Financing Freight Improvements

2.0 Funding and Financing Tools for Freight Improvement Improvements

This section provides an overview of existing federal and state funding programs and financing tools that could be used to facilitate freight investments.

Federal programs can be described as one of two types distinguished by the manner in which funding is made available:

1. Funding Programs, that can be targeted to specific projects to address freight transportation needs.
2. Financing Tools, that include loans, credit enhancement, and tax-exempt financing programs. Loans and credit enhancement programs allow states to leverage both public and private resources and stimulate capital investment in transportation infrastructure. Local financing programs can be used to provide property tax relief and other tax benefits for investments made to improve efficiency or increase the capacity of the freight transportation system by reducing or eliminating tax burdens on interest paid by investors.

Some states have created grant and loan programs to stimulate freight investment. This section also presents information on several of these programs.

Additionally, this section provides an overview of other funding and financing tools – such as dedicated revenue sources, public debt, and institutional arrangements – that have been used by states, local government, and the private sector to finance freight projects.

The Federal-Aid Highway System and Federal-Aid Programs

The Federal-aid Highway System is defined in law as the National Highway System (NHS). The NHS is comprised of certain roadways identified as being of interest nationally. The NHS includes the Dwight D. Eisenhower National System of Interstate and Defense Highway (the "Interstate System"), the Strategic Highway Network (StraHNet), other Principal Arterial roadways not designated as part of the Interstate or StraHNet systems and connections from the NHS to intermodal or strategic military facilities. Highway program funding is not limited to the Federal-aid System as described above; the Surface Transportation System (STP) funds are viewed as a State administered program and may be used to fund projects on the NHS as well as other roadways not functionally classified as Rural Minor Collectors or Rural and Urban Local System roadways. NHS and STP eligible roadways, thereby, define the roadway systems eligible for federal highway aid. States and MPOs use the funding they receive for a wide variety of highway program-related activities including planning, design, environmental studies, construction, reconstruction, and improvements on the Federal-aid highway system authorized through legislation enacted by Congress. In general, funding under the Federal-aid highway program falls into two categories depending on the manner by which they are distributed to the States: apportionments and allocations. A significant difference between apportioned and allocated highway funding programs is that each state is guaranteed to receive funding via apportioned programs each year while there are no guarantees that a particular state will receive highway funding via an allocation in any given year. On a broader level, apportioned programs are guaranteed to be funded each year as long as authorizing legislation is in place while Congress may chose not to fund an authorized allocated program in any given fiscal year.

1. Apportionments are distributed annually to all states via formula provided in law. Apportioned funds are made available to the states through the funding programs authorized by Congress. Once apportionments are distributed to states using these formulas, the use of these funds is subject to statewide and metropolitan planning process requirements provided in law and regulation. [Apportionment formulas for Federal-aid Highway Programs are available in Table FA-4A of Highway Statistics, https://www.fhwa.dot.gov/policy/ohim/hs04/htm/fa4a.htm.] Although, the funding is federal, and must be used for projects that fit highway program eligibility criteria and follow all federal environmental and contracting rules (among others), states and MPOs have the discretion to determine which eligible projects will receive funding. The majority of the programs funded through the Highway Trust Fund (approximately $40 billion annually) are distributed through apportionments, and programmed by state and local governments and agencies. Thus, freight project sponsors (such as port authorities, local governments, industry members, and others) interested in funding projects with these types of federal-aid funds should work through their state and MPOs, rather than directly through FHWA or U.S. Department of Transportation (U.S. DOT).
2. Allocations. Congress creates and identifies intended funding levels for "discretionary" programs. To select projects under a discretionary program, the U.S. DOT conducts a nationwide selection process among eligible projects, under congressionally mandated criteria. Congress also has chosen to direct federal transportation funding specifically to states, local governments, or projects. This is often referred to as earmarking. In both cases, federal funds are not distributed by formula, but allocated to specific states or projects. Projects seeking discretionary funding under programs created by Congress must participate in the discretionary selection process, as designed by Congress and announced by U.S. DOT, typically in the Federal Register.

Federal Highway Funding Programs

Specific federal funding programs that can be used to fund freight transportation improvements are classified as:

1. Formula Distributed Highway Funding Programs. These include Interstate National Highway System (NHS), Surface Transportation Program (STP), Interstate Maintenance (IM), and Coordinated Border Infrastructure Program. These programs are typically used to fund highway improvements, although the STP contains provisions for other transportation investments.
2. Special Funding Programs. Programs in this category are identified by their specific program goals and objectives and, consequently, special eligibility criteria. For example, only certain areas, as identified by the U.S. Environmental Protection Agency (USEPA) are eligible to receive Congestion Mitigation and Air Quality Improvement Program (CMAQ) funds and these funds can only be used on projects that can demonstrate a reduction in highway-based vehicle emissions. Also included is Highway Bridge Program, Railway-Highway Crossings, Truck Parking Facilities, Capital Grants for Rail Line Relocation projects, the Fixed Guideway Modernization Program, and other federal funding programs.
3. Discretionary Programs. There are several discretionary programs that support freight mobility projects, such as Projects of National and Regional Significance (PNRS), National Corridor Infrastructure Improvement Program and the Freight Intermodal Distribution Grant Program. Although most of these programs are fully earmarked in the Safe Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), they have been included in the guidebook to demonstrate the potential of these discretionary programs to support additional freight investment.

Table 2.1 summarizes the funding programs, including project eligibility and funding levels (where applicable) authorized in SAFETEA-LU for fiscal years (FY) 2005 through 2009.

Highway Funding Core Programs

National Highway System (NHS) – 23 USC 103, 104(b)(1)

NHS Examples: North Carolina Railroad Improvement Program Portway (New Jersey)

SAFETEA-LU Funding (FY 2005-2009): $30.5 Billion

The NHS is currently comprised of approximately 160,000 miles (256,000 kilometers) of roadway that have been determined to be important to the nation's economy, defense, and mobility. The NHS includes the following five subsystems of roadways: 1) Interstate; 2) Other Principal Arterial; 3) Strategic Highway Network (StraHNet); 4) major strategic highway connectors providing access between major military installations and StraHNet; and 5) intermodal connectors. The NHS program provides funding for roadways designated as part of the National Highway System, including intermodal connectors between the NHS and intermodal terminals. Eligible activities include construction, reconstruction, resurfacing, and rehabilitation on a roadway connecting the NHS with a truck-rail facility, port, pipeline terminal, or an airport.

The federal share of NHS funding is 80 percent. When the funds are used for Interstate projects to add high-occupancy vehicle or auxiliary lanes, but not other lanes, the federal share may be 90 percent. Certain safety improvements listed in 23 USC 120(c) have a federal share of 100 percent.

Surface Transportation Program (STP) – 23 USC 133, 104(b)(3), 140

STP Examples: Railroad Crossing Reliability Program (Dallas-Fort Worth, Texas) Red Hook Container Barge (Brooklyn, New York) Port of Tacoma Overpass (Tacoma, Washington)

SAFETEA-LU Funding (FY 2005-2009): $32.6 Billion

The STP program provides flexible funding for projects on any federal-aid highway, bridges on public roads, transit capital investments, and intracity and intercity bus terminals and facilities. Eligible freight projects include:

• Preservation of abandoned rail corridors;
• Bridge clearance increases to accommodate double-stack freight trains;
• Capital costs of advanced truck stop electrification systems; and
• Freight transfer yards.

The federal share of STP funding is generally 80 percent. When the funds are used for Interstate projects to add high-occupancy vehicle or auxiliary lanes, but not other lanes, the federal share may be 90 percent. Certain safety improvements listed in 23 USC 120(c) have a federal share of 100 percent.

Interstate Maintenance (IM) – 23 USC 119, 104(b)(4), 118(c)

SAFETEA-LU Funding (FY 2005-2009): $25.2 Billion

The IM program provides funding for resurfacing, restoring, rehabilitating and reconstructing (4R) routes on the Interstate System. These funds cannot be used to provide additional capacity on Interstate routes, and freight-specific projects are not eligible, although some activities may improve freight mobility.

The federal share is 90 percent, subject to the sliding scale adjustment. Certain safety improvements listed in 23 USC 120(c) have a federal share of 100 percent.

Coordinated Border Infrastructure Program – SAFETEA-LU Section 1303

SAFETEA-LU Funding (FY 2005-2009): $833 Million

The Coordinated Border Infrastructure Program provides funding for projects in border states that improve international cross-border movements of passenger vehicles and cargo. Previously provided as an allocated program, SAFETEA-LU changed the distribution mechanism to formula-based. Funds are distributed by formula to international border states based on factors related to the movement of people and goods through the land border ports of entry within the boundaries of the state as follows:

• 20 percent based on the number of incoming commercial trucks;
• 30 percent based on the number of incoming personal motor vehicles and buses;
• 25 percent based on the weight of incoming cargo by commercial trucks; and
• 25 percent based on the number of land border ports of entry.

Eligible projects should be located within 100 miles of the border and may include the construction of transportation and supporting infrastructure, operational improvements, or coordination of planning activities. A border state may use these funds to construct a project in Canada or Mexico, if the project directly and predominantly facilitates cross-border vehicle and cargo movement at an international port of entry in the border region of the state. Canada/Mexico must assure that the project will be constructed to standards equivalent to those in the United States, and be maintained and used over the useful life of the facility only for the purpose for which the funds were allocated.

The federal share is generally 80 percent. When the funds are used for Interstate projects to add high-occupancy vehicle or auxiliary lanes, but not other lanes, the federal share may be 90 percent. Certain safety improvements listed in 23 USC 120(c) receive a federal share of 100 percent.

Special Funding Programs

Congestion Mitigation and Air Quality Improvement Program (CMAQ) – 23 USC 149, 104(b)(2), 126(c)

CMAQ Examples: Dixie Siding Installation (Indianapolis, Indiana) Auburn Intermodal Transfer Facility (Auburn, Maine) DVRPC CMAQ Competitive Program (New Jersey-Pennsylvania)

SAFETEA-LU Funding (FY 2005-2009): $8.6 Billion

The CMAQ program funds transportation projects and programs that improve air quality (by reducing transportation-related emissions) in nonattainment and maintenance areas for ozone, carbon monoxide (CO), and particulate matter (PM10, PM2.5).

CMAQ funds have been used for freight-related projects that improve air quality by reducing truck, locomotive or other emissions. Examples of CMAQ-funded freight projects include construction of intermodal facilities for moving containers off of highways and onto rail, defraying barge operating costs, rail track rehabilitation, diesel engine retrofits, idle-reduction projects, and new rail sidings. Additionally, though previously eligible, SAFETEA-LU highlighted advanced truck stop electrification system at truck parking facilities, on-road diesel engine retrofits, and other cost-effective mitigation activities as CMAQ eligible projects. In addition, SAFETEA-LU provided new eligibility for nonroad diesel engine retrofit projects.

CMAQ funds may be used to fund construction and other activities that could benefit a private entity, if it can be documented that the project will remove truck traffic on the Federal-aid system or reduce other freight-related emissions, thus improving the region's air quality. This would be accomplished through a public-private partnership agreement. It is the public-private partnership agreement that allows spending public CMAQ funds on most private freight projects. CMAQ is often the only funding source that many freight projects can access.

The federal share is generally 80 percent for CMAQ projects. Certain other activities, including carpool/vanpool projects, priority control systems for emergency vehicles and transit vehicles, and traffic control signalization receive a federal share of 100 percent.

Highway Bridge Program – 23 USC 144

SAFETEA-LU Funding (FY 2005-2009): $21.6 Billion

The Bridge Program provides funding for replacement, rehabilitation, and systematic preventive maintenance of bridges. States must use a minimum of 15 percent of the funding for projects on off-system bridges (i.e., on non-federal-aid eligible roadways).

The federal share for all projects, except those on the Interstate System, is 80 percent. For those on the Interstate System, the federal share is 90 percent.

Railway-Highway Crossings – 23 USC 130

Rail-Highway Grade Crossing Examples: Ohio Southern Rail Line Rehabilitation Southern Tier Project (Hornell, New York to Corry, Pennsylvania)

SAFETEA-LU Funding (FY 2006-2009): $880 Million

Formerly a set-aside of the STP program, the Railway-Highway Crossings program provides funding for projects that improve safety at public highway-rail at-grade crossings through the elimination of hazards and/or the installation/upgrade of protective devices at crossings. SAFETEA-LU requires that states set aside at least 50 percent of the funding allocation for the installation of protective devices at rail-highway crossings. If all needs for installation of protective devices have been met, then the funds available can be used for other at-grade crossing projects eligible under this program. The federal share is 90 percent.

Eligible projects include:

• Separation or protection of grades at crossings;
• The reconstruction of existing railroad grade crossing structures; and
• The relocation of highways or rail lines to eliminate grade crossings.

Truck Parking Facilities – SAFETEA-LU Section 1305

SAFETEA-LU Funding (FY 2006-2009): $25 Million

The Truck Parking Facilities is a pilot program that provides grants for projects that address the shortage of long-term parking for commercial vehicles on the NHS. Eligible projects include construction of new or expanded commercial vehicle parking facilities, construction of turnouts for commercial vehicles, improvement to interchanges, electrification systems, and Intelligent Transportation System (ITS) deployments promoting availability of parking.

The federal share for Truck Parking Facilities funding is generally 80 percent. Certain safety improvements listed in 23 USC 120(c) receive a federal share of 100 percent.

Capital Grants for Rail Line Relocation Projects – 49 USC 20154 (SAFETEA-LU Section 9002)

SAFETEA-LU Funding (FY 2006-2009): $1.4 Billion (Subject to annual appropriation)

The Rail Line Relocation Grant program provides grants to states for local rail line relocation and improvement projects that improve rail traffic safety, motor vehicle traffic flow, community quality of life, or economic development, or involve relocation of any portion of the rail line. SAFETEA-LU authorized $350 million per year for FY 2006 through 2009, subject to appropriations. No funds were appropriated for this program in FY 2006. At least 50 percent of the funds shall be awarded for grants of $20 million or less. The federal share shall not be more than 90 percent.

Federal Transit Administration (FTA) Fixed Guideway Modernization Program – 49 USC 5337 (SAFETEA-LU Section 3035)

SAFETEA-LU Funding (FY 2006-2009): $6.1 Billion

FTA's Fixed Guideway Modernization program provides funding for capital improvements on "fixed guideway" systems, including heavy rail, commuter rail, high-occupancy vehicle (HOV) systems, and light rail. Transit and commuter rail providers are eligible to receive funds from this program for systems that have been in place for at least seven years. The funds are allocated to urbanized areas by statutory formula. Although freight projects are not eligible to use this funding source, capital improvements on passenger rail lines shared with freight rail could benefit railroads. The federal share for eligible projects is 80 percent.

Federal Aviation Administration (FAA) – Airport Improvement Program (AIP)

AIP Examples: Stockton Airport Freight Terminal (California) Air Freight Regional Hubbing Facility (Columbia, South Carolina)

FAA's Airport Improvement Program (AIP) provides funding for airport planning and development projects at airports included in the National Plan of Integrated Airports Systems (FAA AIP Handbook). Eligible airports must meet the following criteria:

• Cargo service airports receiving cargo in excess of 100 million pounds annually; and
• Private commercial airports that enplane more than 10,000 passengers annually.

For large and medium primary hub a irports, the grant covers 75 percent of eligible costs (or 80 percent for noise program implementation). For small primary, reliever, and general aviation airports, the grant covers 95 percent of eligible costs. Eligible projects include those improvements related to enhancing airport safety, capacity, security, and environmental concerns. In general, sponsors can use AIP funds on most airfield capital improvements or repairs except those for terminals, hangars, and non-aviation development.

Other Federal Funding Programs (Non-U.S. DOT)

U.S. Army Corps of Engineers (USACE) – Harbor Maintenance Trust Fund

Harbor Maintenance Examples: Little Rock Port Authority Slackwater Harbor (Arkansas) Port of Humboldt Dredging (California)

The Harbor Maintenance Trust Fund (HMTF) provides funding for operations and maintenance (i.e., dredging costs) of federally authorized channels for commercial navigation. Ports located along federal navigation channels are eligible to receive HMTF funding. The USACE FY 2007 budget includes approximately $2.3 billion for Operations and Maintenance (O&M), of which $707 million (31.3 percent) will be appropriated from the HMTF. The funds are distributed among 21 designated USACE regions. The O&M budget for commercial navigation expenditures is estimated at $1.3 billion (56 percent).

The federal share of O&M expenses funded by HMTF is 100 percent in coastal ports with a harbor less than 45 feet deep, and 50 percent for ports with harbors more than 45 feet deep.

U.S. Department of Commerce – Economic Development Administration (EDA) Funds

EDA Examples: Southern Tier Project (Hornell, New York to Corry, Pennsylvania) Port of South Louisiana Rail Spur Upgrade I-55 Access to Center Point Intermodal Center at Deer Run (Joliet, Illinois)

EDA provides grants for projects in economically distressed industrial sites that promote job creation and/or retention. Eligible projects must be located within an EDA-designated redevelopment area or economic development center. Eligible freight-related projects include: industrial access roads, port development and expansion, and railroad spurs and sidings. Grantees must provide evidence of economic distress that the project is intended to alleviate. Grant assistance is available up to 50 percent of the project, although the EDA could provide up to 80 percent for projects in severely depressed areas.

During the last quarter of 2005, the EDA announced 117 grants greater than $100,000, totaling almost $103 million. These investments were part of projects that totaled over $240 million. EDA's Fiscal Year 2004 investments totaled approximately $278 million, with grants ranging from $12,000 to $5.6 million.

U.S. Department of Agriculture (USDA) – Community Facility Program

The USDA Rural Housing Service's Community Facility Program provides three funding mechanisms to fund construction, enlargement, extension, or improvement of community facilities, providing essential services in rural areas and towns with a population of 20,000 or less. The three programs are 1) Direct Community Facilities loans, 2) Community Facility Loan Guarantees, and 3) Community Facility Grant Program. Grant assistance is available up to 75 percent of the project cost. Eligible transportation-related community facilities include airport hangars, airports, bridges, parking facilities, sidewalks, street improvements, transportation infrastructure for industrial parks, railroads, marinas, municipal docks, and special transportation equipment.

The Community Facility Program provides $297 million in direct loans, $208 million in loan guarantees, and $17 million in grants for FY 2007. The average loan is estimated at $442,000, whereas the average grant is estimated at approximately $32,000. The average loan guarantee is estimated at about $860,000.

Environmental Protection Agency (EPA) – Brownfield Revitalization Program

Through EPA's Brownfield Revitalization Program, the Federal government provides grants and loans for brownfield site cleanup. Brownfield sites could be redeveloped for commercial, residential, and/or industrial uses, including intermodal facilities (e.g., rail-truck transfer facilities). Site cleanup grants provide up to $200,000 per site to fund cleanup conducted by cities, development agencies, nonprofit groups, and similar entities at sites that they own. A 20 percent match (of funds or in-kind services) is required, although this can be waived in the case of hardship. The Revolving Loan Fund (RLF) grants provide up to $1 million per recipient, available for five years, to establish state or locally administered loan funds. Local governments, states, Indian tribes, and entities such as redevelopment agencies, regional councils, and land clearance agencies are eligible for these capitalization grants. RLF also can make low- or no-interest loans for cleanup. Beginning in FY 2003, recipients may use up to 40 percent of a capitalization award for cleanup subgrants at sites owned by subgrantees. Repayment of subgrants is not required. A 20 percent non-federal cost share in the form of money, labor, services, or materials is required.

As of May 2006, EPA has awarded 202 RLF grants totaling $186.7 million, and 238 cleanup grants totaling $42.7 million.

Discretionary and Other Programs

This section presents discretionary and other programs included in SAFETEA-LU that support projects with freight infrastructure elements. Through designation to a specific program, Congress allocates funding to carry out specific projects, or provides a set amount to states for a particular type of transportation investment. Funds from the programs presented below are dedicated to the projects specified in SAFETEA-LU.

Discretionary programs are identified for funding at the "discretion" of the Secretary of Transportation or as identified specifically for funding by Congress (also known as "earmarking"). Project sponsors typically submit a request or application and must meet certain eligibility criteria.

High-Priority Projects – 23 USC 117

SAFETEA-LU Funding (FY 2005-2009): $14.8 Billion

The High-Priority Projects Program provides designated funding for specific projects identified in SAFETEA-LU, some of which affect freight mobility. A total of 5,091 projects are identified, each with a specified amount of funding over the five years of SAFETEA-LU. The federal share for projects under this program is generally 80 percent.

Section 1702 of SAFETEA-LU contains the complete list of High-Priority Projects. The full list of projects is available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_public_laws&docid=f:publ059.109.pdf.

Transportation Improvement Projects – SAFETEA-LU Section 1934

SAFETEA-LU Funding (FY 2005-2009): $2.6 Billion

The Transportation Improvement provision in SAFETEA-LU provides approximately $2.6 billion for 466 earmarked projects designated under Section 1934. Some of these projects are freight-related and/or may affect freight mobility, including funding allocations for major freight corridor projects such as the Alameda Corridor East (California) and ReTRAC (Nevada). The federal share for Transportation Improvement projects is generally 80 percent and 100 percent for certain safety projects.

Section 1934 of SAFETEA-LU contains a complete list of Transportation Improvement Projects to be funded through 2009. The full list of projects is available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_public_laws&docid=f:publ059.109.pdf.

Projects of National and Regional Significance – SAFETEA-LU Section 1301

SAFETEA-LU Funding (FY 2005-2009): $1.8 Billion

The Projects of National and Regional Significance program provides funding for high-cost projects that are expected to have national and regional benefits, including: 1) improving economic productivity by facilitating international trade; 2) relieving congestion; and 3) improving transportation safety and security by facilitating passenger and freight movement.

Eligible projects include any surface transportation project eligible for federal assistance under 23 USC, including freight railroad projects. The total project cost must be greater or equal to the lesser of $500 million, or 75 percent of the amount of federal highway assistance funds apportioned to the state where the project is located. The federal share for this program is 80 percent.

SAFETEA-LU authorized $1.8 billion for fiscal years 2005-2009; these funds have been fully earmarked to 25 projects, some of which are freight projects, including the Heartland Corridor (Virginia-West Virginia-Ohio), CREATE (Chicago, Illinois), and the Alameda Corridor East (California). The full list of projects is available on the Office of Operations, Freight Management and Operations Web site, http://www.ops.fhwa.dot.gov/freight/policy.htm.

National Corridor Infrastructure Improvement Program – SAFETEA-LU Section 130

SAFETEA-LU Funding (FY 2005-2009): $1.9 Billion

The National Corridor Infrastructure Improvement Program is a discretionary program that provides funding for construction of highway projects in corridors of national significance to promote economic growth and international or interregional trade. These corridors of national significance include major freight corridors. SAFETEA-LU authorized $1.9 billion for 33 earmarked projects. The federal share for projects under this program is 80 percent. When the funds are used for Interstate projects to add high-occupancy vehicle or auxiliary lanes, but not other lanes, the federal share may be 90 percent. Certain safety improvements listed in 23 USC 120(c) receive a federal share of 100 percent. The full list of projects is available on the Office of Operations, Freight Management and Operations Web site, http://www.ops.fhwa.dot.gov/freight/policy.htm.

Freight Intermodal Distribution Grant Program – SAFETEA-LU Section 1306

SAFETEA-LU Funding (FY 2005-2009): $30 Million

The Freight Intermodal Distribution Grant Program is a pilot program that provides funding for intermodal freight transportation and distribution facilities at inland ports and intermodal freight facilities. Projects are intended to relieve congestion, improve safety, facilitate international trade, and encourage public-private partnerships. SAFETEA-LU authorized $6 million per year through FY 2009. All available funds have been earmarked to six projects. The full list of projects is available on the Office of Operations, Freight Management and Operations Web site, http://www.ops.fhwa.dot.gov/freight/policy.htm.

Ferry Boat Discretionary Program – 23 USC 129(c)

SAFETEA-LU Funding (FY 2005-2009): $285 Million

The Ferry Boat Discretionary Program provides funds for the construction of ferry boats and ferry terminal facilities connecting to the NHS. Eligible locations represent logical extensions of the NHS roadways where construction of a bridge is neither practical or feasible. Ferry boat projects eligible under the program include services designed to carry motor vehicles from one point to another including commercial vehicles. A set-aside of $20 million per year is provided for the construction or refurbishment of ferry boats and ferry terminals and their approaches that are part of the NHS in the states of Alaska, New Jersey, and Washington.

The remaining funds ($167 million for fiscal years 2006 through 2009) are available for projects on a competitive basis. Because of the large number of requests, $2 million or less is typically awarded, in order to disburse funding to as many states as possible.

Key Issues Affecting Federal Funding Programs

Although SAFETEA-LU expanded the number and type of funding programs available for freight improvement projects, there remain several key issues affecting the ability of states and MPOs to use these programs or funds from other federal agencies to fund freight-specific projects:

• Project Eligibility  – The programs described above are limited to specific modes or specific types of projects. CMAQ has been widely used for several freight projects, including public-private partnerships. However, CMAQ funds cannot be used for highway improvements that increase capacity for single-occupant vehicles, and are limited to projects that improve air quality in nonattainment or maintenance areas. Projects funded by EDA grants must be located in economically distressed areas (as designated by the EDA) and are limited to projects that attract or retain jobs. While these funding programs are useful for some projects, many freight transportation improvement projects do not meet these specific eligibility requirements.
• Competition from Other Priorities  – Traditional programs, such as STP or NHS funds, are more flexible than mode-specific or special programs and can often be used to address a wide range of transportation needs in an area. However, potential freight projects have to compete with other transportation investments for funding under these programs.
• Multijurisdictional Investments  – The NHS and STP funding programs may not be eligible for multistate freight investments. Federal-aid funds are allocated by formula and must be matched by state or local funds, making it difficult for states to invest in projects beyond their state boundaries.
• Funding for Complex Projects  – Complex projects that include several construction elements could be funded using a combination of federal programs. For instance, a project that includes improvements on an intermodal connector, bridge rehabilitation, and rail-highway crossing safety improvement would be eligible for NHS, Bridge, and Rail-Highway Grade Crossing funds for respective eligible costs. Examples included in this guidebook in which multiple funding programs have been used to fund freight investments include the North Carolina Railroad Improvement Program (NCRRIP) and the FAST Corridor Program.

Federal Financing Tools

Federal financing tools include four mechanisms to finance transportation investments:

1. Loans, where a project sponsor borrows federal highway funds directly from a state DOT or the Federal Government [e.g., State Infrastructure Banks (SIB), and TIFIA loans].
2. Credit Enhancement, where a state DOT or the Federal Government makes federal funds available on a contingent (or standby) basis [e.g., Transportation Infrastructure Finance and Innovation Act (TIFIA) loan guarantees and lines of credit]. Credit enhancement helps reduce risk to investors and thus allows the project sponsor to borrow at lower interest rates.
3. Debt financing through Grant Anticipation Revenue Vehicles (GARVEEs) bonds, where a state DOT can pledge a share of future federal highway funding toward debt service on a long-term bond issue.
4. Special Experimental Project Number 15 (SEP-15), allows the Secretary to waive the requirements of title 23 and the regulations under title 23 on a case-by-case basis. SEP-15 allows FHWA to experiment in four major areas of project delivery – contracting, right-of-way acquisition, project finance, and compliance with the National Environmental Policy Act (NEPA) and other environmental requirements.

Table 2.2 shows the financing tools that are included in SAFETEA-LU.

Transportation Infrastructure Finance and Innovation Act (TIFIA) – SAFETEA-LU Section 1601

TIFIA Examples: ReTRAC (Reno, Nevada) Cooper River Bridge (Charleston, South Carolina)

The TIFIA credit program, originally enacted in the Transportation Equity Act for the 21st Century (TEA-21), was modified by SAFETEA-LU. The strategic goal of this program is to leverage limited federal resources and stimulate private capital investment by providing credit assistance (up to 33 percent of the project cost) for major transportation investments of national or regional significance. Credit assistance is provided through secured loans, loan guarantees, or lines of credit. Project costs must be at least $50 million or one-third of the state's annual apportionment of federal-aid highway funds whichever is less. SAFETEA-LU expanded TIFIA eligibility to certain private rail projects. Eligibility for freight facilities include:

• Public or private freight rail facilities providing benefits to highway users;
• Intermodal freight transfer facilities;
• Access to freight facilities and service improvements, including capital investments for ITS; and
• Port terminals, only when related to surface transportation infrastructure modifications to facilitate intermodal interchange, transfer, and access into and out of the port.

SAFETEA-LU authorizes $122 million per year to pay the subsidy costs of supporting federal credit under TIFIA. There is no limit on the amount of credit assistance that can be provided to borrowers in a given fiscal year. Repayment of TIFIA loans is required to come from tolls, user fees, or other dedicated revenue sources. As of July 2006, TIFIA assistance amounted to $3.2 billion, leveraging $13.2 billion in transportation investments for a total of 14 projects. About $994 million in TIFIA debt has been repaid to date. Additional information on this financing program is available at http://tifia.fhwa.dot.gov/.

State Infrastructure Banks (SIB) – SAFETEA-LU Section 1602

SIB Examples: Ohio Southern Rail Line Rehabilitation Cooper River Bridge (Charleston, South Carolina)

The SIB program, expanded under SAFETEA-LU, allows all states, the District of Columbia, Puerto Rico, and other United States territories to establish infrastructure revolving funds eligible to be capitalized with federal transportation dollars authorized through FY 2009. In addition, the implementation of multistate SIBs is permitted, which may encourage states to implement and fund projects (including regional freight improvements) that cross jurisdictional boundaries. States also are allowed to create a rail account within the SIB using funds available to capital projects under Subtitle V (Rail Programs) of 49 USC. Through the SIB, states can issue loans and other credit tools to public and private sponsor of transportation infrastructure projects.

The SIB program was created within the Intermodal Surface Transportation Efficiency Act (ISTEA) legislation, and re-enacted under Transportation Equity Act fro the 21st Century (TEA-21). The first SIB pilot program was open to 10 states, but was expanded to include 38 states plus Puerto Rico. Under TEA-21, only four states (California, Florida, Missouri, and Rhode Island) could transfer additional federal funding to further capitalize their banks. Other SIBs could continue to operate by using whatever funds had already been deposited in the bank, supplementing the initial capitalization with additional state or local funds.

States participating in the SIB program may capitalize their account(s) in their SIBs with federal surface transportation funds for each of FY 2005-2009 as follows:

• Highway Account – Up to 10 percent of the funds apportioned to the state for the NHS, STP, Bridge, and Equity Bonus.
• Transit Account – Up to 10 percent of funds made available for capital projects under Urbanized Area Formula Grants, Capital Investment Grants, and Formula Grants for Other Than Urbanized Areas.
• Rail Account – Funds made available for capital projects under Subtitle V (Rail Programs) of 49 USC.
• The State must match federal funds used to capitalize the SIB on an 80-20 Federal/non-Federal basis.

Currently 32 states and Puerto Rico participate in the NHS and TEA-21 programs. These states have issued more than $5 billion in loans. No states have entered into cooperative agreement for SAFETEA-LU SIBs to date.

Rail Rehabilitation and Improvement Financing (RRIF) – SAFETEA-LU Section 9003

RRIF Examples: Iowa Interstate Railroad Rehabilitation and Purchase of Locomotives Riverport Railroad Rehabilitation and Yard Expansion (Savanna, Illinois)

The RRIF program provides loans and credit assistance to both public and private sponsors of rail and intermodal projects. Eligible projects include acquisition, development, improvement, or rehabilitation of intermodal or rail equipment and facilities. Direct loans can fund up to 100 percent of a railroad project with repayment terms of up to 25 years and interest rates equal to the cost of borrowing to the government. Thirteen loans have been issued since 2002 for a total of $517 million. The smallest and largest loans approved were $2.1 million (Mount Hood Railroad) and $233 million (Dakota, Minnesota & Eastern Railroad), respectively.

SAFETEA-LU authorizes $35 billion for this credit program, of which $7 billion is directed to short line and regional railroads. In addition, SAFETEA-LU eliminated two major issues that had made RRIF loans virtually unusable to the railroads. First, it removed the requirement that collateral be provided. Second, it removed the "lender of last resort" provision, that required applicants to provide evidence that private lending was denied for the project by two lenders.

GARVEE Bonds

GARVEE Examples: Rhode Island Freight Rail Improvement Project Widening of I-64, I-65, and I-75 (Kentucky)

A Grant Anticipation Revenue Vehicle (GARVEE) bond is a financing instrument that allows states to issue debt backed by future federal-aid highway revenues. Eligibility for freight projects is constrained by the underlying federal-aid highway programs that will be used to repay debt service.

Private Activity Bonds

Title XI Section 11143 of SAFETEA-LU amends Section 142(a) of the IRS Code to allow the issuance of tax-exempt private activity bonds for highway and freight transfer facilities. Therefore, states and local governments are allowed to issue tax-exempt bonds to finance highway and freight transfer facility projects sponsored by the private sector. SAFETEA-LU includes a cap of $15 billion on private activity bonds.

Passage of the private activity bond legislation reflects the Federal Government's desire to increase private sector investment in United States transportation infrastructure. Providing private developers and operators with access to tax-exempt interest rates lowers the cost of capital significantly, enhancing investment prospects. Increasing the involvement of private investors in highway and freight projects generates new sources of money, ideas, and efficiency.

Special Experimental Project 15 (SEP-15)

SEP-15 is an experimental process for FHWA to identify, for trial evaluation, new public-private partnership approaches to project delivery. It is anticipated that these new approaches will allow the efficient delivery of transportation projects without impairing FHWA's ability to carry out its stewardship responsibilities to protect both the environment and American taxpayers.

SEP-15 addresses, but is not limited to, four major components of project delivery:

• Contracting;
• Compliance with environmental requirements;
• Right-of-way acquisition; and
• Project finance.

Elements of the transportation planning process may be also involved. SEP-15 applications may include suggested changes to the FHWA's traditional project approval procedures and may require some modifications in the implementation of FHWA policy. Deviations from current title 23 USC, requirements and generally applicable FHWA regulations also may be involved.

Key Issues Affecting Federal Financing Tools

SAFETEA-LU greatly enhanced the loan and credit enhancement programs available to finance freight improvements. Some of these programs are primarily targeted at major transportation improvements, which can limit their applicability in some regions. Although SAFETEA-LU reduced the minimum project size for TIFIA loans, projects must still cost at least $50 million, or one-third of a state's annual federal-aid apportionments, whichever is less. While some freight projects are large, multimodal projects that fit within this category, many others are small, local roadway, rail, or access projects that do not meet this threshold. SIB loans and GARVEE bonds are more suitable for smaller freight investments.

In addition, while loan and credit enhancement programs can accelerate the time it takes to move projects from the planning stage to actual implementation, some states – particularly those that do not have many large urban areas or significant congestion problems – do not have a need to accelerate projects, making these types of programs less useful. In these areas, regional or statewide freight mobility can be effectively improved by using smaller projects that do not require innovative financing techniques.

Other issues on the application of these financing tools include:

• Financing Tools Require Dedicated Revenue  – The financing tools described above still require a dedicated revenue source, such as tolls, user fees, or dedicated taxes, to repay debt. Some state DOTs and MPOs find it difficult to identify or develop such dedicated sources of revenue, limiting the use of these financing tools.
• Some of These Federal Financing Tools Require State Enabling Legislation  – While the use of innovative financing tools has proven to be very useful to accelerate and implement transportation investments, some states are unable to use these tools. For instance, several states have reached the limits on the amount of debt that can be incurred, whereas other states' legislators have not specifically authorized the use of SIBs or GARVEE bonds.

State Grant and Loan Programs for Freight Investments

When it comes to the implementation of freight projects, several states have created innovative programs that provide ongoing capital resources to support freight-related improvements. Illustrative examples of some of these programs are described below. [The information in this section has been accumulated over the last few years. Some of these programs contain information that was collected for FHWA's Funding and Institutional Options for Freight Infrastructure Improvement (report done in 2002). Updated information has been incorporated were available.] Table 2.3 shows a list of these programs, along with the type of freight modes that they support.

Table 2.3 Illustrative State Grant and Loan Programs

Program	State	Highway	Rail	Airport	Port	Intermodal
California Infrastructure and Economic Development Bank (I-Bank)	California	Yes	No	No	Yes	Yes
California Maritime Infrastructure Bank (CMIB)	California	No	No	Yes	Yes	No
Florida Seaport Transportation and Economic Development Funding (FSTED)	Florida	Yes	Yes	No	Yes	Yes
Florida Strategic Intermodal System (SIS)	Florida	Yes	Yes	Yes	Yes	Yes
Illinois Rail Freight Program (IRFP)	Illinois	No	Yes	No	No	No
Indiana Rail Service Fund/Grade Crossing Improvement Fund	Indiana	Yes	Yes	No	No	No
Maine Industrial Rail Access Program (IRAP)	Maine	No	Yes	No	No	No
Michigan Rail Loan Assistance Program (MiRLAP)	Michigan	No	Yes	No	No	Yes
Michigan Freight Economic Development Program	Michigan	No	Yes	No	No	No
Michigan Local Grade Crossing Program	Michigan	Yes	Yes	No	No	No
Michigan Grade Separation Loan Program	Michigan	Yes	Yes	No	No	No
Minnesota Port Development Assistance Program	Minnesota	No	No	No	Yes	No
Minnesota Rail Service Improvement Program	Minnesota	No	Yes	No	No	Yes
Mississippi Multimodal Transportation Improvement Program	Mississippi	No	Yes	Yes	Yes	No
New York State DOT Industrial Access Program (IAP)	New York	Yes	Yes	No	No	No
Ohio Rail Development Commission (ORDC)	Ohio	No	Yes	No	No	No
Oregon Port Revolving Fund (OPRF)	Oregon	No	No	No	Yes	No
Oregon Transportation Investment Act	Oregon	Yes	No	No	No	No
Pennsylvania Rail Freight Assistance Program (RFAP)	Pennsylvania	No	Yes	No	No	No
Pennsylvania Airport Assistance Program	Pennsylvania	No	No	Yes	No	No
Tennessee Aeronautics Transportation Equity Fund (TEF)	Tennessee	No	Yes	Yes	Yes	No
Texas Rail Relocation and Improvement Fund	Texas	No	Yes	No	No	No
Virginia Rail Enhancement Funds (VREF)	Virginia	No	Yes	No	No	No
Virginia Rail Industrial Access Program (RIAP)	Virginia	Yes	Yes	No	No	No
Washington Freight Mobility Strategic Investment Board (FMSIB)	Washington	Yes	Yes	No	Yes	No
Wisconsin Harbor Assistance Program	Wisconsin	No	No	No	Yes	No
Wisconsin Rail Freight Programs	Wisconsin	No	Yes	No	No	Yes

California Infrastructure and Economic Development Bank (I-Bank)

The California I-Bank was established in 1994 to finance public infrastructure and private investments that promote economic growth, revitalize communities, and enhance the quality of life throughout California. I-Bank's Infrastructure State Revolving Fund (ISRF) Program provides low-cost financing to public agencies for a wide variety of infrastructure projects, including city streets, county highways, state highways, drainage, water supply and flood control, educational facilities, environmental mitigation measures, parks and recreational facilities, port facilities, public transit, sewage collection and treatment, solid waste collection and disposal, water treatment and distribution, defense conversion, public safety facilities, and power and communications facilities. ISRF Program funding is available in amounts ranging from $250,000 to $10,000,000, with loan terms of up to 30 years. The I-Bank issued a second series of ISRF Revenue Bonds in December 2005, worth $52.8 million.

The interest rate is fixed for the term of financing and is set at 67 percent of a tax-exempt "A" rated bond with a weighted average life similar to the I-Bank financing. Projects must pay either a one-time origination fee of 0.85 percent of the ISRF financing amount, or $10,000, whichever is greater, and an annual fee of 0.3 percent of the outstanding principal balance. The origination fee may be included in the ISRF financing amount. There is no required match or leverage amount, and ISRF financing can be the sole source of financing for a project.

California Maritime Infrastructure Bank (CMIB)

In 1994, California State legislation established CMIB as the first statewide, maritime-specific public investment bank in the United States. CMIB was developed to service the financing needs of projects not funded by the State of California or the private sector. The idea behind CMIB is that the bank would request a one-time grant from federal or state sources for initial capitalization. Once capitalized, CMIB's potential tools for financing would include long-term, low-interest loans, and taxable and tax-exempt bonds. Funds provided through CMIB would be less restrictive than other state funding sources such as the State Harbors and Watercraft Revolving Fund (HWRF). For instance, HWRF funds cannot be used on a project for a private tenant on public land, but funds coming from the CMIB could be used for that purpose.

CMIB has been heralded as an innovative financing mechanism in the maritime industry, but it has yet to gain the financial support needed to capitalize the bank and begin loaning to projects. Although, lacking in funding capacity, CMIB has been able to provide conduit financing using its status as a public agency with Joint Powers Authority (JPA). As a JPA, CMIB has been able to issue bonds to finance several port projects. To date, CMIB has issued $200 million in bonds for several port projects.

Florida Seaport Transportation and Economic Development Funding (FSTED)

Florida has 14 deepwater ports that serve interests in domestic trade, international cargo, and cruise ship operations. The seaports are represented by a trade association, the Florida Ports Council, which succeeded in getting Florida Senate Bill 1316 passed by the Florida Legislature in 1990. This bill established the state-funded Florida Seaport Transportation and Economic Development Program (FSTED). Since then, FSTED Program has been amended from the original $8 million to provide $15 million annually in grants and a total of $25 million annually to support bondable state revenues. State funding cannot exceed 50 percent of the total cost of a project.

In order to be approved, a proposed project must be found to be consistent with the seaport's comprehensive master plan and the local government's comprehensive plan, be of demonstrable economic benefit to the State, and be found consistent with the Florida DOT's adopted five-year work program. Candidate projects to be financed through bondable funding must also meet statutory eligibility and consistency requirements. Waterside dredging-related improvements require a 75/25 port/local government match. Landside access improvements (off-port) and on-port bonded projects require a minimum 50/50 contribution from recipient ports.

Florida Strategic Intermodal System (SIS)

Florida's SIS was established in 2003 to enhance Florida's economic competitiveness by focusing limited state resources on those transportation facilities that are critical to Florida's economy and quality of life. The SIS is a statewide network of high-priority transportation facilities, including the State's largest and most significant commercial service airports, spaceport, deepwater seaports, freight rail terminals, passenger rail and intercity bus terminals, rail corridors, waterways, and highways.

Legislation enacted in 2003 and 2004 identified SIS as the State's top transportation priority and made all SIS and emerging SIS facilities, including those owned by local governments, independent authorities or private sector partners, eligible for state funding. Florida DOT's new investment policy is expected to dedicate about $2 billion per year for SIS and Emerging SIS improvement projects by 2015. SIS investments are expected to be funded through a combination of dedicated state funds, anticipated revenues, innovative financing, and joint funding by public and private partners. Florida DOT and its partners will work to expedite project delivery and provide sufficient flexibility in the planning and funding process to address unanticipated economic opportunities.

Implementation of the SIS began in 2004 with the identification and funding of 36 projects on SIS connectors totaling $100 million. The improvements included additional capacity, geometry improvements, and ITS deployments on several SIS connectors; design of exclusive truck lanes to the Port of Tampa; and dredging at Port Manatee.

Illinois Rail Freight Program (IRFP)

The IRFP was established in 1983 by the Illinois DOT to facilitate investments in rail service by serving as a link between interested parties and to channel government funds to projects that achieve statewide economic development. Illinois DOT generally provides low-interest loans to finance rail improvements and, in some cases, provide grants. The focus of the program is on those projects that have the greatest potential for improving access to markets and maintaining transportation cost savings, and those where state participation will leverage private investments to foster permanent solutions to rail service problems. A benefit/cost ratio is used to evaluate potential rail freight projects. The program uses federal and state funding to support this loan program. The federal funds came originally from the Local Freight Rail Assistance Program (LFRA), which was eliminated in the 1990s. State funding comes from General Fund appropriations.

Indiana Rail Service Fund (IRSF) and Grade Crossing Improvement Fund

The IRSF Program is administered by the Rail Section of Indiana DOT. The program provides grants and loans to assist with both the funding of rail infrastructure improvements and with the purchase of lines threatened with abandonment. The level of grant funding available for each project is determined based on project cost, IRSF balance, and the number of anticipated applicants in any funding cycle. The program is targeted towards short line railroads and port authorities (the program's funds are not available for use by Class I railroads). IRSF grants totaling more than $1.7 million were provided to short line railroads throughout the state for 2006.

IRSF funds have been used to improve one-third of the short line track designated as "excepted" (i.e., lines that are in such poor condition that speed is limited to a maximum of 10 miles per hour (mph) to Class I standards). Program funds also can be used to provide loans to railroads for the purchase or rehabilitation of real or personal property that will be used by the railroad in providing rail transportation services; provide $50,000 annually to the Indiana DOT for rail planning activities; provide money for the high-speed rail development fund; provide grant funding for railroads owned or operated by a port authority; and provide grant funding to a Class II or III railroad for the rehabilitation of railroad infrastructure or railroad construction. The maximum funding provided to any one railroad is $200,000 and a minimum match of 25 percent is required.

The Passive Grade Crossing Improvement Fund was established in 1997 to upgrade at-grade crossings that do not have automatic train-activated warning devices to indicate the presence of an oncoming train. Since the commencement of the fund, more than $1.5 million in state funds has been made available to local jurisdictions and railroads, resulting in over 2,000 passive grade crossing improvements in 36 counties. Examples of eligible improvements include crossbucks, advance warning signs, pavement marking, and overhead streetlights to illuminate a crossing, median barriers, and improvements for better sight distance.

Maine Industrial Rail Access Program (IRAP)

Maine DOT provides rail funding through IRAP. This program was designed to encourage economic development and employment growth; preserve essential rail service; enhance intermodal transportation; and preserve rail corridors for future transportation uses. The program, funded through revenues from General Fund bonds, provides up to 50 percent of the estimated project cost. The 2003 transportation bond referendum contained $2.6 million for the IRAP. The Office of Freight Transportation administers the Program, and selects potential projects based on the ratings a project received for 10 criteria that measure the impact on the economy, the environment, and the transportation system.

Michigan Rail Loan Assistance Program (MiRLAP)

The MiRLAP is designed to help preserve and improve Michigan's rail freight infrastructure through the provision of non-interest-bearing loans to fund eligible improvement projects with a repayment period of up to 10 years. The MiRLAP operates as a revolving fund, with an estimated $1.8 million available for the current funding year. Examples of eligible projects include track rehabilitation, bridge and culvert repair, new construction, transload facilities, and rail consolidation projects.

Projects are evaluated to determine their relative merit in conjunction with program goals. The selection process evaluates a project's economic and safety benefits to the public, improvement of rail service to industrial and agricultural rail customers, elimination of grade crossings, and reduction in highway traffic congestion. All loans must be approved by the State Transportation Commission and the State Administrative Board.

Michigan Freight Economic Development Program

The Freight Services and Safety Division of Michigan DOT offers financial assistance to transportation companies, private companies, or local units of government in the development and/or expansion of business and industries. The program offers financial assistance in the form of loan/grants covering up to 50 percent of the rail freight portion of the project when the rail improvement facilitates economic development. All loans are made at a minimum interest rate of 2 percent below the prime rate then in effect. Priority is given to projects that can demonstrate multiple users or the potential for future public use, such as spur tracks into new or expanding industrial parks or transloading facilities. The number of jobs created or retained, total anticipated carloadings, and relative project cost are other important considerations. Over the 1995 through 2005 period, the program has funded 33 projects, for a total state investment of $13.1 million.

Michigan Local Grade Crossing Program

The Local Grade Crossing Program provides local governmental units and railroad companies with assistance for developing and implementing projects to enhance motorist safety at public highway-railroad grade crossings. Locations are selected using a statewide prioritization system that identifies crossings where safety enhancements will have the greatest benefit to the motoring public.

The selection process evaluates a number of factors, including the average numbers of vehicles and trains per day, the existing level of warning devices, and the five-year vehicle/train crash history. Funding assistance can be used for projects such as the installation of new active warning devices or the upgrade of existing devices.

Michigan Grade Separation Loan Program

The Local Road/Railroad Grade Separation Loan Program was recently established to encourage and facilitate the construction of grade separations where essential local roads must intersect railroads. Loans are available to local road authorities for preliminary engineering and design (capped at 10-15 percent of project costs) and for 100 percent of the construction of new structures (overpasses and underpasses) that separate the grade between local roads and railroads.

The Program is funded with $4 million in state funds. The interest rate varies based on payback term, ranging from 4-5 percent. All applications received are reviewed by Michigan DOT's Freight Services and Safety Division. All recommended loans must be approved by the State Transportation Commission and the State Administrative Board.

Minnesota Port Development Assistance Program (PDA)

The Minnesota Legislature began funding the PDA in 1996. The PDA program is designed to assist private sector operators of public facilities through the provision of grants and loans paid out of a revolving fund.

The program provides a state match of up to 80 percent and requires a local match of at least 20 percent for port improvements. The Ports and Waterways Section of the Minnesota DOT is responsible for the administration of the program.

As of June 2005, the State of Minnesota had appropriated a total of $14.5 million toward the PDA Program. Eligible projects include dredging of dock areas, dock wall reconstruction, building rehabilitation, and bringing facilities up to safety code.

Minnesota Rail Service Improvement (MRSI) Program

The MRSI Program was established in 1976 to prevent the loss of rail service on lines subject to abandonment. As of 2003, the MRSI Program had received $14.5 million in state general funds and $25.5 million in general obligation bonds.

The five subprograms that fall under the broader MRSI Program are presented below:

1. Rail Line Rehabilitation Program – This Program provides low- or no-interest loans to rehabilitate and preserve rail lines. Upon completion of the rail rehabilitation project, the railroad repays the State on a negotiated per-car basis or at a predetermined fixed rate. The State provides up to 70 percent of the rehabilitation costs.
2. Rail Purchase Assistance Program – This Program helps regional rail authorities purchase rail lines if a financial analysis shows that the line can operate at a profit, that purchase cost and necessary rehabilitation will not exceed benefits, and that the regional railroad authority is capable of operating the rail line or can contract with an operator to do so.
3. Rail User and Rail Carrier Loan Guarantee Program – This program helps shippers and carriers to obtain loans for rail rehabilitation and capital improvements. The program guarantees up to 90 percent of the loan.
4. Capital Improvement Loans – This Program lends rail users up to $200,000 or up to 100 percent of the project, whichever is less, to improve rail facilities. Capital improvement loans are available to improve rail service through construction or improvements to rail line segments (i.e., side track and team track connections); and to construct or improve facilities used to load, unload, store and transfer freight and commodities. Loans are repaid on a quarterly basis or a lump sum within 10 years.
5. Rail Bank Program – This Program is used to acquire and preserve abandoned rail lines for future state, public, and commercial transportation; and for transmission needs (transit, trails, pipelines, etc.).

Minnesota DOT uses the capital improvement portion of the MRSI Program on a regular basis, with other program areas (rail line rehabilitation, rail purchase assistance, rail bank, and rail user and rail carrier loan guarantee) used on an as-needed basis.

Mississippi Multimodal Transportation Improvement Program

The Mississippi Multimodal Transportation Improvement Program was created in 2002 by the Mississippi Legislature, with the purpose of providing funds for nonhighway transportation projects. The legislation establishes funding percentages for each mode as follows: 38 percent for ports, 34 percent for airports, 16 percent for transit systems, and 12 percent for rail. Mississippi DOT has included $5 million annually in its budget for FY 2005 and 2006. To date, the Program has funded 19 port projects, 29 airport projects, 8 rail projects, and 35 transit projects.

New York State Department of Transportation Industrial Access Program (IAP)

The New York State IAP was designed to complement economic development projects where transportation access may pose a problem or may offer a unique opportunity to improve the viability of a project. Awards are made on a 60 percent grant, 40 percent interest-free loan basis, up to a maximum of $1 million or 20 percent of any annual appropriation. The loan must be paid back within five years, although the repayment terms are negotiable. IAP funds are not designed to be a substitute for private financing and are only available to those projects where attempts to obtain conventional (government and private) financing do not result in the necessary support on a timely basis. Eligible work includes design, acquisition of property, public access road/rail construction or reconstruction, curbing, sidewalks, traffic control and safety devices, drainage systems, landscaping, and similar work that may facilitate industrial access. IAP funds cannot be used for debt service payments or for costs incurred prior to the effective date of the agreements.

Ohio Rail Development Commission (ORDC)

The ORDC was established in 1994 within the Ohio DOT to provide assistance to companies for new rail and rail-related infrastructure. ORDC funding is used to promote the retention and development of Ohio companies through the use of effective rail transportation, and also is available to companies that are increasing existing rail operations within the State. ORDC works closely with the Ohio Department of Development and other public and private development-related organizations to provide assistance to companies.

Grant funding is generally limited to projects where significant job creation or retention is involved (25 or more jobs). ORDC loan financing is available to qualified applicants even when jobs are not being created or retained. ORDC's standard loan package is a five-year loan term and an interest rate that equals two-thirds of prime at the time of the loan closing.

Oregon Port Revolving Fund (OPRF)

The OPRF was established in 1977 in order to provide long-term loans at below-market interest rates for the planning and construction of facilities and infrastructure that promote maritime shipping, aviation, and commercial/industrial activities of ports. The fund is focused towards small- and medium-sized projects that are not suitable to finance through a large bond program. The loan fund makes projects possible that otherwise would not be undertaken due to lack of funding. For instance, many ports developing commercial waterfront property would prefer to lease the land rather than sell it. Because businesses usually cannot qualify for a loan to build facilities on leased land, OPRF allows a port to receive money for building in the form of a loan from the State. The port can then build and lease the facility to an interested tenant, while maintaining ownership of the land and retaining the new facility as an asset.

The OPRF loan program is administered by the Port's Division of the Oregon Economic Development Department. Loan applicants are limited to total awards of not more than $3 million outstanding at any one time. The loan term can be as long as 20 years or the useful life of the project, with interest rates set by the Department at market rates, but not less than Treasury Notes of a similar term minus 1 percent.

Oregon Transportation Investment Act (OTIA)

Over the last five years, the Oregon Legislation has enacted the OTIA I, OTIA II, and OTIA III to support Oregon's transportation needs.

OTIA I was passed by the 2001 Legislature with the goal of funding bridge replacement and highway improvement programs. OTIA I increased several Driver and Motor Vehicle fees to secure $400 million in bonds to increase lane capacity and improve interchanges ($200 million), repair and replace bridges ($130 million), and preserve road pavement ($70 million). OTIA II, passed a year later, added $50 million for projects to increase lane capacity and improve highway interchanges, $45 million for additional bridge projects, and $5 million to preserve road pavement. The $500 million in bonds from the two acts was used to leverage $172 million in matching funds from local governments.

OTIA III, signed into law in 2003, provides about $2.5 billion to improve Oregon's highways, roads, and streets over a 10-year period. Of the total, $1.6 billion will be used to repair and replace bridges, $361 million to preserve road pavement, and $500 million to increase lane capacity and improve interchanges. Of the $500 million for capacity and interchange improvements, $100 million was directed to projects that would enhance freight mobility, access to industrial lands, and/or access to job creation sites. The program is supported by increases in title, registration, and other fees authorized by the legislation, as well as transfer payments of $25 million from Oregon DOT's annual state modernization program budget of about $56 million.

Projects for the OTIA program are selected through an extensive public input process. Local governments and area commissions on transportation work together to forward project lists to the Oregon Transportation Commission, which approves the final list. For OTIA III, Oregon DOT worked with local governments and the Oregon Freight Advisory Committee to assist in identifying bridges that are important to freight movements and to identify projects that enhance freight mobility and access.

Pennsylvania Rail Freight Assistance Program (RFAP)

T he RFAP provides financial assistance for investment in rail freight infrastructure through grants of up to $250,000 or 70 percent of rail project costs, whichever is less. The purpose of the Program is to preserve essential freight rail service where economically feasible, and to preserve or stimulate economic growth through new or expanded rail service. Railroads, shippers, and local development agencies can apply for grants through RFAP. The Program is funded with appropriations from the general fund and is administered by the Bureau of Rail Freight within the Pennsylvania DOT. Eligible projects include both maintenance of existing infrastructure and new railroad construction, but funding cannot be used to cover the cost of land, rights of land, buildings, or building materials to construct a new building.

Pennsylvania Airport Assistance Program

Three major programs are administered under Pennsylvania DOT's Bureau of Aviation: Airport Development grants (including the Federal Aviation Administration Block grants); Real Estate Tax Reimbursement grants; and Capital Budget grants. While the FAA has traditionally provided AIP funds directly to airports, it offers states block grants for nonprimary airports. Act 164 of 1984 authorized the Bureau of Aviation to provide assistance to all public airports, including those privately owned, and also provided for expanded airport development and real estate tax relief to public airports. These funds are needed to ensure the growth and development of Pennsylvania's airport system.

The FAA Block Grant, administered by the State, is issued to a sponsor for 90 percent of the federally eligible amount. A grant for state matching funds can be issued for 50 percent of the remaining unfunded amount. Therefore, a single grant will be issued to the sponsor for 90 percent Block Grant funds and 5 percent state and local matching funds. The state grant issued to a sponsor provides for 75 percent of the eligible amount of the project, with local sponsors being responsible for the remaining 25 percent.

Tennessee Aeronautics Transportation Equity Fund (TEF)

TEF was created in 1986. This fund allocates receipts from taxes collected from transportation fuels based on the actual annual individual collection percentage for each mode. Aviation accounts for the largest share, followed by rail and waterways. The funds are used for statewide grants to Tennessee air carrier and general aviation airports, and can cover up to 90 percent of the total cost of airport projects depending on the type of project. The types of projects that are eligible for state funding are safety projects, and airside and improvements and enhancements. Examples include security fencing, runway repair, drainage, fuel facilities, and access roads. Each request for funding is evaluated on the basis of demonstrated need, consistency with state and local plans, compliance with state standards, availability of funds, and any unique circumstances.

All rail funds were spent on the State's 19 short line railroads. In addition to funds received from the TEF, the Tennessee DOT Rail Program receives a $3.5 million annual transfer from user fees collected. These funds also are used primarily to support the State's short line railroads.

Texas Rail Relocation and Improvement Fund

In November 2005, voters in Texas approved the creation of the Texas Rail Relocation and Improvement Fund. The fund was created to finance or partially fund the relocation and improvement of both privately and publicly owned passenger and freight rail facilities. Eligible projects should: 1) relieve congestion on public highways; 2) enhance public safety; 3) improve air quality; and 4) expand economic opportunity. The Texas Transportation Commission administers the fund and is authorized to issue and sell obligations that will be paid from fund revenues. No funds have been appropriated yet to establish the fund.

Virginia Rail Enhancement Funds (VREF)

VREF was established in 2005 to support improvements for intercity passenger, commuter, and freight rail throughout the State. The VREF provides $23 million in annual, dedicated funding for passenger or freight rail improvements. Use of these funds requires a minimum matching contribution of at least 30 percent, which must come from nonstate sources such as railroads, local governments, or regional authorities.

Projects are selected by the Commonwealth Transportation Board based upon the recommendations of the Rail Advisory Board. Potential uses of the VREF could include the creation of additional track and capacity, track and infrastructure improvements, improved intermodal facilities, and advancement of passenger rail initiatives. Eligible expenses may include preliminary service, engineering, or feasibility study; final engineering; acquisition, lease, or improvement of rights-of-way or facilities; environmental mitigation directly related to the project; site preparation, including grading, drainage, and relocation of utilities; acquisition, lease, or improvement of railways, including signal and communications equipment; acquisition, lease, or improvement of railroad equipment; and acquisition, lease, or improvement of rolling stock. However, at least 90 percent of VREF funds must be spent on capital improvements.

Virginia Rail Industrial Access Program (RIAP)

Virginia's RIAP was established in 1987 to provide funds for new or improved access to a business for freight delivery. Businesses wishing to acquire funds from this Program are required to complete an application, which is reviewed by the Economic Development Group of Virginia. Funds are allocated by the Commonwealth Transportation Board. The first $100,000 granted to any one project requires no match from the business. Any funds above $100,000 require a one-to-one match. In FY 2004-2005, the program had funds totaling $1.5 million available for distribution to localities. The funds that are not used do not carry over into the next year. Instead, they are used for highway industrial access projects.

Washington Freight Mobility Strategic Investment Board (FMSIB)

FMSIB provides matching funds for freight improvement projects of regional or statewide significance. Every other year, the board receives a slate of potential freight improvement project proposals from cities, towns, counties, ports, and Washington DOT. Potential projects must meet three important criteria:

1. The project must be included in an established regional or state transportation plan;
2. The project must fall on one of Washington's defined Strategic Freight Corridors (which are updated every two years by Washington DOT) or emerging corridors; and
3. The project must provide a minimum 35 percent match.

The FMSIB Capital Account was established in 2005 to receive levies from license fees, weight fees, motor vehicle or multimodal fees and private funds. The 2006 funding recommendations are estimated at over $350 million, providing matching funds for a total investment of almost $4 billion.

Wisconsin Harbor Assistance Program (HAP)

Wisconsin's Legislature created the HAP in 1979 to assist harbor communities along the Great Lakes and Mississippi River in maintaining and improving waterborne commerce. The Program provides grants of up to 80 percent of total project cost to publicly owned harbors in Wisconsin for facility improvement projects. Harbor projects typically include dock reconstruction, mooring structure replacement, dredging, and the construction of facilities to hold dredged material.

To be eligible for funding, the project must: benefit facilities that are used for cargo transfer, ship building, commercial fishing, or regular ferry service; be a local unit of government or a private owner of a harbor facility; pass a rigorous benefit/cost analysis; and have been identified in a current Three-Year Harbor Development Plan. Project selection criteria include the economic impact of the project; type and urgency of the project; and priority of the project.

Recent grants include $2 million toward a total project cost of $2.6 million for the construction of a new dock wall for the City of Manitowoc, and $1 million for a dock facility in Milwaukee for the Lake Express high-speed ferry.

Wisconsin Freight Rail Programs

The Wisconsin DOT has been providing freight rail assistance since 1977. Early efforts focused on preserving freight rail service to communities that would otherwise suffer if service was abandoned. In 1992, Wisconsin voters approved an amendment to the state constitution allowing the State to become directly involved in rail acquisition, rehabilitation, and development projects. Currently, two programs operate under this authority: the Freight Rail Infrastructure Improvement Program (FRIIP) and the Freight Rail Preservation Program (FRPP).

FRIIP loans enable the State to encourage a broad array of improvements to the rail system, particularly on privately owned lines. It also provides funding for other rail-related projects such as loading and transloading facilities. Since 1992, $79 million in FRIIP loans have been awarded. The available funding is from repayments of prior loans. The FRIIP provides up to 100 percent loans for rail projects that connect an industry to the national railroad system; make improvements to enhance transportation efficiency, safety, and intermodal freight movement; accomplish line rehabilitation; and develop the economy.

FRPP provides grants to local units of government, industries, and railroads for the purpose of preserving essential rail lines and rehabilitating them following purchase. Since 1980, under the original Rail Assistance Program and later FRPP, some $80 million in grants have been awarded for rail acquisition and rehabilitation projects. The 2005-2007 state budget provides $6.5 million in bonding authority for the program. The FRPP provides grants up to 80 percent of the cost to purchase abandoned rail lines in an effort to continue freight service, or for the preservation of the opportunity for future rail service; and to rehabilitate facilities, such as tracks or bridges, on publicly owned rail lines.

Other Funding Methods and Financing Tools

The previous sections provided an overview of the federal and state programs that are available to fund freight improvements. This section covers other ways to raise dollars to fund freight improvements and/or match grant funds, grouped in three major categories:

1. Funding Sources, which refers to dedicated revenue sources to support freight investments, either as "pay-as-you-go" funding, or to support debt;
2. Financing Tools that use debt; and
3. Institutional Arrangements, which include public-private partnerships and tax-exempt corporations.

Funding Sources

User Fees/Tolls

User fees commonly provide a dedicated stream of revenue to repay the loans or bonds issued to support freight investments. For instance, railroads pay fees on the Alameda Corridor (per container) or the Shellpot Bridge (per rail car) for using the new infrastructure. [Projects referenced in this section are discussed in more detail in Section 3.0 – Case Studies.]

Truck-only toll (TOT) lanes have been studied in the Los Angeles region on SR-60 and I-710, both of which are heavily used by trucks accessing the Ports of Los Angeles and Long Beach. In 2005, the Georgia State Road and Tollway Authority published a study that proposed the construction of TOT lanes in the Atlanta Metropolitan Area. These studies have paved the way for potential exploration of TOT lanes on heavily congested truck routes in urban corridors, and provide a potential innovative use of toll revenue to implement freight infrastructure. In May 2006, the Georgia DOT signed a $38.5 million agreement with Georgia Transportation Partners to develop a concept for the expansion of I-75 and I-575 northwest of Atlanta. Georgia DOT estimates the project cost at $1.8 billion (2004 dollars), and includes TOT, high-occupancy toll lanes, bus rapid transit station, and additional capacity.

Dedicated Taxes

The use of dedicated taxes at the state and local level for transportation investments has increased significantly in the past few years. Highway projects are traditionally funded with motor fuel taxes levied at the state level. Local governments have used property taxes to fund local transportation investments, because such taxes are the primary revenue source at the local level. However, in recent years, local governments have implemented other local option taxes to support transportation investments, mainly for highway and transit projects.

The ReTRAC project in Reno, Nevada provides an example of local government dedicating taxes for freight investments. The City of Reno dedicated a one-eighth-cent sales tax and a 1 percent hotel occupancy tax as part of a package of dedicated revenue sources to repay a TIFIA loan.

Special Taxing and Assessment Districts

Special taxing or assessment districts capture the benefits of particular improvements. Residents and/or business owners agree to pay additional property taxes that are allocated for specific improvements. In some instances, the assessment district is dissolved once the proposed improvements are completed. Special taxing or assessment districts are commonly used for transit investments, although they have been increasingly used for general highway or port, and even for freight rail investments.

Revenues from special assessment districts can be applied to the full value of the subject property, or used as a tax increment financing technique in which bonds are issued to finance public infrastructure improvements, and repaid with dedicated revenues. These improvements encourage redevelopment, which in turn increases the value of property surrounding the redeveloped area. The incremental property taxes that are used to pay for these bonds are collected within the boundaries of a "tax increment district."

Equity and In-Kind Contributions

Private sector funding for freight improvements could be in the form of cash or in-kind contributions. For the CREATE project in Chicago, Illinois the railroads pay a share of the total project costs based on the anticipated railroad benefits from the project. In the case of in-kind contributions, private entities (such as railroads) donate land or professional services, which are included as part of the project costs. Local governments often donate right-of-way for highway projects, which accounts for the non-federal share for federally funded projects.

Financing Tools

Public Debt

Fundamental to the concept of credit is the source of funds used to repay the debt. In the case of bonds issued by public entities there are two broad classifications of debt: 1) tax-supported bonds; and 2) revenue bonds. General obligation bonds are backed by the full faith and credit of a state or local government and are usually the highest-rated debt of a state or locality. Revenue bonds are backed by a specific revenue source, such as a dedicated tax or tolls. In the case of the Alameda Corridor project in California, user fees were pledged both to the TIFIA loan and to debt issuances for the project. Lease revenue bonds or certificates of participation are backed by a state or locality's general credit, but with no specific tax pledge, and debt service payments are subject to annual appropriation (they carry a lower rating than general obligation debt). They are often used to avoid debt limits and voter approval requirements.

Special tax district bonds are paid from special charges added to property tax bills, and only beneficiaries pay the special assessment. As discussed earlier, an important subclass is tax increment bonds, which are paid from increases in property tax revenues in specified areas. Tax increment financing is most valuable for projects in redevelopment areas and requires a long-term development perspective to realize significant funding levels.

Tax-Exempt Facility Bonds/Private Activity Bonds

Tax-exempt facility bonds have been extensively used to finance port and airport capital projects. SAFETEA-LU amended the IRS code to allow these type of bonds for highway and freight transfer facilities. Tax-exempt facility bonds, otherwise known as private activity bonds, are qualified and thus their interest is excluded for federal income tax purposes in the gross income of recipients. However, interest on such bonds is taken into consideration for certain federal tax purposes, such as the alternative minimum tax for individuals and corporations. With this qualified status and the accompanying tax benefit to investors, exempt facility bonds can be offered at a lower interest rate, thus providing the issuer with considerable financing cost savings.

Institutional Arrangements

Joint Development

The concept of joint development takes on many meanings in the area of public capital development. In the freight arena, these partnerships have seen the greatest application and success at port facilities. For the purposes of this guidebook, joint development is defined as any formal arrangement between a public authority and a private organization (beyond just ports) that involves either private sector payments to the public authority, or the private sector sharing project capital costs. This definition essentially describes two classes of joint development strategies: 1) revenue-sharing arrangements, and 2) cost-sharing arrangements:

Revenue-Sharing Arrangements/Leases  – For public ports in the United States, leases are the most common form of joint development. When a public port enters into a contractual lease arrangement, it is transferring the future services rendered by a fixed asset (e.g., a container crane or other terminal facility) to a private organization, while retaining the title to that fixed asset. In the case of container terminal leasing, there are three major types of lease arrangements: the flat rate lease, a defined minimum/maximum compensation lease, and a shared revenue lease. While these three lease types vary in terms of the amount of risk that is assumed by the port and the incentives it creates for the lessee, all three lease types provide two important features for ports. First, long-term lease relationships provide a secure cash flow base upon which to issue bonds to finance new facilities and assure a steady base revenue base for the port. Second, a long-term lease relationship allows for specifying appropriate risk sharing between the public and private sector.

Other lease transactions, include sale/lease-back arrangements, in which assets are sold and then leased back by the seller. An example of such transaction is the Southern Tier Rail Rehabilitation project, in which Norfolk Southern transferred the rail line title to a rail authority for 10 years and then leased the rail line from the rail authority. The purpose of this transaction was to allow for a tax abatement on the rail line over the lease period.

Cost Sharing/Voluntary Agreements  – These are agreements between public ports and private organizations whereby the private party recognizes a specific port capital investment as sufficiently beneficial or even necessary to enhancing its own operations that it will share the initial capital costs with the port. These voluntary joint development agreements enable capital costs funded from the port's revenues to be decreased, and any risk associated with the capital investment is shared with the private organization. Additionally, a long-term lease for other terminal facilities usually accompanies the joint venture, and therefore a secure revenue source is often concomitant with the joint venture.

Public-Private Partnerships for Freight Investments

Public-private partnerships (PPP) refer to contractual agreements formed between a public agency and private sector entity that allow for greater private sector participation in the delivery of transportation projects. The three principal aspects of private sector participation are: 1) Project Delivery (development phase through design and construction); 2) Project Management (long-term operational and maintenance responsibilities); and 3) Project Financing (raising the capital necessary to fund the project). Some PPP approaches involve just one of these services (such as design-build contracting for a public-sponsored project, such as highway construction), whereas others may involve all three (e.g., user-charge project financings under long-term private concessions).

In the case of freight investments, PPPs are essential for project implementation for several reasons. First, the private sector is heavily invested in freight transportation, whether it is through ownership of infrastructure or by facilitating the movement of goods. Second, unlike other transportation investments, much of the freight investments are on private property, which makes it difficult for allocation of public funding. Third, the efficient movement of goods is important to both the private and public sectors. Overall, the creation of partnerships can facilitate freight investments by leveraging scarce resources, and accelerating the benefits realized through these investments.

Public-Private Partnership Options

Traditionally, private sector participation in surface transportation projects was limited to either planning, design, or construction contracts. Figure 2.1 shows the different options of PPPs. These PPP arrangements provide for expanded participation and responsibility from the private sector in traditionally public investments on transportation. A brief description of these PPP options is provided below.

Figure 2.1 Public-Private Partnership Options

Source: FHWA.

• Design-Bid-Build. This is the traditional project delivery approach for public works. The design-bid-build model separates design and construction responsibilities by awarding them to an independent private design engineer and a separate private contractor. The design engineering firm is responsible for completing the final project design, including plans, specifications, and supporting documentation. During the bidding phase, contractors submit competitive bids, which are reviewed by the public entity. Once a contractor is selected (based on the lowest bid), the project moves into the construction phase. Once construction is completed, the facility is operated and maintained by the public sector. The project design and construction is financed by the public sector.
• Private Contract Fee Services. For this PPP option, the public sector transfers the responsibility for services that would be typically performed in-house to the private sector. Two functions that the public sector has transferred to private sector partners as contract fee services are operations and maintenance of public-owned facilities, and program and financial management.
• Design-Build. The design-build method combines two typically separate services into one single contract. The public sector owns the facility under construction, and retains responsibility for financing, operating, and maintaining the project. It is usual for the project sponsor to have completed a certain level of preliminary engineering and project definition (e.g., preliminary design at about 10-15 percent complete) before letting the project for bids.
• Build-Operate-Transfer/Design-Build-Operate-Maintain This model (also known as "turnkey" procurement) combines design-build with operations and maintenance. A single contract is awarded to a private entity that would design, construct, and operate/maintain the project. Once the contract expires, the facility is turned over to the public owner. The public sector can decide on whether to extend or rebid the operations and maintenance contract or take over the operations and maintenance responsibilities. For this model, the financing responsibility is retained by the public sector.
• Design-Build-Finance-Operate. With this approach, the responsibilities for designing, building, financing, and operating are bundled together and transferred to private sector partners. Arrangements can vary greatly, especially concerning the degree of financial responsibilities that are actually transferred to the private sector. For this model, a project could be entirely financed by either the public sector or the private sector or a combination of both. A common trait across all Design-Build-Finance-Operate projects is that they are either partly or wholly financed by debt that is backed by revenue sources dedicated to the project. Direct user fees are the most common revenue source. However, others ranging from shadow tolls to vehicle registration fees and other dedicated revenues. [Shadow tolls refer to public sector "toll" payments to the private operator for the use of a facility. Drivers do not pay tolls for using the roadway. Instead, the public sector make payments based on the volumes and service levels.] Future revenues are leveraged to issue bonds or other debt that provide funds for capital and project development costs. They also are often supplemented by public sector grants in the form of money or contributions in kind, such as right-of-way. In certain cases, private partners may be required to make equity investments as well. Ownership of the facility remains in the public sector.
• Build-Own-Operate. With this model, a private company is granted the right to develop, finance, design, build, own, operate, and maintain a transportation project for a specified concession period. Public sector involvement is limited to assuring performance of the concession provisions.

The concepts presented above describe PPPs in terms of both project implementation and financing. In terms of funding/financing schemes specifically for freight infrastructure projects, the PPP projects that are presented in Section 3.0 can be grouped in the following categories:

• Public sector provides funding up-front through grants and loans and the private sector pays back through user fees. Examples: Sheffield Flyover/Argentine Connection, Ohio Southern Railroad Project, Shellpot Bridge.
• Investment fully paid by the public sector and the private sector provides in-kind contributions. Example: North Carolina Railroad Improvement Program.
• Public-Private Funded, where the funding share determined by benefits realized by each sector. Example: CREATE.
• Public-Private Funded, where the funding share determined through agreements between partners. Examples: FAST Corridor, ReTRAC.
• Concessions (Private sector financing and ownership) – Example: Texas Pacifico Rail Line.
• Operations and Maintenance or warrants by private sector.

Examples of Recent PPP Solicitations

In Virginia, the Public-Private Transportation Act of 1995 allows private entities to enter into agreements to construct, improve, maintain, and operate transportation facilities. The Virginia DOT has implemented several highway projects through public-private partnerships. Recently, Virginia DOT began soliciting proposals for the U.S. Route 460 Corridor Improvements Project. This corridor carries significant truck volumes, and traffic on this road, mostly generated by the ports located in the Hampton Roads area, is expected to grow significantly in the future. Additionally, the U.S. Route 460 corridor is considered an excellent location for additional warehouse and distribution centers needed in the region. Through this PPP, Virginia DOT is seeking a private entity to develop and/or operate the new roadway. All or most of the project finance is expected to come from the private sector, and may include tolling or other innovative finance methods.

Port of Miami

Source: Florida Department of Transportation, The Port of Miami Tunnel Project, http://www.portofmiamitunnel.com.

The Port of Miami Tunnel will provide access between the Seaport, I-395, and I-95 in Miami. Currently, the Port Bridge is the only connection between the Seaport and the mainland. The Florida DOT plans to implement this project through a concession, in which a private entity will be responsible to design, finance, build, operate, and maintain the tunnel. In return, Florida DOT will provide annual "availability payments" based on the availability of the project for use by trucks and buses and such other factors as safety and compliance with other performance standards. [Testimony of Karen J. Hedlund, Partner of Nossaman, Guthner, Knox and Elliot LLP, before the Highway, Transit, and Pipelines Subcommittee on Transportation and Infrastructure, U.S. House of Representatives, May 24, 2006.] Florida DOT recently selected three qualified "proposers," who are eligible to submit project proposals by March 2007. Final decision and contract award to a concessionaire is expected by the spring of 2007.

As mentioned earlier, Georgia DOT recently signed a $38.5 million agreement with Georgia Transportation Partners to develop the concept for the I-75 and I-575 expansion project in northwest Atlanta. This is the third project that has been submitted to Georgia DOT under Georgia's 2003 Public-Private Initiative law, which allows private entities to submit unsolicited proposals for highway projects, but is the first to advance into concept development. The expansion project has been estimated at $1.8 billion, including TOT lanes, HOT lanes, bus rapid transit stations, and roadway widening. The concept development contract awarded to Georgia Development Partners includes preliminary engineering and the development of a financial plan and an investment-grade traffic and revenue study.

Tax-Exempt Corporations

A common barrier to project implementation by the private sector is the high costs of financing projects. The creation of tax-exempt corporations allows for the issuance of debt at lower interest rates, reducing the financing costs of the project. In recent years, a couple of highway projects have been financed through the creation of 63-20 Nonprofit Corporations. A 63-20 Nonprofit Corporation is an entity created under IRS Rule 63-20, which allows it to issue tax-exempt debt on behalf of private project developers. The Pocahontas Parkway in Virginia and the Southern Connector in South Carolina were partially financed through the issuance of tax-exempt debt issued by 63-20 corporations specifically created for these projects.

The Missouri Transportation Corporation statute is an example of legislation created to facilitate major investments through the creation of tax-exempt corporations. Missouri statute permits the formation of transportation corporations for the purposes for issuing tax-exempt debt. One recent project that has taken advantage of this statute is the widening of the Highline Bridge and the construction of a railroad flyover in the Argentine area of Kansas City. For the Argentine Connection, the Missouri Highway and Transportation Commission created Westside Intermodal Transportation Corporation, which issued about $46 million in bonds to fund the project. The Highline Bridge spans the Kansas River, and its rehabilitation allowed for increased train speeds and a second line to run across the bridge. The combined cost of the two projects was about $120 million. The bonds will be repaid through user fees paid by the railroads operating in the area.

The railroad flyover was developed through a public-private partnership between BNSF, KC Terminal Railway, the State of Missouri, and the unified government of Kansas City. The two-year project was funded in the same way as the Sheffield Flyover, which opened in July 2000.

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