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DIKSIT The New SIB Powered By Docstoc
					The New SIB
(under SAFETEA-LU)

       Northern Border Finance Conference
             Chicago, May14-16 2007

               Mr. Prabhat Diksit
             FHWA Resource Center
State alternatives to grants
 States traditionally
  support local highway
  projects through grants:
      Sometimes formula
      More often
       grants for projects.    But credit to local
                                governments (or private
                                sector projects) now
                                provides a creative
                                alternative to grants
State Infrastructure Bank (Sib)
 Sibs are revolving funds created by a state
  using Federal transportation dollars

 The revolving fund is used to provide credit
  assistance (loans, loan guarantees, lines of credit
  etc) for local transportation projects:
      The funds are revolving in that repaid loans go
       back into the fund for further lending.
   State Infrastructure Banks:
   How they work!
                                         2 Repayments

Federal Aid                               1 Initial
                                            Loans          Initial
                    Grants                                Projects
                                          3 Second
                                   SIB       Round
                                             Loans      Second Round
State funds

Products Available:
  •Direct Loans                          4 Repayments

  •Loan Guarantees
  •Interest Rate Buydowns
SIB Mechanics
 A state would take Federal monies (say $40
  m) from any of an allowed set of funding
  categories (NHS, STP,IM etc)
      provide the local match ($10 m) and thus
      “capitalize” the SIB.
 The funds can then be used for any Title 23
  project--- even years down the line
     The funds are not limited to the original
      funding categories drawn from.
 Obviously, a project owner requesting
  borrowing needs a means of repaying that
  borrowing, i.e. a revenue stream dedicated to
 Typical project revenue streams
     Tolls on road and bridge projects
     Pledges of taxes by local governments
          Sales taxes, property taxes, motel taxes,
           severance taxes etc.
Why should a state provide credit
rather than grants for transportation?
 Priorities differ: aid to projects of not high enough
  priority for grant assistance. (Second tier projects)
 Allow local govts. to accelerate projects slated for
  grants in later years of a STIP.
 Provide “gap” funding or initial “seed” funding for
  difficult to finance projects
      & toll projects are always “difficult”
 Assistance, short of grants, to private sector projects,
    Truck stop electrification
    Truck parking
State’s reasons to give credit
 State encouragement to local govts. to
  accelerate project on strategic state agenda
      Local connectors to state highways that
       enhance tourism or security
 Strategic state effort to encourage private
  investment in transportation.
 The option of a credit facility allows a state
  many alternative ways of supporting
  transportation besides straightforward grants.
Local govt. reasons for requesting
 Advance a project not high on state agenda.
 Boost economic development via transportation
  project even if it means borrowing costs.
 Leverage borrowed funds to enable public private
     For example, a state loan may be the only way of
   starting a toll project important to local mobility or to
     economic development.
    An air quality non-attainment area might want to
     encourage private sector projects, such as truck stop
     idling projects that improve emissions.
Federal Transportation Sibs since 1995
 Federal-Aid Highway (and Transit) dollars
  have been allowed for the capitalization of
  Sibs since the NHS Act of 1995.
 A new Sib pilot with new rules was allowed
  with TEA 21 in 1998.
 SAFETEA-LU has once again created a new
  Sib program– with its own governing
(Highway Account)
 Program once again opened to all states and most
 10% of major funding categories can be used to
  capitalize Sibs:
      NHS, STP, Bridge, IM, & Equity Bonus. (Highway
      Title 49, Sec 5307, 5309, 5311 (Transit account)
 All rounds of lending have to be for either Title 23, &
  Title 49 eligible projects, or for surface transportation
  projects specifically approved by the Secretary.
Other Major Provisions
 There is a state match requirement of 25% of
  Federal capitalization monies.
 Separate transit and highway accounts have
  to be created.
 Maximum terms & interest rates are set in
     Maximum terms of 30 years. Payments to
      begin no later than 5 years after completion.
     Interest rate no higher than market.
Additional provisions
 No grants allowed.
 Investment income has to be credited to
  revolving fund.
 Annual reports to Secretary required.
 2% limit on fraction of funds used for
 Guidelines on investment of Sib funds
     Federal notes, bank deposits etc.
Important point!
 Projects receiving Federal assistance, even
  indirectly via credit assistance, still have to
  undergo due reviews, and are subject to
  Federal requirements regarding NEPA,
  Davis-Bacon, Buy-America etc
 With the “new” SAFETEA-LU sibs these
  reviews apply to all rounds of lending i.e.
  even to repaid loans lent out again.
Mechanics of Authorization
 A cooperative agreement, or an amendment
 to an existing cooperative agreement ,
 between a state wishing to create a Sib and
 the Secretary is necessary.
Sib Activity
 Some 32 states have created Sibs.
      Over 520 loan agreements
      $6 b+ in project lending.
 But it is fair to say only a few states have
  used Sibs actively.
      One state (So. Carolina) has disbursed half
       the dollar value of total loans
      Six states account for 91% of dollar volume of
       loan disbursements.
Approaches to Sib lending:
       Boost economic development!
 Price Corridor, Chandler, AZ
     Acceleration of 2.7 miles of Maricopa Freeway
      important to Chandler economic development.
     $26 m short term loan from Sib. Chandler &
      private developer together pay interest on
          Thus, a public private partnership enabled by
           Sib loan.
Fund HOT lanes/Express lanes
 HOT/ Express lanes will become a popular
  answer to the urban congestion problem.
     They can be publicly or privately funded,
     But may need the initial funding support that a
      “patient” Sib loan may supply.
 Lee Roy Selmon Reversible Express Lanes
  in Tampa: $290m project seeded by $35m
  Sib loan @ 3.5% and subordinated to senior
  debt. Project would have been difficult to get off of
  ground without Sib loan.
Structure multimodal deal:
 Sib money ideal for multimodal projects:
   Once in Sib, Fed-aid funds loose “color” of
    origin and can be flexed to transit, or freight, or
    other intermodal projects.
 Harrisburg Transportation Center
   $2.9 m rehab funded by $1.4m Sib loan &
    funds from PenDOT, Amtrak, Pa Economic
    Development, Pa Historical Commission.
Freight Finance
 Intermodal freight projects, including private
  sector ones, have been financed with Sib
      Stark County intermodal Facility, OH
           Transfer yard where truck trailers & containers
            are loaded onto railcars.
           $32 m project-- $7 m Sib loan; $25m private
      Wellsville intermodal facility, OH
           A $5.2 m local port authority project financed by a
            3% $2.1 m short term Sib construction loan.
Funding debt service reserve
 Puerto Rico used $15 m     The lifting of this requirement
  from SIB to provide the     of a years payments as debt
  debt service reserve on     service reserve, allows for a
  a $75m revenue bond         smaller bond issuance; and
  issuance.                   permits a slightly lower rate
                              on bonds.
 Missouri’s Sib provided
                             The FTA recently began a
  $1.2 m loan to              pilot program to allow up to
  Springfield for debt        ten recipients the use of
  service reserve on a        5307 grant money for the
  $33 m revenue bond          funding of debt service
  issuance.                   reserves.
Use Sib to encourage investments in
strategic assets.
 Maine uses its Sib to encourage investments
  in state collector roads
     Qualified loans are for ten year terms and are
      interest free. A local match of 25% is required.
 Other states look to Sib loans to enhance
  local roadway access to state tourist spots.
 Sibs can be used to lend to CMAQ projects,
  such as diesel engine retrofits & truck stop
  idle reduction– an approach encouraged by
  the EPA.
Boosting Sib Power: Revenues enhance!
 A dedicated revenue base ( vs occasional
  additions to Sib capital ) enhances Sib
 The stability afforded by dedicated funds,
  leads to a mature program that can be an
  important part of transportation funding in the
     So. Carolina with truck registration fees and a
      ¼ c gas tax dedicated to the Sib has the
      largest volume of Sib lending in the country.
Bonding Multiplies!
 Issuing a bond can greatly expand monies
  available for disbursement:
     Example: $50 m annual revenue stream
      supports a $700-800 m bond at 4%, 20 yrs.
     Four state SIBs have issued bonds:
          So. Carolina($1.2 b).
          MN, FL,OH
          10 states have legislative authorization to do so.
     Kansas has created its own state revolving
      fund for transportation, without any Federal
      money-- thus avoiding Federal requirements.
Approaches to bonding
 1. South Carolina            3. Next Level: Fl & OH
  issued revenue bonds          have issued bonds
  against annual gas            against repayment
  taxes, registration fees.     streams from previously
 2. MN against block SIB       issued loans. OH uses
  capitalizations from          repayment stream
  state and Federal funds       monies to issue bonds
  ($58 m cap. vs. $110 m        on demand by local
  revenue bond issuance)        borrowers.
                                    This can be done with an
                                     established and mature
                                     program, but requires
                                     skilful management.
PPPs & Sibs
 With public private partnerships emerging
  strongly as an answer to transportation
     Sibs can be used to provide “patient capital”
      for difficult to finance PPP projects such as
          Additional tolled lanes down median
          Developer built interchanges
          Intermodal freight transfer yards
          Inland ports
Other forms of credit assistance !
 Four excellent financial instruments not
  widely used:
     Lines of credit/letters of credit
     Loan guarantees
     Bond insurance
     Interest rate buy-downs
     Commercial type loan programs managed by
      private banks.
 If maximum leveraging of Federal/state funds
  is the goal then these instruments are the
  way to go.
In conclusion,
 The new SAFETEA-LU bill provides a great
  opportunity for all states and territories to use
  Fed-Aid funds to establish Sibs.
 Sibs provide a creative and underexploited
  alternative to grant assistance for local
  transportation projects.
For additional info:
 The FHWA Sib website
 The web site

 Prabhat A Diksit
 Innovative Finance Specialist
  FHWA Resource Center

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