The touting of TIFIA

Proposals to reauthorise surface transportation lending have highlighted the TIFIA lending programme as a way to support PPPs. How TIFIA has emerged from the South Bay Expressway bankruptcy is crucial to this.

US transportation policy, it seems, is governed by ugly acronyms. There is, for example, the six-year bill called SAFETEA-LU (Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users). Then there’s the Department of Transportation’s Office of Innovative Programme Delivery, and its TIFIA loan programme (named after the Transportation Infrastructure Finance and Innovation Act of 1998).

But while the length of the names may be bewildering, some clear thought is required about both. Discussions about the proposed reauthorisation of SAFETEA-LU – which is set to expire on September 30 – are underway. And, with a Republican-controlled House, and a Democratic-controlled Senate, the two proposals for SAFETEA-LU reauthorisation vary widely.

The Senate has proposed a two-year spending bill that allocates a large annual amount, giving transportation and infrastructure spending $109 billion over those two years. Meanwhile, House Transportation and Infrastructure Committee chair John Mica, a Florida Republican, is emphatic that a two-year proposal is no good as it does not give states the security of long-term federal funding with which to pursue projects. The House proposal allocates $230 billion over six years.

Despite these distinct approaches to transportation funding, TIFIA seems like the thing that everyone can agree on. Both the House and Senate proposals include provisions to bump TIFIA funding up to the sum of $1 billion a year – a huge increase over the current annual funding level of $122 million.

California Democratic Senator Barbara Boxer, chair of the Senate Environment and Public Works Committee, in a press conference about reauthorisation has described the $1 billion in TIFIA funding as a way to leverage $30 billion in private sector investment, and named the TIFIA provision “America Fast-Forward”, perhaps to make the programme more accessible to those outside the transportation and infrastructure fields.

The plan would also increase the share of funding for a project that TIFIA can provide from 33 to 49 percent. Mica, in a Politico op-ed about reauthorisation, also described the credit programme as a way to “leverage” Highway Trust Fund revenues with “state, local and private-sector funding”.

There are also multiple standalone legislative proposals to increase funding for TIFIA, and lobbying groups have highlighted it as a way to increase private investment in US infrastructure.

It’s interesting, therefore, that at the exact same moment that everyone clambers on the TIFIA bandwagon, it’s going through what could be seen as a defining moment. The first private toll road operator it ever lent to went bankrupt, and the TIFIA programme, together with other lenders, is negotiating a potential acquisition by a public agency.

What is happening to the South Bay Expressway could be instructive in terms of the potential reauthorisation plans. Following bankruptcy proceedings, the Macquarie-backed project, which received a $140 million TIFIA loan in 2003, may soon be acquired by the regional agency the San Diego Association of Governments (SANDAG).

It’s hard to extrapolate relevance to the whole TIFIA programme from this one instance, particularly since the programme does much more than just support PPPs, and the South Bay project, by various accounts, faced anomalous conditions.

But it will still be interesting to watch how the process develops, as the TIFIA programme, unlike the private bank lenders to the project, wishes to remain part of the financing if the project is acquired by the public agency, according to a SANDAG board meeting agenda.

Risk transfer

One way of looking at it is that TIFIA’s involvement with a PPP that went bankrupt means it is tainted by association. Others will take a more generous view. Not least, the TIFIA participation in South Bay has remained intact where other parties have been wiped out and ejected from the deal. As Greg Hulsizer, chief executive of South Bay, noted earlier this year: “The risk here was clearly transferred to the private sector”.

The way in which it was transferred was a neat piece of financial sophistication – a so-called “springing lien” provision, which gave a level of seniority to taxpayer dollars that would not normally have been granted given the size of loan committed. A provision which may, ultimately, have much to do with TIFIA’s enduring popularity.