Freight Project FinancingFreight Project Financing

Challenges, Questions and OptionsChallenges, Questions and Options

presented bypresented by

Michael P. HuertaMichael P. HuertaCambridge Systematics, Inc.Cambridge Systematics, Inc.

April 30, 2001April 30, 2001

Presentation OverviewPresentation Overview

Characteristics of freight projectsCharacteristics of freight projects

Existing freight financing programsExisting freight financing programs

Effectiveness of current financing programsEffectiveness of current financing programs

Policy questionsPolicy questions

Future financing optionsFuture financing options

Characteristics of Freight ProjectsCharacteristics of Freight Projects

Diverse project sponsorshipDiverse project sponsorship

• Public sectorPublic sector

• Private sectorPrivate sector

• Public/PrivatePublic/Private

Wide range of project typesWide range of project types

• ModalModal

- HighwayHighway

- RailRail

- MarineMarine

- AirAir

• IntermodalIntermodal

Public

Private

Modal Intermodal

Range of Freight Project FormsRange of Freight Project Forms

Private Sector InvolvementPrivate Sector Involvement

High level of private sector involvement is a major High level of private sector involvement is a major distinguishing feature of freight projectsdistinguishing feature of freight projects

Virtually all freight transportation carriers are private Virtually all freight transportation carriers are private companiescompanies

Both public and private sectors have invested heavily in the Both public and private sectors have invested heavily in the nation’s transportation networknation’s transportation network

Dual public/private nature of freight infrastructure creates Dual public/private nature of freight infrastructure creates challenges in planning and financing freight projectschallenges in planning and financing freight projects

Freight Transportation PerspectivesFreight Transportation PerspectivesState and MPO Focus is Regional and Local; State and MPO Focus is Regional and Local; Private Sector Focus is Increasingly National and GlobalPrivate Sector Focus is Increasingly National and Global

Public Sector(States, MPOs)

Private Sector(Shippers, Carriers)

National

Regional

Local

Global

Regional

National

Local

Intermodal Project ChallengesIntermodal Project Challenges

Funding programs tend to be modally focusedFunding programs tend to be modally focused

Multiple project advocates and beneficiariesMultiple project advocates and beneficiaries

““Ownership” of the project may not be clearOwnership” of the project may not be clear

Projects are more complexProjects are more complex

Financing is more complicatedFinancing is more complicated

Existing Freight Financing ProgramsExisting Freight Financing Programs

Federal-aid apportionments and grantsFederal-aid apportionments and grants

Federal credit programsFederal credit programs

State and local transportation fundsState and local transportation funds

State and local credit programsState and local credit programs

Private sector financingPrivate sector financing

ISTEA Funding Programs Applicable to ISTEA Funding Programs Applicable to Freight ProjectsFreight Projects

Congestion Mitigation and Air Quality Program (CMAQ)Congestion Mitigation and Air Quality Program (CMAQ)

• Requires finding that the proposed project will result in Requires finding that the proposed project will result in improved air quality in a non-attainment areaimproved air quality in a non-attainment area

• Can be used for rail and other non-highway projectsCan be used for rail and other non-highway projects

Surface Transportation Program (STP)Surface Transportation Program (STP)

• Applicable to highways and highway-related projectsApplicable to highways and highway-related projects

National Highway System (NHS)National Highway System (NHS)

• Includes a series of “Intermodal Connectors”Includes a series of “Intermodal Connectors”

ISTEA ScorecardISTEA Scorecard

State and metropolitan focus did not match the cost benefit State and metropolitan focus did not match the cost benefit framework of many freight projectsframework of many freight projects

No funding program dedicated specifically to freight No funding program dedicated specifically to freight projectsprojects

No explicit authorization for rail, marine or air freight No explicit authorization for rail, marine or air freight projectsprojects

Other than the NHS, no means for identifying nationally Other than the NHS, no means for identifying nationally significant projectssignificant projects

TEA-21 Funding Programs Applicable to TEA-21 Funding Programs Applicable to Freight ProjectsFreight Projects

National Corridor Planning and Development Program, National Corridor Planning and Development Program, Coordinated Border Infrastructure ProgramCoordinated Border Infrastructure Program

• Federal discretionary grants awarded through a competitive Federal discretionary grants awarded through a competitive processprocess

• National program scopeNational program scope

Transportation Infrastructure Finance and Innovation Act (TIFIA)Transportation Infrastructure Finance and Innovation Act (TIFIA)

• Credit program for large projectsCredit program for large projects

• Limited applicability to non-highway freight projectsLimited applicability to non-highway freight projects

Rail Revitalization and Improvement Financing (RRIF)Rail Revitalization and Improvement Financing (RRIF)

• Credit program for rail infrastructure and equipmentCredit program for rail infrastructure and equipment

• No appropriations provided by CongressNo appropriations provided by Congress

TEA-21 ScorecardTEA-21 Scorecard

Addressed some but not all of the limitations in ISTEA Addressed some but not all of the limitations in ISTEA relating to freight projectsrelating to freight projects

• Created national funding programsCreated national funding programs

• Provided limited support for rail projectsProvided limited support for rail projects

Did not authorize use of funds for the full range of potential Did not authorize use of funds for the full range of potential freight projectsfreight projects

No dedicated funding program for freight projectsNo dedicated funding program for freight projects

Questions remain on how to assess public benefits of Questions remain on how to assess public benefits of improvements to privately owned infrastructureimprovements to privately owned infrastructure

Effectiveness of Current Federal Financing Effectiveness of Current Federal Financing ProgramsPrograms

Project eligibility – many freight projects do not fit within Project eligibility – many freight projects do not fit within the guidelines of existing funding programsthe guidelines of existing funding programs

Project prioritization – freight projects have difficulty in Project prioritization – freight projects have difficulty in competing for funding through the state and metropolitan competing for funding through the state and metropolitan focused planning and project selection processesfocused planning and project selection processes

Despite the priority given to freight projects in ISTEA and Despite the priority given to freight projects in ISTEA and TEA-21, significant impediments remain for financing TEA-21, significant impediments remain for financing freight projectsfreight projects

Transportation planners have been creative given what Transportation planners have been creative given what they have had to work with – does more need to be done?they have had to work with – does more need to be done?

Policy QuestionsPolicy Questions

Should public funding be used to support projects in Should public funding be used to support projects in private ownership or under private control?private ownership or under private control?

Should there be a means of identifying and funding freight Should there be a means of identifying and funding freight projects having national significance?projects having national significance?

Are current funding levels sufficient for freight project Are current funding levels sufficient for freight project needs – is it necessary to identify new sources of funding? needs – is it necessary to identify new sources of funding?

Public Support for Private ProjectsPublic Support for Private Projects

Current federal programs are limited in their applicability to Current federal programs are limited in their applicability to privately owned infrastructureprivately owned infrastructure

Private infrastructure improvements can result in Private infrastructure improvements can result in substantial public benefitssubstantial public benefits

Some public agencies have been concerned about whether Some public agencies have been concerned about whether using public funds to support private projects results in using public funds to support private projects results in competitive advantages to one company versus anothercompetitive advantages to one company versus another

There is a need to clarify whether and under what There is a need to clarify whether and under what conditions public support might be provided to private conditions public support might be provided to private projectsprojects

Nationally Significant ProjectsNationally Significant Projects

ISTEA and TEA-21 delegated most project selection ISTEA and TEA-21 delegated most project selection decisions to the state and metropolitan leveldecisions to the state and metropolitan level

Scope of freight operations often extends beyond the Scope of freight operations often extends beyond the jurisdiction of a given state or MPOjurisdiction of a given state or MPO

Does the federal government need to take a more active Does the federal government need to take a more active role to identify and fund freight projects?role to identify and fund freight projects?

If so, when is it appropriate for the federal government to If so, when is it appropriate for the federal government to get involved?get involved?

Funding Levels and Funding SourcesFunding Levels and Funding Sources

Is the overall level of funding available for freight projects Is the overall level of funding available for freight projects sufficient to meet anticipated needs? sufficient to meet anticipated needs?

If more funding is needed, is it necessary to look beyond If more funding is needed, is it necessary to look beyond the Highway Trust Fund? the Highway Trust Fund?

What other funding sources might be available? What other funding sources might be available?

Future Financing OptionsFuture Financing Options

Expanded project eligibilityExpanded project eligibility

Freight set-asidesFreight set-asides

Incentive programsIncentive programs

Expanded Project EligibilityExpanded Project Eligibility

Add specific types of freight projects to eligibility guidelines of Add specific types of freight projects to eligibility guidelines of existing federal funding programsexisting federal funding programs

How far should eligibility be expanded -- Rail? Marine? Other?How far should eligibility be expanded -- Rail? Marine? Other?

AdvantagesAdvantages

• Preserves the basic framework of ISTEA and TEA-21Preserves the basic framework of ISTEA and TEA-21

• Provides support from a wide range of programsProvides support from a wide range of programs

DisadvantagesDisadvantages

• Does not ensure that projects will actually get fundedDoes not ensure that projects will actually get funded

• Does not address fully the reality that many freight projects Does not address fully the reality that many freight projects extend beyond a state or metropolitan areaextend beyond a state or metropolitan area

Freight Set-AsidesFreight Set-Asides

Establish a funding program or programs specifically for freight Establish a funding program or programs specifically for freight projectsprojects

Could be established as a category within formula allocations to the Could be established as a category within formula allocations to the states, or as a national programstates, or as a national program

AdvantagesAdvantages

• Gives freight projects a dedicated pool of fundingGives freight projects a dedicated pool of funding

• Addresses intermodal projectsAddresses intermodal projects

DisadvantagesDisadvantages

• Runs counter to the flexibility of ISTEA and TEA-21 – many states Runs counter to the flexibility of ISTEA and TEA-21 – many states would view it as an unwelcome mandatewould view it as an unwelcome mandate

• A national program would be a target for Congressional A national program would be a target for Congressional earmarkingearmarking

Incentive ProgramsIncentive Programs

Grants and other support designed to encourage and Grants and other support designed to encourage and reward efforts to address freight needsreward efforts to address freight needs

AdvantagesAdvantages

• Encouragement rather than rigid directionEncouragement rather than rigid direction

• Preserves flexibility and choice under ISTEA and TEA-21Preserves flexibility and choice under ISTEA and TEA-21

DisadvantagesDisadvantages

• Difficult to structure an incentive must be tangible and Difficult to structure an incentive must be tangible and significant enough to achieve the objectivesignificant enough to achieve the objective

• May not go far enough the address freight needsMay not go far enough the address freight needs

Recent Policy ProposalsRecent Policy ProposalsIntermodal ConnectorsIntermodal Connectors

New credit program, similar to TIFIA, for smaller intermodal connector New credit program, similar to TIFIA, for smaller intermodal connector projects (set-aside)projects (set-aside)

Expanded eligibility for RRIF for intermodal connectors (expanded Expanded eligibility for RRIF for intermodal connectors (expanded eligibility)eligibility)

Expanded SIB program (expanded eligibility)Expanded SIB program (expanded eligibility)

Encourage state level credit programs or infrastructure funds (incentive Encourage state level credit programs or infrastructure funds (incentive program)program)

Connector incentive grants (incentive program)Connector incentive grants (incentive program)

Reduced federal match (incentive program)Reduced federal match (incentive program)

NHS funds set aside for intermodal connectors (set-aside)NHS funds set aside for intermodal connectors (set-aside)

ConclusionConclusion

Financing needs for freight projects are different from and Financing needs for freight projects are different from and more complex than traditional transportation projectsmore complex than traditional transportation projects

• Private sector involvementPrivate sector involvement

• Intermodal projectsIntermodal projects

ISTEA and TEA-21 identified freight as a priority, but did ISTEA and TEA-21 identified freight as a priority, but did not address fully the unique needs of the freight industrynot address fully the unique needs of the freight industry

Financing freight projects is a significant challengeFinancing freight projects is a significant challenge

Careful consideration must be given to how best to address Careful consideration must be given to how best to address the needs of the freight transportation industry in the futurethe needs of the freight transportation industry in the future