The National Journal’s Transportation Blog asks if there are any benefits from Congress’ recent modifications to the Transportation Infrastructure Finance and Innovation Act (TIFIA) program?
Various smart growth and transit groups are upset about the changes Congress made to the federal TIFIA program, in particular, changing the criteria for TIFIA loans from a laundry list of factors (including livability and sustainability) to primarily financial feasibility. But these changes restore TIFIA to what it was originally intended to be-not an all-purpose transportation loan program but a way to leverage limited federal dollars to support big-ticket infrastructure improvements.
The large increase in TIFIA’s budget (from $122 million per year to $750 million next year and $1 billion the following year) is a response to demand from state Departments of Transportation (DOTs) greatly exceeding the program’s capacity in recent years. And the streamlined criteria will make USDOT’s decisions about which projects to fund more straightforward and less subject to politicization based on inherently subjective factors introduced by the Obama administration that Congress has now deleted.
I had to laugh at the suggestion by Tri-State Transportation Campaign’s Steven Higashide that the reformed TIFIA program will likely fund “roads to nowhere.” Most state DOTs these days are so strapped for funding that they are hardly building any new roads. And the ones that they hope to build with TIFIA assistance are anything but boondoggles. That is thanks to the basic financial feasibility requirements that are unchanged in the expanded program. Specifically, a project can only qualify for a TIFIA loan if it has (1) a dedicated revenue stream, and (2) an investment-grade rating on its senior debt.
Most of the highway projects TIFIA is funding are either new toll roads or the addition of congestion-priced express toll lanes to existing expressways (such as those nearing completion on the Capital Beltway outside Washington, D.C.). The projected toll revenue stream is intended to pay back the investment-grade senior debt and the TIFIA loan, and (if there is any revenue beyond that) to provide a return to the equity investors in the project.
This kind of revenue-based financing is something of a revolution in highway funding, compared with the historic tax-and-grant system that is increasingly becoming unsustainable, as fuel tax revenues lag ever further behind the costs of building, maintaining, and modernizing highways. And TIFIA is now poised to spread this revolution, thanks to the increased budgetary authority Congress has provided.
My only real concern about Congress’s changes is that it increased the fraction of a project’s budget that can be funded by a TIFIA loan from the previous 33 percent to 49 percent. The purpose of TIFIA has been to provide “gap financing” for economically and financially sound projects that could not quite make their budget numbers work with conventional debt. Upping that fraction to nearly half may well reduce the pressure on state DOTs and metropolitan planning organizations (MPOs) to commit their own resources to candidate projects, potentially reducing such projects’ financial soundness and thereby increasing the risk to federal taxpayers. Were I a part of the USDOT credit council reviewing TIFIA applications; I would give preference to projects requesting loans at or below 33 percent.
At a time when the handwriting is on the wall for conventional fuel tax-based highway grants, the shift to loans and financial soundness criteria is an important step in the right direction.