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
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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
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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
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,
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