Under New Bill, America’s Transpo Loan Program Ignores National Goals

In the highly polarized and antagonistic transportation bill negotiations, dragged out over the course of almost a year, there was one thing that Democrats and Republicans could agree on: vastly expanding the TIFIA loan program. The Transportation Infrastructure Finance and Innovation Act (TIFIA) program has, since 1998, provided federal credit assistance at favorable interest rates to surface transportation projects of national and regional significance.

San Francisco's ##http://sf.streetsblog.org/2012/06/01/transbay-transit-center-to-fill-downtown-with-people-not-cars/##Transbay Transit Center## got a $171 million TIFIA loan in 2010. Will new rules make it harder for visionary projects like this to compete? Image: ##http://www.archithings.com/transbay-joint-powers-authority-closes-on-171-million-tifia-loan-for-transbay-transit-center-project/2010/01/27##Archithings##

Under the new bill, however, it appears any old highway plan will do.

MAP-21, the transportation bill that is now on its way to the president for his signature, turned TIFIA from a $122 million program to a $1 billion program – and at the same time, made it completely useless as an instrument to reward and enable innovation.

The bill eliminated all project selection criteria from the TIFIA program. It’s now first-come-first-served.

“By removing those selection criteria, they’ve basically turned the federal government into a bank,” said Sarah Kline, director of policy for Reconnecting America, “instead of an entity with national policy in mind.”

TIFIA used to employ the following criteria to evaluate potential loan recipients:

  • national or regional significance (including livability, economic competitiveness, and safety) — 20 percent
  • private participation — 20 percent
  • environmental sustainability and state of good repair — 20 percent
  • whether the loan would help accelerate project delivery — 12.5 percent
  • creditworthiness — 12.5 percent
  • use of technology — 5 percent
  • consumption of budget authority — 5 percent
  • whether the loan would reduce the need for federal grants — 5 percent

Under the new bill, creditworthiness now accounts for pretty much the full 100 percent.

Projects will still need to be approved by the U.S. DOT credit council. “They’re not rubberstamping things that come through,” said Kerry O’Hare, vice president of Building America’s Future and a former FHWA administrator.  “There’s a real financial analysis that’s done. People don’t just willy-nilly say, ‘We’re going to sign off on this.’”

But the credit council is looking only at the ability to repay loans. Not sustainability, not significance, not economic competitiveness.

“The federal government essentially has no control over what kind of projects get built,” Kline said. “As long as you come in with an application that is technically eligible and meets the credit-worthiness, it’s not clear to me that the federal government can say, ‘No, this is not the kind of project we want to fund; we’re looking for things that are innovative; this is not innovative.’”

The change to TIFIA is consistent with other elements in the transportation bill that the House insisted on. The removal of Congressional earmarks toughened the Republicans’ resolve to eliminate “administration earmarks,” as they call discretionary programs. They considered any subjective criteria — like innovation — too much leeway for the executive branch.

Now that TIFIA has a billion dollars to work with, watchdogs think some projects in the pipeline might not even meet the creditworthiness standard. The Bipartisan Policy Center last year suggested expanding TIFIA to a more modest $450 million instead of $1 billion, after looking at the pool of applicants and their creditworthiness. Erich Zimmerman of Taxpayers for Common Sense told reporters last week that there’s never been a default on a TIFIA loan, but with an expansion this large, it’s likely to happen.

And even if the projects are determined not to pose an undue financial risk to taxpayers, casting such a wide net could too easily pull in projects that just don’t make for good transportation policy.

Besides, a complex and detailed application like TIFIA’s may not be well-suited to a first-come-first-served system, which essentially becomes a race. The premium on the speed with which an agency can put together an application can handicap transit, especially for small agecies that may not have specialized staff who can easily whip the application together.

“The consequence is that you may see a lot of straightforward road projects in places like North Carolina and Indiana get funded from this program,” said Steven Higashide, federal advocate at the Tri-State Transportation Campaign. “Those are simple projects, so it’ll be easy to complete those applications. They’ll be first in line. Transit projects and sustainable projects might miss out because of that.”

A project needs to cost at least $50 million total to be eligible for a TIFIA loan in most cases, with a lower bar only for technology-based projects. This high total cost requirement can also present a barrier to transit systems, especially small ones.

“It seems like it makes it easier to build sprawl roads or ‘roads to nowhere’ as long as you can pay the federal agency back,” Higashide said. “There’s not really any judgment on what’s a wise project or one that a state or region needs.”

One change to the TIFIA program could help transit agencies, however. U.S. DOT will now allow TIFIA loans to be subordinated to pre-existing debt in some cases. That means other creditors would get paid back first in the case of bankruptcy. This exposes the federal government – and the taxpayer — to more risk. But it makes it easier to attract private capital for the matching dollars, a change which could help transit agencies compete.

Another change is the increase in the federal share from 33 to 49 percent, meaning applicants have less work to do to find the rest of the money. “If the federal government is taking on more of a share of the burden, then this really might not be right time to get be getting rid of those evaluation criteria,” said Robert Puentes of the Brookings Institution. “If this bill was really about the economy, you would have kept those in.”

However, Puentes questions how much the other criteria were ever a serious factor in choosing TIFIA loan recipients. The list of TIFIA awardees never looked like a list of TIGER winners – it’s always been more slanted toward road projects.

“The projects that are approved through the [TIFIA] program do not specifically have to address livability or sustainability goals, unlike TIGER projects,” said Yonah Freemark of The Transport Politic in an interview about TIFIA several months ago. “In fact, many of the projects approved for TIFIA have been very highway-oriented, in a way that TIGER projects have not.”

  • Ubrayj02

    I don’t know if we need any more fairy-dust fueled transit centers like the one pictured in this article. I’ve had my fill of magic incantations for “connectivity” turning into modernist middle fingers directed at the lowly transit user. That whole grandiose pixie village looks like it is a popped up fairy factory, not a grand concourse where (gulp) actual civilians will move between buses and trains.

  • Anonymous

    tinyurl.com/7zjh3zc

  • If the enlarged TIFIA program is just about funding programs with potential to make a profit, it will inherently favor highway projects with more costs externalized onto society rather than transit, bike and pedestrian projects that may create tons of external benefits but don’t enrich the builder or operator.  Without other selection criteria, TIFIA is strongly biased toward private toll roads and more affluent environs.

    Four other points. First, it’s wrong to single out the House for removing the selection criteria because the Senate bill did the same thing. Senator Boxer may want credit for taking care of LA’s transit expansion plans, but she may have delivered a lemon.

    Second, it may technically be true that there’s never yet been a formal default on a TIFIA loan, but it isn’t clear that the federal taxpayers will be fully paid back from the agreement on the bankruptcy of the San Diego toll road. It’s a young program and private toll roads are long-term leases, so the defaults may come in latter years after more of the 15-year federal tax subsidies on those leases have been taken.

    Third, the reason transit authorities like LA or Atlanta may never receive TIFIA funds is because so many private toll road proposals are ready to take off the shelf from past years. Applications for the TIFIA program in past years when transit was largely disallowed wildly exceeded the available funds. I’ve heard estimates that there are as many as $10 billion to $14 billion in such past toll road proposals. Even if Rob Puentes is right that many of them aren’t credit worthy, even a fraction of such projects would quickly exhaust available funds. Unlike transit agencies, the toll road projects won’t need to navigate the new rules for bundling projects or providing alternatives to non-subordinated debt.

    Finally, a reason that toll road projects have gotten into financial trouble is that their traffic predictions tend to be overly optimistic about how many paying vehicles they will draw. Part of this may be cozy relationships with the forecasting companies, but one part is certainly the well-known reduction in vehicle miles traveled per capita since 2004. If there is a reason for hope that the TIFIA program won’t just become a slush fund for private toll roads, it is that trend. USDOT would need to toughen its rules to ensure that traffic forecasts include the recent trend.

  • Ubrayj02

    Phineas Baxandall: I can’t see how any honest accounting for the costs and benefits associated with these different types of projects will end up favoring highway projects.Highway projects are some of the biggest money losers we build here in America. They remove prosperity the way we design them.

    I think we need a fight to remove the “driving time saved” calculation from the highway cost-benefit analysis. Once that is done, there is no “cost savings” on any of our overblown highway projects.

    Bike and pedestrian projects are incredibly cheap in comparison and can pay back their costs for construction and maintenance if done in a way to directly grow the tax base.

    We have a dishonest engineering practice in this country that allows the magic “time saved driving” wand over a project to turn into  “money in our coffers”.

  • Anonymous

    I think Phineas Baxandall underestimates the “slush fund” character into which this particular program will have devolved as a result of the new bill’s treatment, and that’s by deliberate intent on the part of far too many in Congress as well as the State DOTs and interested parties (Chamber of Commerce, AASHTO, AGC, etc. ad nauseum).

    While the “flexibility” it offers will be highly touted, the lack of really meaningful requirements for adherence to or support for non-traditional transport modes or objectives will enable those funds to easily and quickly be slotted towards those longstanding projects (on-the-shelf or otherwise) dreamed up by those in the development industry to open new land areas (and the opportunities for buying low-cost raw land that can later be sold at highly inflated prices) and the professional engineering/construction corps whose primary interests are in constructing new-alignment highways rather than reconstructing or operationally enhancing elements of the existing highway system.  Since no small amount of the induced-development profits from that legacy institutional mechanism flow directly or indirectly into supporting political campaigns and favors, the use of a wide-open TIFIA platform is far better than any system of earmarks used in previous years to provide those downstream benefits for their political supporters — the elected officials in Congress were no doubt quite happy to eviscerate the adherence requirements in conference while all the state officials applauded when they learned of the gift they had finally received.

  • Anonymous

    You may be right about what TIFIA will become. I hope not. It may depend on whether somebody from Bain Capital runs the next USDOT.

    To the previous writer (jhvtex), don’t think of Congress as eviscerating the TIFIA requirements in conference committee. Both the Senate bill and also the House HR7 bill had already removed the performance requirements before conference. And I don’t think there was a single amendment on the House or Senate floor to reintroduce the performance requirements.

  • Anonymous

     tinyurl.com/cyk9xz2

  • Anonymous

    @Phineas_Baxandall: If the performance requirements were eliminated by both houses before the bill ever went to committee (and I’m not doubting your assertion), since each side’s version was created in the wake of very public commitments for eschewing earmarks by many (though not all) members, it simply confirms (in my mind, at least) the proclamations were intended and delivered as an effective propaganda campaign.  By appearing to reject the earmarking practices of the past few decades which had become reviled by the general public, it provided cover for deliberate redesign of the TIFIA component as the principal funding mechanism by which legacy highway departments and the full array of development/construction industry insiders would successfully gain relaxed environmental scrutiny and greatly enhanced flexibility in choice of location, design and priority.  The combination of all those characteristics greatly favors prospective projects with enhanced potential for induced-development stimulus and broad downstream economic benefit profiles as I described, and conforming quite well to what perhaps should really now be described for what it is — a long-running Ponzi scheme built around the Federal-Aid Highway program.

  • Nathanael

    Best use for this would be Amtrak applications to buy new sleeper cars; with demand where it is, they will pay for themselves in ticket sales.

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