Infra Insight Blog : written by Nossaman LLP Infrastructure attorneys, covers infrastructure project delivery, including Public-Private Partnerships, Operations & Management Agreements, policy, and news.

USDOT Announces $1.5 Billion in TIGER Grants – $60M in TIFIA Allocations

On February 17, the one year anniversary of the landmark American Recovery and Reinvestment Act, USDOT announced the final list of TIGER grant recipients. Grants range in size from $3.15M for a roadway rehabilitation/reconstruction in Burlington, VT to a $105M grant for construction of two new intermodal facilities in Memphis, TN and Birmingham, AL to support freight rail service from the Gulf Coast to the Mid-Atlantic.  

When combined with state and private funds, the TIGER funds will support approximately $4 billion in transportation investment, according to AASHTO, which estimates that States have already started or completed 12,250 recovery projects worth $26.4 billion.  

Shortly after releasing the final list of grantees, USDOT released a statement outlining key areas for investment, which included:

• Freight Rail: 11 national freight projects to help get freight off America’s highways and onto rail.

• Road and Bridge Repair: 13 highway infrastructure projects to make critical repairs to roads and bridges that are in dire condition.

• Community Livability: 22 livability projects aimed at giving Americans more choices about how they travel and improving access to economic and housing opportunities in their communities.

These investments may be signaling a shift in federal policy, and build upon the HUD-EPA-DOT partnership to promote livability and sustainability which the Obama Administration announced last June. Each project was evaluated for its ability to help achieve the following goals:

• A state of good repair for our existing transportation facilities;
• Enhanced economic competitiveness;
• Safer streets and communities;
• Environmental sustainability; and
• Enhanced community livability.

The Administration seems to be applying these principles to other discretionary programs as well, notably the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which received $60M in new funding under the TIGER grant program, nearly half of the $122M annual apportionment it had been receiving under SAFETEA-LU. 

Five grantees will be eligible for the TIGER TIFIA Payment program, which allows grantees to pay the subsidy and administrative costs of the TIFIA credit assistance program using TIGER grant funds. 

The TIFIA TIGER payments will be leveraged with state and other funds to support several larger projects. The largest of these grants – $20M allocated to the North Texas Toll Authority for improvements to a high-growth corridor near Dallas-Ft. Worth – could support a federal loan of approximately $300-$400M. 

The TIGER TIFIA allocation fell short of the statutory cap, which would have allowed USDOT to apply up to $200M of the TIGER funds to federal credit assistance. In the past year, competition for TIFIA funds has intensified and USDOT has reinstated the competitive application process it abandoned in 2002. 

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USDOT has published new program guidance for the TIFIA Program which clarifies project selection criteria and processes. The new guidance is the product of long deliberation at USDOT, which withdrew an earlier proposal last spring. [See USDOT Withdraws Proposed Changes to the TIFIA Program.]

The notice:

• Announces a change in TIFIA selection criteria and processes going forward – rather than the current first come, first served basis for project submission, the new process would pool all letters of interest and apply weighting criteria to choose the “best” projects.

• Requests comments on a potential pilot program that would allow the borrower to pay the government’s subsidy cost for the project.

• Announces funding availability for 2010 (beyond what has been reserved for projects already pending approval).

New selection criteria would weigh projects according to projected impacts on safety, livability, sustainability, economic competitiveness and state of good repair. The new process will implement application deadlines to allow staff time to evaluate projects according to the clarified criteria, prior to submission to the Credit Council for final selection.  For consideration in the FY 2010 funding cycle, Letters of Interest must be submitted by December 31, 2009, using the revised form on the TIFIA website. 

The proposed pilot program could greatly expand the reach of the TIFIA program.   By allowing borrowers the option to pay the full subsidy cost of TIFIA assistance, USDOT hopes to extend credit to qualified projects that would otherwise be denied assistance solely due to funding constraints. Comments regarding the potential pilot program must be submitted by December 31, 2009.

Nossaman will provide a detailed analysis of the notice, which will be available via E-Alert or on the firm’s website.  

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The Obama Administration recently outlined its proposal for enhanced federal safety oversight of subways, light-rail and municipal bus systems. USDOT Secretary Ray LaHood said, “Now, would we prefer that states regulate their own systems? You bet. But some states simply lack the resources to do that. And, in a pinch, some state will cut safety items from their budgets. For transit passengers those cuts are too dear.”     

The proposed “Public Transportation Safety Program Act of 2009” would authorize the Secretary, through the Federal Transit Administration (FTA), to set and enforce minimum federal transit safety standards and ensure that transit safety efforts grow in tandem with increased ridership.

USDOT is currently prohibited from establishing federal transit safety standards, and instead relies on 27 State Safety Oversight Agencies (SSAs) to monitor transit safety as provided in 49 CFR Part 659.   Following several transit incidents earlier this year, FTA Administrator Peter Rogoff announced the Administration’s intent to enhance federal oversight.  [See “FTA Considering New Safety Oversight for Rail Transit.”]  Funding, independence, and enforcement powers are critical concerns for SSAs, which average less than one staff person per transit agency and in some cases rely on transit revenues from the systems they oversee.  

Under the proposed program, FTA would be authorized to promulgate minimum national standards for rail transit safety, applicable to all fixed rail systems not currently under Federal Railroad Administration jurisdiction. (The legislation would also authorize bus safety regulatory authority but DOT expects its initial focus to be on rail transit safety.)

States could choose to continue transit safety oversight on behalf of FTA, but only when FTA finds that the SSA has:  

•          an adequate number of fully-trained staff to enforce federal regulations;
•          been granted sufficient authority by its governor and state legislature to compel compliance by the transit systems it oversees; and
•          sufficient financial independence from any transit systems under its purview. 

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Senators Boxer and Inhofe are preparing to hotline a six-month extension of the federal surface transportation programs, which would provide funding at gross FY2009 levels, with an additional $8.7 billion in contract authority to replace the funds rescinded on September 30.  

The bill would also extend funding for projects of national and regional significance (SAFETEA-LU 1301) and national corridor infrastructure (SAFETEA-LU 1302) according to 2009 receipts. House Transportation and Infrastructure chairman Jim Oberstar’s 3-month extension, which recently passed in the House, would allow USDOT to distribute the money as discretionary grants, and did not address the September rescission of contract authority. (See Transportation Reauthorization: House T&I Committee's 3-Month Extension Fails to Address $8.7 Billion Rescission).

“Hotlining” involves notifying all 100 Senate offices of the bill and checking to see if they have any objection to the legislation being considered and passed by unanimous consent at the close of the day’s business. Boxer and Inhofe hope to hotline the bill today Monday, October 26, if Oberstar can be convinced to accept the new legislation without amendment. 

The six month extension will not require an infusion from the general fund into the Highway Trust Fund, which FHWA expects to remain solvent through the first eight months of FY2010.   The bill would provide a total of $24.6 billion in highway formula contract authority.

Senator Voinovich, who had held back the previous 18-month extension bill on the grounds that it was too long, is trying to persuade Oberstar to accept the Senate’s offer as states begin to shut off contract bidding for lack of contract authority. 

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California will soon have a new authority that can authorize California transportation agencies to toll transportation facilities, eliminating the need for legislative approval for each tolling project. 

AB 798, a bill sponsored by state treasurer Bill Lockyer and recently signed by Governor Schwarzenegger, creates a new state level agency, the California Transportation Finance Authority, with the limited purpose of issuing revenue bonds for new capacity or improvements to the “state transportation system” at the request of a public sector “project sponsor”. Project sponsors include the state department of transportation (Caltrans) as well as regional or county transportation agencies. Eligible projects include a wide range of transportation improvements, including highways, streets, rail bus or related facilities owned and operated by Caltrans or other project sponsors. The Authority is governed by a seven member board chaired by the State Treasurer, and includes local agency representatives appointed by the State Legislature.

In addition to establishing a statewide “conduit” revenue bond issuer, the new law makes further advances in the use of pricing to pay for needed transportation improvements. 

With passage of AB 798, highway projects that meet the normal planning and environmental review requirements would be eligible for tolling if they meet the requirements for financing through the new Authority, even if they are financed by other means. 

The only political approval that would be required for these new toll projects would be a majority vote by the board of the project sponsor authorizing the imposition of tolling, OR majority approval of the voters in its jurisdiction. 

AB 798 has been described by Treasurer Lockyer as promoting “public-public partnerships” vs the “public private partnerships” for transportation projects approved earlier this year, thus giving Caltrans and local transportation agencies another option to consider.

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California is now ready to assess P3 candidate projects. At its October 14^th meeting, the California Transportation Commission approved policy guidance addressing the Commission’s role in selecting proposed P3 projects. The CTC developed the guidelines to assist Caltrans and regional transportation agencies (RTAs) as they move to develop P3 transportation projects, taking advantage of the new authority granted to them under Senate Bill X2 4, enacted in February of this year.

The enabling legislation requires the CTC to select projects nominated by Caltrans or an RTA seeking to use the P3 model. The CTC policy guidance describes the selection process, including the project report and information required to be submitted to the CTC, the CTC’s criteria for evaluating projects, and the timing and scope of the CTC’s role. 

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With the delay of the federal transportation re-authorization and federal transportation funding in limbo, state transportation agencies across the nation are trying to cope any way they can. In California this week, 19 “self help” local transportation financing agencies - that collectively generate more than $4 billion a year for transportation - drew a large crowd of transportation public agency officials, elected officials, contractors and consultants to the 20^th Annual Focus on the Future Conference in Los Angeles to explore their options. Conference speakers discussed current developments in transportation funding, environmental compliance and project delivery. The news on project delivery and innovation was positive, the environmental compliance news mixed, and the funding news pretty discouraging.

Interspersed with the grim chronicling of the current state and federal funding landscapes, the conference highlighted some bright spots, including federal ARRA funds, Measure R funding in Los Angeles, and innovative project delivery, PPPs and congestion pricing.

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Included in New Jersey’s Economic Stimulus Act of 2009  are provisions to allow the use of PPPs to design, build, finance, operate and maintain higher education facilities.  Is this the start of a trend for developing social infrastructure in the US?

Social infrastructure includes housing, educational, recreational and law and order facilities that support the community's need for social interaction.  As reflected by several projects in Canada, this is not a new concept for North America.  Along with the recent use of a PPP for development of the Long Beach Courthouse, New Jersey’s authorization of PPPs for higher education projects may indicate that the US market is warming to the idea as well.

Under the  new law, a State or county college may enter into a PPP that permits the private entity to assume full financial and administrative responsibility for the on-campus construction, reconstruction, repair, alteration, improvement or extension of a building, structure or facility of the institution.  The project must be financed in whole by the private entity, and the State or institution of higher education retains full ownership of the land upon which the project is completed.

Proposals for higher education PPP’s must be submitted to the New Jersey Economic Development Authority within 19 months of the law’s July 2009 enactment for review and approval.  In order to be considered, proposals must include, at a minimum:         

• A public-private partnership agreement between the State or county college and the private developer; 
• A full description of the project;
• The estimated costs and financial documentation for the project (including a long-range maintenance plan);
• A timetable for completion of the project extending no more than five years after consideration and approval; and
• Any other requirements that the Economic Development Authority deems appropriate or necessary.

With budgets stretched to the limit across the country, we’ll be watching to see if other states look to PPPs  to develop much needed social infrastructure.

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Infrastructure Investor, a trade publication, examined how the proposed extensions to the transportation authorization could pull money from states through rescission. Monday’s article, “US states face $9bn in transportation funding cuts,” discusses the looming rescission of budget authority required by SAFETEA-LU, as well as the proposed extensions of program authority moving forward in the Senate. The article extensively quotes Ed Kussy, former Federal Highway Administration Deputy Chief Counsel, and current Nossaman partner. Excerpts from the article follow.

…the rescission was worked into the bill as a way to get the bill to “score”, or cost less. The bill’s sponsor, Republican Alaska Representative Don Young, wanted a higher score, while the Bush administration wanted a lower score, Kussy recalls.

By requesting that $8.7 billion in unspent contract authority be given back, the rescission allowed the bill to score lower and get the president’s approval. “So both sides got what they wanted. Well, now it’s come time to pay the piper,” Kussy said.

The rescission would not take money away from projects they’ve already contracted out, Kussy explains, but it would crimp their ability to obligate further projects.

Kussy said the extensions do not address the rescission, which he believes was meant as an “inducement to make Congress pass the next [transportation reauthorisation] bill on time”.

The full article is available online at:

http://www.infrastructureinvestor.com/Article.aspx?aID=0&article=46113

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The House has passed a new bill (H.R. 3617) which extends federal highway and transit programs set to lapse at the end of September, when SAFETEA-LU expires, through the end of the calendar year. 

Yesterday, House Transportation and Infrastructure Chairman Jim Oberstar introduced the bill under an expedited process which waives committee approval and prevents amendment.  The bill does not address the $8.7 billion rescission required under SAFETEA-LU, which will force FHWA to cancel program funding apportioned under SAFETEA-LU (as amended by the EISA) on September 30.   

The rescission is a vital concern for States, which have relied on transportation projects to prop up soft economies and would face devastating losses if the rescission were enforced. AASHTO has warned, for example, that the rescission would cost Missouri $202 million in contract authority and disproportionately impact local bridges and metropolitan planning organizations.  Colorado would lose $115 million in contract authority.  Michigan's share of the rescission is $263 million; approximately a quarter of what that state received for highway and bridge funding through the recovery act.

Rescissions have been used in all of the recent transportation authorization bills, and are meant to force Congress to enact the next round of authorization. The problem with repealing the rescission is that the extra 8.7 billion cost would be attributed to the extension bill. Oberstar’s spokesman said a repeal of the rescission was excluded from the measure because budgetary scoring rules would require an offset to pay for the repeal through higher taxes or reduced spending elsewhere.

The bill now heads to the Senate, where it will compete with the Senate’s 18-month extension proposal.  The Senate Environment and Public Works committee has approved a different bill (S. 1498) to extend funding until March 2011, which would allow the stimulus transportation funding programs to run their course and delay the funding debate until after the 2010 election cycle has passed. The extension would provide an estimated 50% increase in current funding.

The major obstacle facing any transportation authorization bill is lack of funding. Raising taxes in the wake of the recession may prove difficult politically, though business groups, including the U.S. Chamber of Commerce and a number of blue ribbon panels – including the National Surface Transportation Infrastructure Commission and the National Surface Transportation Policy and Revenue Commission have all advocated increasing the gas tax. 

Congress is clearly motivated to avert an October 1 grinding halt to federal transportation funding, so it is likely that the Senate will follow the House’s lead in expediting review of these bills.  The Senate Finance committee has reported Chairman Max Baucus’ bill (S. 1474) would provide $27 billion in revenue to pay for the 18 month extension, and Senators Barbara Boxer, James Inhofe, and Christopher Bond have pledged that the rescission will be repealed before September 30.

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In addition to the recent passage of comprehensive P3 legislation in Arizona and California, the newly created Massachusetts Department of Transportation (MassDOT) has also been authorized to utilize public private partnerships for transportation projects. Provisions for design-build-operate-maintain (DBOM) and design-build-finance-operate-maintain (DBFOM) procurements are included in Senate Bill 2087, commonly known as the "Transportation Reform Act," under which MassDOT was formed. Under the Act, P3’s may be used for a new or existing highway, road, bridge, tunnel ferry, airport, parking facility, seaport, rail facility or other transportation facilities.

Massachusetts has opted to take markedly different approaches to funding DBOM and DBFOM projects. Payments under DBOM contracts must come in whole or in part from funds appropriated prior to award of the contract or must be secured by tolls or other user charges. In contrast, for DBFOM projects, no public funds may be appropriated to pay for the services provided by the contractor.  These restrictions could prove to be a significant hurdle to financing some projects.

Another notable feature of MassDOT’s new P3 program is the establishment of a P3 Infrastructure Oversight Commission which will comment on and approve all requests for proposals (RFPs) for DBOM or DBFOM services. The seven member commission will be composed of experts with experience in the fields of transportation law, public policy, public finance, management consulting, transportation or organizational change. At least one of the commission members will be a representative from the Massachusetts Organization of State Engineers and Sciences.

The P3 portion of the Transportation Reform Act also includes provisions for:

• Asset sales and leases
• Procurement method and evaluation factors
• Stipends
• Funding
• Confidentiality
• Contents of the concession agreement
• Creation of a public-private partnership oversight commission.

Click here to view the entire Tranportation Reform Act.

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Arizona has passed comprehensive P3 legislation on the heels of the passage of similar legislation in California.  Last month, Governor Jan Brewer signed House Bill 2396 which both updates Arizona’s existing toll road development and operations laws and gives the Arizona Department of Transportation (ADOT) broad authority to develop and operate a range of transportation projects through a variety of delivery methods. 

Under House Bill 2396  ADOT is authorized to use virtually  any innovative delivery method, including P3s.  Facilities eligible in the bill include: new or upgraded highways, rail, bus rapid transit, ferries, and intermodal systems.  ADOT may also grant P3 authority to other governmental agencies for specific projects.  The new law provides for both solicited and unsolicited procurements of P3 projects and authorizes  private parties to collect user fees or tolls.  Check out Toll Road News’ initial analysis of potential P3 projects in Arizona.

Arizona’s P3 law, generally considered very P3-friendly, includes several restrictions.  Toll increases allowed under a P3 agreement must either be based on a formula or subject to contract provisions regulating the private partner’s return on investment.  Additionally, concession or other P3 agreement terms are limited to 50 years, subject to extensions.  Finally, a novel provision in the law allows drivers paying tolls to apply for a refund or credit of motor fuel taxes paid by that driver while operating a vehicle on the tolled facility, stay tuned to see how ADOT works out the details for implementing such a credit or refund. 

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California is serious about using its new legislative authority to deliver some of the state’s much-needed transportation projects through public-private partnerships (P3s). On August 12, 2009, the California Transportation Commission issued draft guidelines addressing the Commission’s role in approving the P3 delivery method for specific projects.

The draft guidelines follow the California legislature’s momentous enactment of Senate Bill 4, referred to as SBX2 4.  That bill authorizes Caltrans and regional transportation agencies to enter into P3s for transportation projects.  Prior to commencing the procurement of a proposed P3 project, Caltrans or a regional transportation agency must first nominate the project and receive Commission approval.  The draft policy guidance issued by the Commission discusses the process for obtaining the requisite project approvals from the Commission. 

The guidelines are still in draft form and will be considered by the Commission at a meeting this fall. While the guidelines may be revised prior to becoming final, interested agencies and P3 industry participants will want to keep an eye on the provisions related to the scope of the Commission’s approval, timing and mandated components of the reports required to be submitted to the Commission as well as the impact these policies will have on the timing and structure of a P3 procurement.

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A recent survey conducted by KPMG International confirms what many in the infrastructure industry already knew: current infrastructure investment is insufficient to support economic growth and politics frequently influences infrastructure development in the United States.  In this global survey, KPMG surveyed 455 infrastructure executives, including 118 from the United States.

While much of the recent industry press has focused on the lack of available financing as the primary challenge to delivering infrastructure, a vast majority of the respondents indicated that governmental effectiveness and current economic conditions are bigger hurdles than available financing.  The respondents expressed specific concerns over what they viewed as an overly politicized process, changing public policy, and excessive government bureaucracy.  When asked how governmental agencies could enhance their effectiveness in delivering infrastructure, respondents suggested making infrastructure delivery less influenced by political considerations, increasing transparency in infrastructure spending, and expanding the use of public-private partnerships (PPPs). 

Recent examples of PPP projects played out in the political arena include the SH 121 project in Texas and the proposed long-term leases of the Pennsylvania Turnpike and Alligator Alley.  California, which had pioneered PPPs in the early 1990s, only recently overcame objections from various political stakeholders in the intervening years.  We are hopeful that California’s new legislation authorizing design-build and PPPs for Caltrans and regional transportation authorities is a step toward improved transportation infrastructure delivery.  Given the current administration’s focus on infrastructure, Congress and the administration may now act to address the long-term needs for a stable means of funding infrastructure development and maintenance, without the political roadblocks.

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