Senate EPW Holds Hearing on Low-cost Federal Infrastructure Loans

July 12, 2018

Amidst an ongoing discussion of investing in U.S. infrastructure, the Senate Committee on Environment and Public Works held a hearing, “The Long-term Value to U.S. Taxpayers of Low-cost Federal Infrastructure Loans,” on Tuesday.

The hearing featured three panel members: Dr. Doug Holtz-Eakin, President of the American Action Forum; Brian Motyl, Assistant Director of Finance, Delaware Department of Transportation; and Vicente Sarmiento, Director of the Orange County Water District.

The loan programs under consideration were the existing loan programs under the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Water Infrastructure Finance and Innovation Act (WIFIA), and a proposed new program in the pending Securing Required Funding for Water Infrastructure Now (SRF WIN) bill. As he introduced the hearing, Chairman John Barrasso (R-WY) pointed to the historical success of TIFIA in financing transportation infrastructure construction since the program was first introduced in 1998.

The Congressional Budget Office (CBO) estimates that WIFIA and SRF WIN would receive appropriations of $400 million over two years, which in turn would generate $12 billion in new water infrastructure spending due to state borrowing.

Together, these programs align with the Trump Administration’s calls for federal funds to be leveraged to maximize local investment.

Ranking Member Tom Carper (D-DE) stated that innovative finance programs offer loan terms that make them a good value for borrowers, a long repayment schedule, and an option to defer payment. However, he cautioned that they are not a replacement for public funding. Further, he reminded the audience that despite calls to expand these financing programs, TIFIA funding was cut by over 70 percent in 2015 in part because some of the available funds were going unused.

Low-cost federal loans can yield faster positive community impacts and numerous fiscal benefits

Chairman Barrasso emphasized the ability of low-cost federal infrastructure loans to facilitate faster implementation of infrastructure projects. By enabling state and local project sponsors to borrow money at lower long-term costs and to complete construction sooner than they otherwise would have through other funding means, these loans lead to quicker delivery of positive impacts to communities and states.

This was echoed by Dr. Holtz-Eakin, who highlighted the collective benefits inherent to infrastructure finance programs: once projects are built, they are available to all. These benefits come in the form of higher productivity, higher wages, increased standard of living, and faster commutes. These benefits can additionally spill over to neighboring jurisdictions.

Chairman Barrasso pointed to the CBO’s indication that the authorization for WIFIA and the SRF WIN would generate about $12 billion in state-funded investment. However, the Joint Committee on Taxation found that if states borrowed this money to fund new projects, the federal government would lose about $2.6 billion in tax revenue, since interest on those bonds would be exempt from federal income tax and JCT presumes that the tax-free bonds would displace other investments that were subject to taxation. In response to this concern, Holtz-Eakin stated that the CBO score focuses only on federal budget costs, rather than benefits to the population as a whole.

Pointing to Delaware’s experience using TIFIA loans to finance the US 301 roadway expansion, Brian Motyl described the fiscal challenges of using existing financing options. The state’s four sources of funds for capital programs – federal funds, senior revenue bonds, state resources (i.e. revenues minus debt service minus transportation operating expenses), and a dedicated toll revenue bond – would have been insufficient, even in combination, to finance the $635 million US 301 project.

Motyl listed a number of benefits to the state of using TIFIA, including a below-market interest rate that is more than 1.3 times lower than the state’s toll revenue bond interest rate; the ability to pay interest on the full amount of the loan on day one; a 10-year principal deferral, which kept the debt service down; the establishment of a toll stabilization fund; a revenue sharing provision; and a simple reimbursement process.

Consideration of smaller and disadvantaged areas   

Throughout the hearing, the question of these loans’ suitability for small, rural, and disadvantaged communities repeatedly arose. The Trump Administration’s infrastructure plan emphasizes development in rural areas, and Sen. Deb Fischer (R-NE) expressed concern that despite the requirement that 10 percent of TIFIA loans go to rural areas, most emphasize urban and metropolitan projects.

Sen. Tammy Duckworth (D-IL) stated that low-cost federal loan programs often fail to help rural communities. Many projects are not suited for federal infrastructure loans because they lack a revenue stream to lure private investment or make repayments.

Sarmiento addressed this question from the viewpoint of Orange County Water District, stating that the agency works to make funding available to smaller agencies in its network. The California State Revolving Fund is currently oversubscribed, and WIFIA provides access to smaller agencies and low-income communities through the SRF WIN program, which allows states to bundle projects into one application in order to qualify for the larger WIFIA loans.

Uncertainty due to new Federal Transit Administration policy

Sens. Carper and Kirsten Gillibrand (D-NY) expressed concern about last week’s guidance document released by the FTA, suggesting that federal loans be considered as federal funding rather than as local match. Gillibrand was specifically concerned that Administration is trying to make it more difficult for states and localities to use loans and instead push private financing, which won’t be available for rural projects. She stated that “limiting the ability of a project sponsor to use the full suite of federal assistance is not the answer.”

In response, Motyl underlined the flexibility of low-interest loans as a benefit to taxpayers, stating that “any savings to the Department is a savings to taxpayers.” Motyl claimed that without the ability to use TIFIA as the project match, many projects would likely not move forward. Holtz-Eakin responded that federal-loan programs require local program sponsors to have skin in the game due to their interest in not wasting money because they are repaying it.

What’s next for low-cost federal loans?

TIFIA has financed 56 projects across the U.S. since its launch. As new solutions are explored for addressing the nation’s infrastructure improvements, efficient, effective financing programs can help to deliver projects at reduced costs.

Brian Motyl described procedural simplification as an important consideration as the program moves forward. In his experience in Delaware, the application process to acquire a TIFIA loan was lengthy (roughly three years) and cumbersome (requiring a great deal of documentation and meetings with TIFIA personnel). However, Motyl also praised the process, pointing to smooth negotiations and favorable loan terms for both TIFIA and DelDOT.

Sen. Duckworth suggested the possibility of expanding TIFIA and WIFIA benefits to   other major projects, such as building and modernizing airports. She plans to introduce legislation that would responsibly expand TIFIA eligibility for major airport projects.

Throughout the hearing, there were calls for a mix of federal financing options. To this point, Sen. Carper stated, “the goal should be to provide a portfolio of options for infrastructure investment, including direct federal grants and loans so that state and local project sponsors can identify the best techniques to improve their [infrastructure]”.

Watch the full hearing and read witness’ testimonies here.

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