Public Financing – Private Facilities Freight in the Southeast Charlotte, North Carolina February 10, 2011

Some Public Funding Options for Rail Projects  Trust and freight funds.  Loan programs.  Public sector project programs such as TIGER and High Speed Rail.  Investment Tax Incentives

Two Basic Reasons for Public Investment in Private Rail Networks  To undertake projects that the private entity would not fund under its own capital guidelines but which have substantial public benefits.  To accelerate the timing of projects that the private firm might eventually undertake but that have substantial, current public benefits.

Trust and Freight Funds  Bring no new money to the table. -Public participation in funding process provides no value to match public benefits. -Extracts a portion of the value of the commercial transaction.  Expensive to manage. Administrative costs waste a substantial portion of the fund.  Create market distortions if applied regionally.  Often have difficulty funding or managing multi- jurisdictional projects.  Virtually guarantee that contributors will not receive 100% return of value of contributions unless they are very small entities.

Trust and Freight Funds (continued)  Conceptually – do not interact well with the rail business model. -Designed to charge a relatively small, individual user for use of a public facility. -Not suitable for funding of private, single user infrastructure systems.  Public has little expertise in selecting projects.  Permit project selection based on political expediency rather than economic / market value.  May alter competitive balance between market participants. The public, not the market, picks winners and losers.

Loan Programs  It all depends on the terms.  Current RRIF program is not attractive. -Risk premiums may make more expensive than commercial debt. -Requires subordination of existing debt. -Terms often violate covenants of existing debt.  A public loan is still debt and thus, creates balance sheet issues.  Unless it is substantially below market rates it brings no new money to the table.  Leaves project choice and selection of winners / losers to public, not the transportation market.

Specific Investment Programs Example – “TIGER” Program  May work well for some projects: -Complex projects that include multiple jurisdictional boundaries if the rules are properly structured. -Complex public benefits that are difficult to distribute to a specific public entity.  If funded from source other than rail revenues or shipper fees they do bring new money to the table.  Multi-jurisdictional projects may remain a problem.  Still subject to political influence.

 Investment tax incentive for projects that expand rail capacity and for Positive Train Control (PTC).  Expense other infrastructure capital expenditures.  Project selection based on market value, not politics.  Does not dissipate funds in program administration.  Leverages private investment. -Accelerates implementation of projects that grow capacity where the market demands. -Permits more projects generating market returns to be undertaken.  Short line infrastructure investment tax incentive is an ongoing success story. Tax Incentives to Leverage Private, Capacity Expansion Capital

Association of American Railroads