal

Surface TransportationA th i ti A t f 2009Authorization Act of 2009

Funding• Total funding $450 billion; a$500 billion with High Speed RailTotal funding $450 billion; a$500 billion with High Speed Rail• $337.4 billion in Highway investment

o $100 billion for Capital Asset Improvement (NHS, IM, Bridge)o $50 billion for Metropolitan Mobility and Access (MMA)o $50 billion for Metropolitan Mobility and Access (MMA)o $25 billion for Projects of National Significanceo $162.4 billion for other FHWA‐administered programs (e.g. Highway Safety 

Improvement, Surface Transportation, CMAQ, Freight, etc)

• $99.8 billion transito $87.6 billion from HTFo HTF share was 15.2% in SAFETEA‐LU; it is increased to 19.5% in STAAo $12.2 billion from GF

• $50 billion high speed rail corridors• $12.6 billion Motor Carrier Safety

50

Surface TransportationA th i ti A t f 2009Authorization Act of 2009

• Specific authorizations are not included in the bill nor h i f lare the apportionment formulas

• While the top line numbers are in the bill there is no ifi b kd b t d f lspecific breakdown by category and no formulas or 

runs that would show state shares or return on contributionscontributions

• There is no revenue title to be bill yet

51

Hiring Incentives to Restore Employment(HIRE) Act HR 2847(HIRE) Act – HR 2847

• $17.6 billion package• Signed into law on 18 March 2010Signed into law on 18 March 2010• SAFETEA‐LU Extension

o Extends SAFETEA‐LU at pre‐rescission FY 2009 spending level until 31 Dec 2010

o Credits Highway Trust Fund with $19.5 billion in foregone interest payments

o Allows Highway Trust Fund to accrue interestl d f fl b d b h l do Fuel tax credit for exempt fleet to be covered by the General Fund

o Restores the $8.7 billion contract authority rescission contained in SAFETEA‐LU

• Build America Bonds expansion to cover other qualified tax• Build America Bonds expansion to cover other qualified tax credit bonds

52

Current State of Playy

• Obama Administration is currently d t ki th i ti Li t i S iundertaking reauthorization Listening Sessions 

around the country1 D 09 ki k ff i N O lo 1 Dec 09 kickoff in New Orleans

o 25 Jan 10 in Minneapolis with House T&I Chairman James OberstarChairman James Oberstar

o 19 Feb 10 in Los Angeles with Senate EPW Chairman Barbara Boxer

o 5 May 10 in Houston

• USDOT “principles” forthcoming

53

p p g

Current State of PlayCurrent State of Play

• There is great uncertainty right now• There is great uncertainty right nowo Still no solution on paying for a six‐year bill

o Senator Voinovich received promise from Senator Reid too Senator Voinovich received promise from Senator Reid to pass reauthorization by the end of the year

o Senator Boxer promises to mark up the EPW bill by the end f hof the year

o Kerry‐Graham‐Lieberman “Linked Fee”

Earmarks ban in the Houseo Earmarks ban in the House

• Broader variables: unemployment situation and deficit‐spending appetite

54

deficit spending appetite

DISCUSSIONDISCUSSION&

QUESTIONS