1. Freight Project Financing Challenges, Questions and Options presented by Michael P. Huerta Cambridge Systematics, Inc. April 30, 2001

2. Presentation Overview n Characteristics of freight projects n Existing freight financing programs n Effectiveness of current financing programs n Policy questions n Future financing options

3. Characteristics of Freight Projects n Diverse project sponsorship Public sector Public sector Private sector Private sector Public/Private Public/Private n Wide range of project types Modal Modal -Highway -Rail -Marine -Air Intermodal Intermodal

4. Public Private ModalIntermodal Range of Freight Project Forms

5. Private Sector Involvement n High level of private sector involvement is a major distinguishing feature of freight projects n Virtually all freight transportation carriers are private companies n Both public and private sectors have invested heavily in the nation’s transportation network n Dual public/private nature of freight infrastructure creates challenges in planning and financing freight projects

6. Freight Transportation Perspectives State and MPO Focus is Regional and Local; Private Sector Focus is Increasingly National and Global Public Sector (States, MPOs) Private Sector (Shippers, Carriers) National Regional Local Global Regional National Local

7. Intermodal Project Challenges n Funding programs tend to be modally focused n Multiple project advocates and beneficiaries n “Ownership” of the project may not be clear n Projects are more complex n Financing is more complicated

8. Existing Freight Financing Programs n Federal-aid apportionments and grants n Federal credit programs n State and local transportation funds n State and local credit programs n Private sector financing

9. ISTEA Funding Programs Applicable to Freight Projects n Congestion Mitigation and Air Quality Program (CMAQ) Requires finding that the proposed project will result in improved air quality in a non-attainment area Requires finding that the proposed project will result in improved air quality in a non-attainment area Can be used for rail and other non-highway projects Can be used for rail and other non-highway projects n Surface Transportation Program (STP) Applicable to highways and highway-related projects Applicable to highways and highway-related projects n National Highway System (NHS) Includes a series of “Intermodal Connectors” Includes a series of “Intermodal Connectors”

10. ISTEA Scorecard n State and metropolitan focus did not match the cost benefit framework of many freight projects n No funding program dedicated specifically to freight projects n No explicit authorization for rail, marine or air freight projects n Other than the NHS, no means for identifying nationally significant projects

11. TEA-21 Funding Programs Applicable to Freight Projects n National Corridor Planning and Development Program, Coordinated Border Infrastructure Program Federal discretionary grants awarded through a competitive process Federal discretionary grants awarded through a competitive process National program scope National program scope n Transportation Infrastructure Finance and Innovation Act (TIFIA) Credit program for large projects Credit program for large projects Limited applicability to non-highway freight projects Limited applicability to non-highway freight projects n Rail Revitalization and Improvement Financing (RRIF) Credit program for rail infrastructure and equipment Credit program for rail infrastructure and equipment No appropriations provided by Congress No appropriations provided by Congress

12. TEA-21 Scorecard n Addressed some but not all of the limitations in ISTEA relating to freight projects Created national funding programs Created national funding programs Provided limited support for rail projects Provided limited support for rail projects n Did not authorize use of funds for the full range of potential freight projects n No dedicated funding program for freight projects n Questions remain on how to assess public benefits of improvements to privately owned infrastructure

13. Effectiveness of Current Federal Financing Programs n Project eligibility – many freight projects do not fit within the guidelines of existing funding programs n Project prioritization – freight projects have difficulty in competing for funding through the state and metropolitan focused planning and project selection processes n Despite the priority given to freight projects in ISTEA and TEA-21, significant impediments remain for financing freight projects n Transportation planners have been creative given what they have had to work with – does more need to be done?

14. Policy Questions n Should public funding be used to support projects in private ownership or under private control? n Should there be a means of identifying and funding freight projects having national significance? n Are current funding levels sufficient for freight project needs – is it necessary to identify new sources of funding?

15. Public Support for Private Projects n Current federal programs are limited in their applicability to privately owned infrastructure n Private infrastructure improvements can result in substantial public benefits n Some public agencies have been concerned about whether using public funds to support private projects results in competitive advantages to one company versus another n There is a need to clarify whether and under what conditions public support might be provided to private projects

16. Nationally Significant Projects n ISTEA and TEA-21 delegated most project selection decisions to the state and metropolitan level n Scope of freight operations often extends beyond the jurisdiction of a given state or MPO n Does the federal government need to take a more active role to identify and fund freight projects? n If so, when is it appropriate for the federal government to get involved?

17. Funding Levels and Funding Sources n Is the overall level of funding available for freight projects sufficient to meet anticipated needs? n If more funding is needed, is it necessary to look beyond the Highway Trust Fund? n What other funding sources might be available?

18. Future Financing Options n Expanded project eligibility n Freight set-asides n Incentive programs

19. Expanded Project Eligibility n Add specific types of freight projects to eligibility guidelines of existing federal funding programs n How far should eligibility be expanded -- Rail? Marine? Other? n Advantages Preserves the basic framework of ISTEA and TEA-21 Preserves the basic framework of ISTEA and TEA-21 Provides support from a wide range of programs Provides support from a wide range of programs n Disadvantages Does not ensure that projects will actually get funded Does not ensure that projects will actually get funded Does not address fully the reality that many freight projects extend beyond a state or metropolitan area Does not address fully the reality that many freight projects extend beyond a state or metropolitan area

20. Freight Set-Asides n Establish a funding program or programs specifically for freight projects n Could be established as a category within formula allocations to the states, or as a national program n Advantages Gives freight projects a dedicated pool of funding Gives freight projects a dedicated pool of funding Addresses intermodal projects Addresses intermodal projects n Disadvantages Runs counter to the flexibility of ISTEA and TEA-21 – many states would view it as an unwelcome mandate Runs counter to the flexibility of ISTEA and TEA-21 – many states would view it as an unwelcome mandate A national program would be a target for Congressional earmarking A national program would be a target for Congressional earmarking

21. Incentive Programs n Grants and other support designed to encourage and reward efforts to address freight needs n Advantages Encouragement rather than rigid direction Encouragement rather than rigid direction Preserves flexibility and choice under ISTEA and TEA-21 Preserves flexibility and choice under ISTEA and TEA-21 n Disadvantages Difficult to structure an incentive must be tangible and significant enough to achieve the objective Difficult to structure an incentive must be tangible and significant enough to achieve the objective May not go far enough the address freight needs May not go far enough the address freight needs

22. Recent Policy Proposals Intermodal Connectors n New credit program, similar to TIFIA, for smaller intermodal connector projects (set-aside) n Expanded eligibility for RRIF for intermodal connectors (expanded eligibility) n Expanded SIB program (expanded eligibility) n Encourage state level credit programs or infrastructure funds (incentive program) n Connector incentive grants (incentive program) n Reduced federal match (incentive program) n NHS funds set aside for intermodal connectors (set-aside)

23. Conclusion n Financing needs for freight projects are different from and more complex than traditional transportation projects Private sector involvement Private sector involvement Intermodal projects Intermodal projects n ISTEA and TEA-21 identified freight as a priority, but did not address fully the unique needs of the freight industry n Financing freight projects is a significant challenge n Careful consideration must be given to how best to address the needs of the freight transportation industry in the future