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Infra Insight Blog Law & Policy

Big Changes Proposed for TIFIA

Posted in Financing, Legislation

Moving Ahead for Progress in the 21st Century (MAP-21), the draft reauthorization bill unanimously voted out of the Senate Environment and Public Works Committee, contains major improvements to the TIFIA program that many, including those of us at Nossaman, have been advocating.  These changes, if enacted, will greatly expand availability and eliminate much of the uncertainty over whether a project will be selected.

  • The bill eliminates virtually ALL of the selection criteria, converting availability from a discretionary competitive selection process to a simple objective determination of project eligibility.
  • It adopts a rolling basis for applications and availability.  No more waiting for annual notices of funding availability; it is up to the project sponsor to decide when to apply.
  • The bill gives applicants the right to pay the subsidy from other sources, included federal grant funds, if budget authority runs out.
  • Alternatively, if budget authority runs out, the bill allows an applicant to enter into a master credit agreement to obtain budget authority in a later year when available.
  • The bill increases the size of the TIFIA credit assistance from a maximum of 33 percent to a maximum of 49 percent of eligible project costs.
  • The Senate EPW Committee recommends an annual TIFIA budget authority of $1 billion.

Other features of the bill’s amendments include:

  • Beefed up credit standards, including "an investment grade rating from at least two rating agencies on debt senior to the Federal credit instrument; and a rating from at least 2 rating agencies on the Federal credit instrument."   For small projects (up to $75 million, rural projects, and ITS), only one rating agency rating is required.
  • As a requirement for project eligibility, the applicant must first submit a letter of interest (LOI), followed by an application.  Presumably, the LOI and application requirements will get a lot simpler and quicker with fewer eligibility criteria.
  • The bankruptcy springing lien has an exception for senior debt that is for an agency’s program and is secured by tax revenues or system revenues.
  • 50 percent of unused annual budget authority (if any) can be carried forward; the balance is returned to the states via federal share.
  • Administrative fees for the program are set at 1 percent of the annual budget authority.  At $1 billion of annual budget authority, annual administrative fees will be $10 million, a large increase from the $2.2 million under existing law.

There are a few issues that cause us concern.

  • Project readiness is not a prerequisite for TIFIA eligibility.  Such a requirement seems especially needed given the new first-come, first-served approach to budget authority allocation.
  • Improved and expedited procedures are needed to overcome the inordinate processing delays that characterize the TIFIA program.  We are quite concerned that applications, credit processing and loan documentation will get bogged down, and bureaucracy rather than budget authority will be the new constraint on TIFIA expansion.
  • The exponential increase in TIFIA demand that will occur if this bill comes to fruition has real potential to overwhelm the TIFIA JPO, particularly because applicants can pay in subsidies on top of the $1 billion budget authority.  The bill’s increase in the annual administrative budget to $10 million may not be enough. Consideration should be given to increasing the administrative budget so that the TIFIA JPO can staff up to handle in a timely manner the growth in demand.
  • There is no provision calling on the TIFIA JPO to process LOIs, applications, term sheets and loan documentation during the period it will be rolling out regulations for carrying out the amended program.  It would be quite detrimental to the states if things grind to a halt while USDOT goes through a long procedure to adopt regulations.

There is reason to believe that the House reauthorization bill will contain comparable improvements to this vital federal credit assistance program.

  • Wyatt Kendall

    The MAP-21 TIFIA section also amends the final maturity date of a secured loan to the lesser of 35 years after the date of substantial completion of the project or “if the useful life of the capital asset being financed is of a lesser period, the useful life of the asset.” Because many transit assets, such as buses and train cars, have life cycles under 35 years, will shortening the maturity period lead to less favorable financing terms for such capital assets?