USDOT has issued a notice of funding availability for the Transportation Infrastructure Finance Innovation Act (TIFIA) program. To better allocate resources, USDOT has announced a new selection process, clarified selection criteria, and proposed a new pilot program that would allow borrowers to pay the full subsidy cost associated with TIFIA assistance.[1]
Background
The TIFIA credit assistance program has become a vital part of project delivery for project sponsors seeking to leverage scarce public resources with private investment. The program offers low cost, long term secured loans, loan guarantees, and stand-by lines of credit for large transportation projects which might otherwise be unable to assemble adequate financing. TIFIA can take a subordinate lien in project collateral,[2] accepts deferred repayment and operates as a relatively low cost lender charging interest rates indexed to Treasury rates. The TIFIA program uses contract authority provided by Congress to "subsidize" the cost of making credit assistance available based on a formula which considers a number of project-related parameters, such as risk and source of repayment, lien status, and ratings. Conditions in the credit markets have made TIFIA increasingly popular, and since 2008 the demand for assistance has exceeded the program's budget.
New Selection Process and the FY2010 Deadline
USDOT is putting an end to the "rolling" application model it adopted in 2002 and implementing application deadlines for funding consideration. This will allow staff to apply the newly clarified criteria and narrow the field of applicants prior to submittal to the USDOT Credit Council, which will review the submittals and recommend projects to the Secretary of Transportation for approval. In order to be considered for the FY2010 funding cycle, interested applicants must submit Letters of Interest by 4:30 p.m. EST on December 31, 2009, using the revised form on the TIFIA website. Applicants who have already submitted letters of interest will need to restate them by the December 31 deadline to address the newly clarified selection criteria described below.
Selection Criteria Clarified
The new guidance clarifies USDOT's interpretation of the TIFIA selection criteria, which are described in the TIFIA statute[3] and have been assigned relative weights through regulation.[4] The program is targeted toward projects that are nationally or regionally significant, creditworthy, attractive to private investment, environmentally beneficial, and likely to proceed earlier and require less direct federal aid with TIFIA assistance.
In evaluating projects for national or regional significance,[5] which accounts for 20 percent of the project's overall score,[6] USDOT plans to consider safety, livability, and economic competitiveness. These criteria expand upon the current analysis, which evaluates projects based on "[t]he extent to which the project is nationally or regionally significant, in terms of generating economic benefits, supporting international commerce, or otherwise enhancing the national transportation system."[7] According to the notice:
- Livability means providing transportation options that are linked with housing and commercial development to improve the economic opportunities and quality of life for people in communities across the U.S.;
- Economic Competitiveness means contributing to the economic competitiveness of the U.S. by improving long-term efficiency and reliability in the movement of people and goods; and
- Safety means improving the safety of U.S. transportation facilities and systems and the communities and populations they impact.[8]
As part of its assessment of projects' environmental benefits,[9] which accounts for 20 percent of the total score,[10] USDOT will now consider impacts on sustainability and state of good repair. The guidance explains that:
- Sustainability means improving energy efficiency, reducing dependence on oil, reducing greenhouse gas emissions, and reducing other transportation-related impacts on ecosystems; and
- State of Good Repair means improving the condition of existing transportation facilities and systems, with particular emphasis on projects that minimize lifecycle costs and use environmentally sustainable practices and materials.
The notice does not indicate whether these subcriteria will be given independent weights. The inclusion of these elements may indicate a broader shift underway at USDOT – offering project sponsors incentives to adopt progressive programs in return for TIFIA credit assistance. USDOT first tested similar incentives under the Transportation Investment Generating Economic Recovery (TIGER) Discretionary Grant Program earlier this year. The overwhelming response to the TIGER program[11] has demonstrated project sponsors' willingness to compete for funding according to these standards.
USDOT has indicated that it plans to disregard project creditworthiness and the federal budget allocation cost of assistance in its evaluation of TIFIA letters of interest, as information on those requirements will likely be unavailable at this early stage. In eliminating these criteria the USDOT may place more emphasis on the new requirements described above when determining which projects proceed to the next step in the TIFIA process, which is the submission of a credit application.
Proposed Pilot Program – Allow Eligible Borrowers to Bear Subsidy Cost
Since 2008, applications for assistance have exceeded the available contract authority to pay the subsidy cost for TIFIA assistance.[12] USDOT has been forced to suspend consideration of new applications, and to reserve FY2010 appropriations with the expectation that existing applicants would contribute to the subsidy cost of credit assistance through an upfront fee. USDOT has authority to charge such fees to cover costs associated with providing credit assistance,[13] and has begun to use that authority to make credit assistance available to more borrowers.[14]
Several applicants have indicated a willingness to pay the full cost associated with federal credit assistance, in order to avoid waiting for future appropriations.[15] In response, USDOT is considering a pilot program which would accept applications from borrowers willing and able to cover the entire cost of TIFIA assistance. Applicants would be subject to the newly clarified TIFIA criteria. Depending on the volume of new applicants and nature of the comments received on the pilot program, USDOT may move forward without a supplemental notice.
More Changes to Come?
USDOT has been considering changing the TIFIA program for some time, and has yet to amend the TIFIA regulations to reflect changes enacted in SAFETEA-LU.[16] The future of the program will depend in large part on the final shape of the pending surface transportation authorization bill. USDOT may be waiting to see how TIFIA fares in the authorization process before issuing further guidance.
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The notice is available online at: http://edocket.access.gpo.gov/2009/pdf/E9-28860.pdf
Comments on the proposed pilot program must be submitted by 4:30 p.m. EST on December 31, 2009, and may be submitted online at: http://www.regulations.gov/search/Regs/home.html#docketDetail?R=FHWA_FRDOC_0001
Barney A. Allison is an infrastructure attorney with a special focus on bond issues and innovative financing for public-private partnerships. He can be reached at 213.612.7847 or ballison@nossaman.com. Adam S. Horsley is an associate with Nossaman's Infrastructure Practice Group and can be reached at 202.887.1493 or ahorsley@nossaman.com.
[1] Notice of Funding Availability for Applications for Credit Assistance Under the Transportation Infrastructure Finance and Innovation Act (TIFIA) Program; Clarification of TIFIA Selection Criteria; and Request for Comments on Potential Implementation of Pilot Program To Accept Upfront Payments for the Entire Subsidy Cost of TIFIA Credit Assistance, 74 Fed. Reg. 63,497 (Dec. 3, 2009) available online at http://edocket.access.gpo.gov/2009/pdf/E9-28860.pdf.
[2] TIFIA loans are subject to the so-called "springing lien" which, in the event of a borrower's insolvency, brings the government's interest to parity with other lenders. 23 U.S.C. § 603(b)(6) (2009).
[3] 23 U.S.C. § 602(b) (2009).
[4] 49 CFR § 80.15 (2009).
[5] 23 U.S.C. § 602(b)(2)(A)(i) (2009).
[6] 49 CFR § 80.15(a)(1) (2009).
[7] 23 U.S.C. § 602(b)(2)(A)(i) (2009).
[8] 74 Fed. Reg. at 63,500.
[9] 23 U.S.C. § 602(b)(2)(A)(vii) (2009).
[10] 49 CFR § 80.15(a)(7) (2009).
[12] The subsidy cost represents the cost to the government for making the loan plus the estimated cost associated with risk of nonrepayment. Subsidy costs are heavily influenced by recovery factors (e.g., the repayment pledge and whether the debt is senior or subordinate) and the likelihood of repayment based on the credit rating of the debt and the amount of back-loading.
[13] Under the TIFIA statute, the USDOT may establish fees at a level sufficient to cover all or a portion of its costs of making a secured loan, loan guarantee, or line of credit. 23 U.S.C. §§ 603(b)(7), 603(e) and 604(b)(9) (2009).
[14] 74 Fed. Reg. at 63,500.
[15] 74 Fed. Reg. at 63,500-501.