July 12, 2017
Senate Environment and Public Works Committee: The Use of TIFIA and Innovative Financing in Improving Infrastructure to Enhance Safety, Mobility, and Economic Opportunity
Key Topics & Takeaways
- Transportation Infrastructure Finance and Innovation Act (TIFIA): The main topic of discussion during the hearing was the TIFIA credit assistance program, ways that it could be improved, and how TIFIA has helped local governments build and finance infrastructure projects. There was also a substantial amount of discussion on how to improve TIFIA’s attractiveness as a financing option for small projects, especially in rural areas.
- Other Financing Mechanisms: Numerous Senators discussed the importance of direct federal spending on infrastructure projects, despite the attractiveness of TIFIA (and other programs that leverage private capital) and its ability to finance infrastructure projects. Witnesses were also asked repeatedly by Senators about the need to preserve direct federal spending for infrastructure projects, and in each case the witnesses noted that while TIFIA was an attractive tool, it could not fully replace direct federal spending. There was also a brief discussion about private-activity bonds.
- Anne Mayer, Executive Director, Riverside County Transportation Commission
- Jennifer Aument, Group General Manager, Transurban North America
- Christopher Coes, Vice President for Real Estate Policy and External Affairs, Smart Growth America
In his opening statement, Chairman John Barrasso (R-Wyo.) said that the Transportation Infrastructure Finance and Innovation Act (TIFIA) has mostly supported large projects that help urban areas by increasing the range of financing options available for infrastructure projects. Barrasso strongly supported leveraging public funding for infrastructure to attract as much private capital as possible. Barrasso also called for changes to TIFIA that will increase its attractiveness to smaller projects and rural areas.
In his opening statement, Ranking Member Tom Carper (D-Del.) noted that TIFIA is an important source of low-cost financing for many projects, and said there is bipartisan support for improving the law. Carper also talked about a major Delaware infrastructure project that benefitted from TIFIA. Carper qualified his praise for TIFIA by noting that the program is “not the solution” for all project financing needs, and said that Congress should make changes to TIFIA to encourage more private capital to finance infrastructure.
Anne Mayer, Executive Director, Riverside County Transportation Commission
In her testimony, Mayer described in detail how TIFIA helped Riverside county attract financing for an interstate project. Mayer then pivoted to discuss her concern that the change in administration will impact the approval process for TIFIA (and other) programs. Mayer closed by providing recommendations for Congress for TIFIA, which were: 1) continue to fund the TIFIA program; 2) maintain mode neutrality for TIFIA; 3) continue the rolling application process; 4) maintain a high bar for financial feasibility of TIFIA projects; 5) allow projects to take advantage of the 49 percent project cost allowance, instead of the lower 33 percent allowance; 6) improve the project approval and permitting process; 7) encourage the integration of TIFIA requirements into other approval processes; and 8) streamline the Letter of Interest process.
Jennifer Aument, Group General Manager, Transurban North America
In her testimony, Aument introduced Transurban and its business operations and discussed the company’s flagship project in Virginia – the management of the 495 and 95 Express Lanes. Aument said that Virginia’s return on investment for the Express Lane projects has been substantially higher than other similar projects, and noted the Lanes serve many car and bus trips every day. Aument praised TIFIA for making the project possible, but said that administrative and policy changes are necessary to help TIFIA meet its “full potential.” Aument called for consistent loan terms and conditions across projects, and said that there should be more “certainty and speed” in the approval process. Aument also called on Congress to expand Private-Activity Bonds (PABs) to make brownfield projects eligible for this financing as well.
Christopher Coes, VP for Real Estate Policy and External Affairs, Smart Growth America
In his testimony, Coes discussed the importance of “transit-oriented development” and the benefits that can arise from public transportation infrastructure, such as transit systems. Coes noted that these projects have high upfront costs. Coes also discussed the reduction in overall project threshold cost from $50 million to $10 million, which has improved TIFIA’s viability for smaller projects. Coes said that TIFIA could be improved by the Department of Transportation (DOT) providing policy guidance on transit-oriented development project eligibility for TIFIA, and by reducing the upfront costs for TIFIA applicants. Coes noted specifically that acquiring an investment-grade credit rating on senior TIFIA obligations is an onerous step for small and rural projects. Coes also called for TIFIA to be expanded to include broadband deployment and green infrastructure.
Question and Answer
Transportation Infrastructure Finance and Innovation Act (TIFIA)
Carper noted that TIFIA approximately two-thirds of TIFIA financing goes to highway projects, and asked witnesses how TIFIA could be used to support more multimodal and intermodal projects. Coes recommended that DOT acquire more staff expertise for these projects, noting that the Department has lots of experience reviewing highway transportation projects.
Carper asked witnesses about non-compete clauses in TIFIA agreements and their potential to hamstring new transportation infrastructure development. Mayer and Aument said that non-compete clauses are no longer typical in public-private infrastructure projects, and said that states should be given the flexibility to build new infrastructure as necessary.
Carper asked witnesses if the Build America Bureau should consider performance metrics when awarding TIFIA financing. Coes agreed and argued that all TIFIA projects should be sustainable in the long term.
Carper closed by asking witnesses for their view on the correct level of capitalization for the TIFIA fund. Witnesses declined to endorse a given level, though all encouraged Congress to take steps to encourage the TIFIA pipeline of projects to be as full as possible.
TIFIA’s Viability for Smaller Projects
Barrasso asked witnesses for ideas to help rural areas take advantage of TIFIA’s private capital leveraging capabilities. Aument suggested that rural areas bundle projects together to better attract private capital.
Carper asked the witnesses for their thoughts on how to make TIFIA a more attractive financing option for rural areas. Mayer noted that TIFIA contains a master agreement provision that allows a bundle of small projects to share an application, which could allow for the development of a suite of projects to receive funding simultaneously. Mayer did note that a key challenge to bundling projects is to find dedicated revenue streams to fund the entire package.
Sen. John Boozman (R-Ark.) asked witnesses for ways to improve DOT outreach about TIFIA to localities and smaller government entities. Coes suggested that a DOT-Department of Agriculture (USDA) partnership could help with outreach, as the USDA has a large field staff in rural areas (the same areas that would be the target of any enhanced outreach.
Sen. Ben Cardin (D-Md.) asked witnesses for suggestions on how to improve TIFIA’s attractiveness for local governments and smaller projects. Coes said that it is helpful that the FAST Act lowered the threshold for TIFIA financing to $10 million, but noted that the program still only provides gap financing. Coes said that if TIFIA could provide a larger amount of project cost, it will become more attractive to smaller governments. Coes also noted that local governments and small projects have relatively high upfront costs to acquiring TIFIA financing, such as the cost of acquiring an investment-grade credit rating on senior debt.
Cardin noted that high underwriting costs can be fatal to smaller projects, and asked witnesses to send the Committee their ideas on how to reduce transaction costs for local governments that seek out TIFIA financing.
Sen. Jim Inhofe (R-Okla.) asked witnesses for their thoughts on possible solutions to the problems rural areas face in attracting private capital to their infrastructure projects. Aument said that while individual projects may be difficult to finance, bundling multiple projects together or designing regional infrastructure projects could succeed in attracting private capital.
Sen. Sheldon Whitehouse (D-R.I.) declined to ask a question with his time, but did note in his remarks that smaller entities can be deterred from applying for TIFIA financing due to associated overhead costs.
TIFIA Program Changes
Barrasso asked Mayer to outline the programmatic hurdles that Riverside County encountered when it applied for TIFIA financing. Mayer said that the rolling application process sped up approval of her county’s project, but recommended that Congress require a deadline for DOT response to any Letter of Interest filed as part of a TIFIA application. Mayer noted that if the Letter of Interest process has a clearer timeline, planners and private sponsors would be able to plan projects better.
Other Financing Mechanisms
Boozman asked witnesses if direct federal funding is needed in any infrastructure package. Mayer gave an unequivocal “yes” to this question, noting that many parts of the country rely heavily on federal grants.
Sen. Tammy Duckworth (D-Ill.) criticized President Trump’s FY18 budget for proposing cuts to infrastructure grant programs, and asked the witnesses for how those cuts would impact infrastructure development. Mayer said that a loss of direct federal grant funding would severely handicap the ability of states to meet their infrastructure needs, even those that have dedicated revenue streams for infrastructure projects. Mayer noted that many projects are ineligible for TIFIA, including repair and maintenance projects.
Sen. Roger Wicker (R-Miss.) asked witnesses for their thoughts on the limitations on PAB-eligible projects. Aument said that restrictions on PABs are “handicapping the market” and that PABs should be allowed on brownfield projects in addition to greenfield ones.
Inhofe asked witnesses for their thoughts on permit streamlining. Mayer noted that the speed and efficiency of permitting projects can be critical. Mayer noted that there are several government grant programs that speed the approval process by providing a resource center for applicants that helps them navigate the approval process.
For more information on this hearing, please click here.