FAST Act Reported Drawing Mixed Reviews for Impact on Public-Private Ventures

AASHTO Journal, 8 January 2016

The newly minted surface transportation law sends mixed signals, industry officials told Bond Buyer, on what it means for public-private partnerships.

That law, known as the FAST Act, on one hand locks in five years of highway, transit and rail funding authorizations with modest increases, and formalizes a new office within the U.S. Department of Transportation to National Surface Transportation and Innovative Finance Bureau that will administer the department’s TIFIA loans and a new discretionary freight funding program.

fastact.jpgBut some P3 expert worry that a 70 percent FAST Act cut in federal funding of TIFIA will downshift that program from an overly large lending pool to one that could crimp P3 project finance in coming years.

The federal TIFIA funding covers the program’s “risk premium” subsidy against the possibility of default, and allows the USDOT to issue much larger long-term, low-interest loans to projects that show a reliable future revenue stream to repay the federal credit.

Under the FAST Act, TIFIA funding dropped from $1 billion in 2015 to $275 million this year and next. The loan support will rise moderately to $285 million in 2018 and $300 million for 2019 and 2020.

Former Florida DOT Secretary Ananth Prasad of HNTB told Bond Buyer that the law reduced TIFIA backing “to the point where it is now borderline adequate. Loans and lines of credit provided by TIFIA have been instrumental in financing many of the large and complex P3 projects over the past 10 years, and the supply is going to be tighter.”

Doug Koelemay, director of Virginia’s Office of Public-Private Partnerships, said P3 projects probably won’t feel pinched from the TIFIA reduction in the first two years or so of FAST, said but it could slow down the sector in 2019 and 2020. And it could hamper development of new P3s and slow some that are now in the planning stages, Koelemay added.

“It looks like it doesn’t hamstring us for the first few years, but that’s because there are some projects already in the pipeline for 2016 and 2017,” he said. “We might even see some projects being accelerated in the next two to three years as they compete for the limited TIFIA assistance that is available.”

The story noted that P3 pros like that the FAST Act allows TIFIA loans to cover smaller projects than in the past, and expands its range to include transit-oriented development as well as the direct transportation infrastructure.

Separately, a staff analysis of the FAST Act by the American Association of State Highway and Transportation Officials notes that the new law provides additional flexibility in “buying down” the TIFIA subsidy and administrative costs. States can apply their funds under the National Highway Performance Program, the Surface Transportation Block Grant Program, and the Nationally Significant Freight and Highway Projects grants to cover the credit subsidy of a TIFIA-supported project should they wish to do so.

And Bond Buyer reported that some experts, including former USDOT Secretary James Burnley, think the lower TIFIA credit subsidy levels will be sufficient to meet the financing demand for qualifying P3 projects.

“The Transportation Department has struggled to use the TIFIA capacity that has been available,” said Burnley. “The whole approach of the program is a good one but it has not delivered what supporters had hoped would be delivered.”

Jeff Davis, a senior fellow at the Eno Center for Transportation, also said the prior $1 billion annual TIFIA program appeared to be “far in excess of DOT’s ability to process TIFIA applications, and quite possibly was more subsidy cash than needed to fund the entirety of all ready-to-go, credit-worthy projects that met the statutory criteria.”

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