Alternative Funding for the Inland Waterways Trust Fund

Is there a “there” there?

Jorge Romero

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K&L Gates Maritime Group

One of the largest maritime law and policy practices in Washington, D.C.

Represent all major sectors of the maritime industry before Congress, Executive Branch agencies, and in the courts.

Assist clients in complex transactions, drafting legislation and supporting advocacy documents, developing comprehensive strategies to affect public policy, and advocating their interests before federal and state governments.

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Jorge Romero

Background:

General corporate and financing practice

Focus on vessel construction, financing, documentation, and transactions

Clients in the inland waterways, non-profits and associations

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Agenda:

High-level look at these alternative financing options:

Long-term Bonds

Public-Private Partnerships

Other creative options

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Warning! Complexities Ahead

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To simplicity

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Long-term Bonds

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Warning: High Finance Math Ahead

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Background facts:

Resources available:

IWTF is “bankrupt,” “insolvent” – there are no reserves left.

Only money “there” is the future deposits from the fuel tax, estimated at $85 million/year.

With a 50/50 cost share for new construction and rehabilitation, this means $170 million/year.

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Background facts (cont.):

Need:

Best current number for unconstrained need is:

$17 billion over next 20 years.

Money needed to fund as of today:

(a) Unfunded portion of projects under construction +

(b) authorized projects = $7 billion

So the Corps/Users Board Inland Marine Transportation System Investment Strategy Team will come out with a figure between $7 and $17 billion

Let’s say $12 billion

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Two Basic Options:

Direct issuance of federal government obligations

E.g. Treasury bills or bonds

Federally-guaranteed obligation issued by a third party

SBA

Title XI

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How it would work:

Congress Trust Fund

Corps/Bank

Appropriation $$

Fuel Tax $$

Bond Purchasers

Bond Proceeds $$

Periodic Payments $$

Collateral:

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How it would work:

Congress Trust Fund

Corps/Bank

Appropriation $$

Fuel Tax $$

Bond PurchasersBond Proceeds $$

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Advanced Mathematics: at current levels

Yearly payment for 25 years

Amount that can be borrowed at:

5.5% 3.5%

$170 million/year $3 billion $4.8 billion

If we take the stream of funds available today and ask a banker how much we can borrow with that over 25 years, here are some answers:

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Advanced Mathematics: at historic levels

Yearly payment for 25 years

Amount that can be borrowed at:

5.5% 3.5%

$262 million/year $4.7 billion $7.4 billion

If we take the average of the funds expended over the last few years … :

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Advanced Mathematics: at double current levels

If we take double the stream of funds available today … :

Yearly payment for 25 years

Amount that can be borrowed at:

5.5% 3.5%

$340 million/year $6.2 billion $9.7 billion

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Summary Table

Yearly payment for 25 years

Amount that can be borrowed at:

5.5% 3.5%

$170 million/year $3 billion $4.8 billion

$262 million/year $4.7 billion $7.4 billion

$340 million/year $6.2 billion $9.7 billion

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Summary Graph

$0.00

$2,000,000,000.00

$4,000,000,000.00

$6,000,000,000.00

$8,000,000,000.00

$10,000,000,000.00

$12,000,000,000.00

$170million @

5.5%

$170million @

3.5%

$262million @

5.5%

$262million @

3.5%

$340million @

5.5%

$340million @

3.5%

Resources

Nee

d

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Observations:

Bonding authority probably will not supply the total need, but don’t know how short.

Highly sensitive to interest rates. Can’t hock the same thing twice.

If you need more money later, you need to get it Doesn’t make much difference as to how much you

can borrow if you go to 12, 25, 30 or 50 years. In the real world:

You wouldn’t borrow all of the money at once, but in tranches;

You would have transaction costs to consider.

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Policy consideration:

Will Congress give up the annual appropriations ritual?

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Public-Private Partnerships

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Another word of Caution …

Warning! Complexities Ahead

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Another word of Caution …

To simplicity

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Possibilities:

Many flavors of PPPs

Catalogued fairly exhaustively in the IWR’s Water Resources Outlook - Budget Constraints and the Corps Consideration of Public-Private Partnerships: Where Is the Money Going to Come From?, December 2008 (Wilson & Starler)

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Two likely candidates: Option One

Private party gets right to design, build, finance, operate, and maintain one or more locks and dams.

And collect revenue from operations. What revenue?:

Tolls? Sounds like lockage fee. Annual expenditures from IWTF plus appropriations? Is that

bankable?

Plus: In setting revenue level for a lock, private operator and its investors would expect a return on investment, which would be greater than interest on debt.

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Option One, cont.:

Thoughts/questions?

Since operations and maintenance are already covered 100% by appropriations, why turn this over to private entity?

If you take away O&M, what are you really asking the private party to do?

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Two likely candidates: Option Two

Private party gets right to design, build, and finance, but not operate and maintain, one or more locks and dams.

Thoughts/questions:

How do you pay the private party? What revenue stream do you give them?

The same revenue that would pay off the bonds? Why not just write them a check with the bond proceeds?

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Possible Third Option:

Non-profits or co-ops

No profit motive

Revenue still an issue

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Final thought on privatization of infrastructure:

As IWR study points out:

Privatization is not without risk

We have been there before

Government has bailed out bankrupt agencies in the past

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Creative Ideas Department

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Miracle: Loaves and Fishes

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Magic:

Harry Potter and the Inland Waterways Trust Fund?

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Climate Legislation:

House bill prohibits emitting GHG without allowances

Bill sets number of allowances that EPA will issue per year

Bill allocates allowances to certain classes of individuals (electricity consumers, etc.), states and government agencies, and programs (new technologies, etc.)

Emitters of GHG have to buy allowances; generating revenue for allocation recipients

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Climate legislation:

What if the Inland Waterways Trust Fund were be a recipient of allocations?

Inland transportation is clean tech

Supports meeting climate goals

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What Might Climate Allocations Be Worth?

CBO estimates allowances will be worth $15/ton in the first year (2012)

In 2012, the bill provides for 4.6 billion tons of GHG

4,600,000,000 x $15.00 = $69 billion

Estimated to go up to $119.6 billion by 2019

One percent of that would be between $690 million and $1.2 billion per year.

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Questions?

Comments?

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Thanks!