Credit Assistance for Surface Transportation Projects

DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

23 CFR Part 180

Federal Railroad Administration

49 CFR Part 261

Federal Transit Administration

49 CFR Part 640

[FHWA Docket No. FHWA-98-47-15]

RIN 2125-AE49

Credit Assistance for Surface Transportation Projects

AGENCY: Federal Highway Administration (FHWA), Federal Railroad

Administration (FRA), Federal Transit Administration (FTA), U.S.

Department of Transportation (DOT).

ACTION: Notice of proposed rulemaking (NPRM); request for comments.

-----------------------------------------------------------------------

SUMMARY: This document proposes to implement a new program enacted

under the Transportation Infrastructure Finance and Innovation Act of

1998 (TIFIA), to provide credit assistance to surface transportation

projects. The TIFIA authorizes the DOT to provide secured (direct)

loans, lines of credit, and loan guarantees to public and private

sponsors of eligible surface transportation projects. Projects will be

evaluated and selected by the Secretary of Transportation. Following

selections,

[[Page 5997]]

individual credit agreements will be developed through negotiations

between the project sponsors and the DOT. This document solicits

comments on a proposed regulation to establish a new credit assistance

program for surface transportation projects; and the process by which

the DOT, through the FHWA, the FRA, and the FTA, will administer such

credit assistance.

DATES: Comments must be submitted on or before March 10, 1999.

ADDRESSES: Your signed, written comments must refer to the docket

number appearing at the top of this document and you must submit the

comments to the Docket Clerk, U.S. DOT Dockets, Room PL-401, 400

Seventh Street, SW, Washington, DC 20590-0001. All comments received

will be available for examination at the above address between 9:00

a.m. and 5:00 p.m., e.t., Monday through Friday, except Federal

holidays. Those desiring notification of receipt of comments must

include a self-addressed, stamped envelope or postcard.

FOR FURTHER INFORMATION CONTACT: FHWA: Mr. Max Inman, Office of Budget

and Finance, Federal-Aid Financial Management Division, (202) 366-0673.

FRA: Ms. JoAnne McGowan, Office of Passenger and Freight Services,

Freight Program Division, (202) 493-6390. FTA: Mr. Paul Marx, Office of

Policy Development, (202) 366-1734. Department of Transportation, 400

Seventh Street, SW, Washington, DC, 20590. Office hours are from 7:45

a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal

holidays. Hearing- and speech-impaired persons may access this number

via TTY by calling the Federal Information Relay Service at 1-800-877-

8339.

SUPPLEMENTARY INFORMATION:

Electronic Access

Internet users may access all comments received by the U.S. DOT

Dockets, Room PL-401, by using the universal resource locator (URL)

http://dms.dot.gov. It is available 24 hours each day, 365 days each

year. Please follow the instructions on-line for more information and

help. An electronic copy of this document may be downloaded using a

modem and suitable communications software from the Government Printing

Office's Electronic Bulletin Board Service at (202) 512-1661. Internet

users may reach the Federal Register's home page at http://

www.nara.gov/fedreg and the Government Printing Office's web page at

http://www.access.gpo.gov/nara.

Additional information on the TIFIA program and credit assistance

for surface transportation projects generally is available at the TIFIA

web site at http://tifia.fhwa.dot.gov. Among other information, the DOT

will provide responses to commonly asked questions and information on

program participation.

Background

The Transportation Equity Act for the 21st Century (TEA-21), Pub.

L. 105-178, 112 Stat. 107, created two new Federal credit programs: The

Transportation Infrastructure Finance and Innovation Act of 1998

(TIFIA) and the Railroad Rehabilitation and Improvement Financing

Program (RRIF). RRIF will be addressed in a separate notice of proposed

rulemaking. TIFIA, as amended by section 9007, Pub. L. 105-206, 112

Stat. 685, 849, and codified at 23 U.S.C. 181-189, establishes a new

Federal credit program for surface transportation projects. Funding for

this program is limited, meaning that projects obtaining assistance

under TIFIA will be selected on a competitive basis. Final selections

of projects will be made by the Secretary of Transportation.

Credit assistance programs such as TIFIA are designed to help

financial markets develop the capability to supplement the role of the

Federal Government in helping finance the costs of large projects of

national significance. Developing, implementing, and evaluating

financial assistance programs such as TIFIA is a crucial mission of the

DOT. To help ensure financial and programmatic success, the DOT is

establishing a multi-agency Credit Program Steering Committee and

Working Group. The Steering Committee and Working Group are comprised

of representatives from the Office of the Secretary, the Office of

Intermodalism, the FHWA, the FRA, and the FTA, as well as other DOT

agencies and offices. The Steering Committee and Working Group will

coordinate and monitor all policy decisions and implementation actions

associated with this Federal credit assistance program.

Outreach efforts have already been made to facilitate the

implementation of TIFIA. At a July 13, 1998, meeting sponsored by the

American Association of State Highway and Transportation Officials, DOT

representatives met with over 100 State transportation officials to

discuss implementation of provisions of TEA-21, including the Act's

Federal credit assistance programs. On September 14, 1998, a public

focus group meeting of about 70 Federal and State officials, project

sponsors, and members of the financial community was held in New York

City to discuss the provision of credit assistance under TEA-21

programs. Another public focus group meeting of about 60 governmental

and private sector officials was held on December 8, 1998, near San

Diego, California. On-going DOT activities include meeting with capital

markets financial experts and disseminating program information to the

public for their comments.

Program Information

Funding

The TIFIA authorizes annual funding levels for both total annual

credit amounts (i.e., the total principal amounts that may be disbursed

in the form of direct loans, loan guarantees, or lines of credit) and

subsidy amounts (i.e., the amounts of budget authority available to

cover the estimated present value of default losses associated with the

provision of credit instruments, net of any fee income). Funding for

the subsidy amounts is provided in the form of budget authority funded

from the Highway Trust Fund, other than the Mass Transit Account. As a

practical example, for fiscal year 1999, TIFIA provides $80 million in

budget authority to fund the subsidy costs associated with a total

nominal amount of direct loans, loan guarantees, and lines of credit

that is limited to $1.6 billion. Depending on the individual risk

assessments made for each of the projects receiving assistance, the

total amount of credit assistance provided in fiscal year 1999 may be

less than the $1.6 billion limitation.

Total Federal credit assistance authorized under TIFIA is limited

to $1.6 billion in fiscal year 1999; $1.8 billion in fiscal year 2000;

$2.2 billion in fiscal year 2001; $2.4 billion in fiscal year 2002; and

$2.6 billion in fiscal year 2003. These amounts lapse if not awarded by

the end of the fiscal year for which they are provided.

To support this assistance by funding the required subsidy amounts,

TIFIA provides budget authority of $80 million in fiscal year 1999; $90

million in fiscal year 2000; $110 million in fiscal year 2001; $120

million in fiscal year 2002; and $130 million in fiscal year 2003. This

budget authority is subject to annual obligation limitations that may

be established in appropriations law. Of the amounts made available,

the Secretary may use up to $2 million for each of the fiscal years for

administrative expenses. Unobligated budget authority remains available

for obligation in subsequent years.

[[Page 5998]]

Credit Instruments

Three types of credit instruments are permitted under TIFIA:

secured (direct) loans, loan guarantees, and lines of credit. General

rules concerning the terms governing these credit instruments appear at

23 U.S.C. 183 and 184. More specific terms will be determined on a

project-specific basis during negotiations between the DOT and

successful applicants.

Eligibility

Sections 181 and 182 of title 23, U.S.C., describe the conditions

that govern a project's eligibility for assistance under TIFIA.

Projects shall have eligible costs of at least $100 million or an

amount equal to 50 percent of Federal-aid highway funds apportioned to

the State in which the project is located for the most recently

completed fiscal year, whichever is lesser. Projects principally

involving the installation of an intelligent transportation system

(ITS) must cost at least $30 million. To be eligible for assistance,

projects must be classified within the following categories:

1. Surface transportation projects as defined under title 23 or

chapter 53 of title 49 of the United States Code;

2. International bridge or tunnel projects for which an

international entity authorized under Federal or State law is

responsible;

3. Intercity passenger bus or rail facilities and vehicles,

including those owned by the National Railroad Passenger Corporation

and components of magnetic levitation transportation systems; or

4. Publicly-owned intermodal surface freight transfer facilities,

provided that the facilities:

(a) are located on or adjacent to National Highway System routes or

connections to the National Highway System, and (b) are not seaports or

airports.

Application Process

Public or private applicants for credit assistance will be required

to submit applications to the DOT in order to be considered for

approval. Each fiscal year for which credit assistance is available,

the DOT will publish a Federal Register notice to solicit applications

for credit assistance. This notice will also be posted on the TIFIA web

site, at the address cited above. The notice will specify the relevant

due dates for that year's application submissions and funding

approvals, as well as the address to which applications should be sent.

It will also advise potential applicants of the estimated amount of

funding available to support TIFIA credit instruments in the current

and future fiscal years. An application checklist is appended to this

NPRM. Respondents are encouraged to comment on the content of this

checklist, which will serve as the basis for a standard application

form. Detailed application information will be contained in a handbook

of program guidelines that is currently being developed by the DOT and

will be posted on the TIFIA web site and made available to the public

at the time a solicitation for applications is published.

Charges

The DOT will require a non-refundable initiation charge for each

project applying for credit assistance under TIFIA. The DOT may also

require an additional credit processing charge for projects selected to

receive assistance. The proceeds of any such charges will equal a

portion of the costs to the Federal Government of soliciting and

evaluating applications, selecting projects to receive assistance, and

negotiating credit agreements. For fiscal year 1999, the DOT proposes

an application initiation charge of $5,000 for each project applying

for credit assistance under TIFIA. The DOT does not propose any credit

processing charges for fiscal year 1999. For fiscal years 2000 and

beyond, the DOT may adjust the amount of the application initiation

charge, and will determine the appropriate amount of the credit

processing charge based on early program implementation experience in

fiscal year 1999. The DOT will publish these amounts in each Federal

Register solicitation for applications.

The Secretary cannot accept or compel from borrowers the subsidy

costs of TIFIA credit instruments. However, the Secretary does have the

authority to establish fees at a level sufficient to cover all or a

portion of the subsidy costs to the Federal Government of providing

credit assistance under TIFIA. Therefore, such fees could potentially

reduce the subsidy cost of a TIFIA credit instrument to zero. That is

to say, if in a given year there is insufficient budget authority to

fund the credit instrument for a qualified project that has been

selected to receive TIFIA assistance, the DOT may increase the

application initiation charge or the credit processing charge on the

approved applicant to reduce the subsidy cost of that project. Note

that any such fees or charges may not be included among total project

costs for the purpose of calculating the maximum 33 percent credit

amount of TIFIA assistance.

Limitations on Assistance

The amount of credit assistance that may be provided to a project

under TIFIA is limited to not more than 33 percent of eligible project

costs. Costs incurred prior to a project sponsor's submission of an

application for credit assistance may be considered in calculating

eligible project costs only upon approval by the DOT. In addition,

applicants shall not include application charges or any other expenses

associated with the application process (such as charges associated

with obtaining the required preliminary rating opinion letter, as

discussed below) in the total project cost. No costs financed

internally or with interim funding may be reimbursed later than a year

following substantial completion of the project.

Within the overall credit assistance limitation of 33 percent of

eligible project costs, the DOT may consider making multi-year

contingent commitments of budget authority and associated credit

assistance for especially large projects with extended construction

periods and financing needs. In this instance, any reservation of

future-year funding shall be made through a letter of intent and shall

be contingent on the project's demonstrating satisfactory progress to

the DOT. Depending on the overall demand for credit assistance under

TIFIA, the DOT may limit such contingent commitments to 50 percent of

the budget authority becoming available in applicable future years. If

such a multi-year commitment is made, each year's loan will be tied to

distinct, clearly identified project segments or stages.

Rating Requirement

The TIFIA allows the DOT to partially fund a credit instrument up

to the estimated subsidy amount based on a preliminary rating opinion

letter. However, the DOT proposes to provide credit assistance only

after a formal credit agreement has been executed and the project's

senior obligations have obtained a formal investment-grade rating.

In administering this provision, the DOT will require each

applicant to furnish a preliminary rating opinion letter as part of the

application process. The applicant is responsible for identifying and

approaching one or more rating agencies to obtain such letter. This

letter is to indicate that the applicant project's senior obligations

have the potential of attaining an

[[Page 5999]]

investment-grade rating. This letter will allow the DOT to evaluate the

application and potentially select the project and execute a term sheet

upon which funds are obligated. The disbursement of any funds will be

contingent upon the execution of a formal credit agreement between the

DOT and the project sponsor and the receipt of a formal investment-

grade rating on the project's senior obligations. This rating must

apply to all project obligations with claims senior to that of the

Federal credit instrument on the security pledged to the Federal credit

instrument.

As suggested by the preceding paragraphs, the DOT's Federal credit

instrument may have a junior claim to other debt issued for the project

in terms of its priority interest in the project's pledged security.

However, the DOT's claim on assets should not be subordinated to the

claims of other creditors in the event of a default leading to

bankruptcy, insolvency, or liquidation of the obligor. The DOT's

interest may include collateral other than pledged revenues.

Threshold Criteria

To be eligible to receive Federal credit assistance under TIFIA, a

project shall meet the following five threshold criteria:

(1) The project shall be included in a State transportation plan

and, at such time as an agreement to make a Federal credit instrument

is entered into under this Act, in an approved State Transportation

Improvement Program.

(2) A State, local servicer, or other entity undertaking the

project shall submit a project application to the Secretary of

Transportation;

(3) A project shall have eligible project costs that are reasonably

anticipated to equal or exceed the lesser of $100 million or 50 percent

of the amount of Federal-aid highway funds apportioned for the most

recently completed fiscal year to the State in which the project is

located (in the case of a project principally involving the

installation of Intelligent Transportation Systems (ITS), eligible

project costs shall be reasonably anticipated to equal or exceed $30

million);

(4) Project financing shall be repayable, in whole or in part, from

tolls, user fees or other dedicated revenue sources; and

(5) In the case of a project that is undertaken by an entity that

is not a State or local government or an agency or instrumentality of a

State or local government, the project that the entity is undertaking

shall be included in the State transportation plan and an approved

State Transportation Improvement Program.

With this rulemaking, the DOT elaborates on criterion 4 (repayment

of project financing from user fees or other dedicated revenue

sources). In applying this threshold criterion, the DOT will not

consider current or future Federal funds, regardless of source, to be a

dedicated revenue source. This interpretation is consistent with

congressional intent that the Federal Government position itself as a

minority-share investor in the context of this credit program.

Selection Criteria

The Secretary shall consider the following eight criteria in

evaluating and selecting among eligible projects to receive credit

assistance:

(1) The extent to which the project is nationally or regionally

significant, in terms of generating economic benefits, supporting

international commerce, or otherwise enhancing the national

transportation system;

(2) The creditworthiness of the project, including a determination

by the Secretary that any financing for the project has appropriate

security features, such as a rate covenant, to ensure repayment;

(3) The extent to which such assistance would foster innovative

public-private partnerships and attract private debt or equity

investment;

(4) The likelihood that such assistance would enable the project to

proceed at an earlier date than the project would otherwise be able to

proceed;

(5) The extent to which the project uses new technologies,

including Intelligent Transportation Systems (ITS), that enhances the

efficiency of the project;

(6) The amount of budget authority required to fund the Federal

credit instrument made available;

(7) The extent to which the project helps maintain or protect the

environment; and

(8) The extent to which such assistance would reduce the

contribution of Federal grant assistance to the project.

With this rulemaking, the DOT requests comments on whether

criterion 3 (the extent to which assistance under TIFIA would foster

innovative public-private partnerships and attract private debt or

equity investment) and criterion 8 (the extent to which assistance

under TIFIA would reduce the contribution of Federal grant assistance

to the project) should be elaborated. The DOT also requests comments on

whether preference should be given to projects based on the total

Federal contribution (including both credit and grant assistance from

any source) and/or type of transportation project.

Tax Status of Loan Guarantees

The TIFIA did not amend the provisions in section 149(b) of the

Internal Revenue Code that prohibit the use of direct or indirect

Federal guarantees of tax-exempt obligations. Accordingly, the interest

income on any project loan that is directly or indirectly federally

guaranteed under TIFIA, shall not be exempt from Federal income

taxation.

Rulemaking Analysis and Notices

The 30-day comment period is necessary to help ensure that this new

program can be implemented before the credit amount authorized for

fiscal year 1999 ($1.6 billion) lapses. Given the need for the DOT to

solicit and evaluate applications, make selections, negotiate

agreements with project sponsors, and obligate funds before the end of

fiscal year 1999, the usual 60-day comment period would be both

impracticable and contrary to public interest and congressional intent.

All comments received before the close of business on the comment

closing date indicated above will be considered and will be available

for examination using the docket number appearing at the top of this

document in the docket room at the above address. The DOT will file

comments received after the comment closing date in the docket and will

consider late comments to the extent practicable. The DOT may, however,

issue a final rule at any time after the close of the comment period.

In addition to late comments, the DOT will also continue to file, in

the docket, relevant information becoming available after the comment

closing date. Interested persons should continue to examine the docket

for new material.

Executive Order 12866 (Regulatory Planning and Review) and DOT

Regulatory Policies and Procedures

The DOT has determined that issuance of a rule is necessary to

implement TIFIA, and has concluded that this action represents a

``significant regulatory action'' within the meaning of DOT's

Regulatory Policies and Procedures (44 FR 11034, February 26, 1979) and

Executive Order 12866. This determination is based on a finding that

the rule may have an annual effect on the economy of $100 million or

more. The NPRM was reviewed by the Office of Management and Budget

under E.O. 12866.

This section summarizes the estimated economic impact of the

[[Page 6000]]

proposed rule. This regulation would affect only those entities that

voluntarily elected to apply for TIFIA assistance and were selected to

receive a Federal credit instrument. It would not impose any direct

involuntary costs on non-participants.

The DOT has undertaken a preliminary evaluation of the economic

impact of this proposed regulatory action. However, because the number,

nature, and size of projects to be assisted will not be known until

specific applicants come forward, this analysis is by necessity an

estimate. Congress recognized this by including a provision in TIFIA

(23 U.S.C. 189) requiring the Secretary to submit a report summarizing

the effectiveness of the program within four years of the date of

enactment of the legislation (June 9, 2002).

DOT and industry research has indicated that there are substantial

economic productivity gains to be derived from capital investment in

surface transportation facilities. One study estimates that in the

four-decade period from 1950 to 1989, U.S. firms realized annual

production cost savings of 18 percent from general highway investment

(yearly return of 18 cents per dollar invested in all roads) and 24

percent from investment in non-local roads.1 In addition to

these direct returns, transportation capital investment typically

generates significant spillover benefits, which may be of a non-

financial nature, such as reduced pollution, increased safety, improved

international competitiveness, and enhanced accessibility. Market

imperfections often prevent these intangible but nonetheless important

public benefits from being monetized and captured.

---------------------------------------------------------------------------

\1\ Contribution of Highway Capital to Industry and National

Productivity Growth--Executive Summary, Ishaq Nadirir, New York,

FHWA, 1996.

---------------------------------------------------------------------------

Just as transportation investment produces benefits, failure to

invest results in cost increases. Another recent study estimates that

congestion costs the average U.S. citizen $370 annually, in terms of

time lost and fuel wasted.2 These costs are expected to

increase as growing investment needs--both in terms of system renewal

and capacity expansion--and limited availability of public funding

contribute to declining performance.

---------------------------------------------------------------------------

\2\ Measuring and Monitoring Urban Mobility, Texas

Transportation Institute, November 1996.

---------------------------------------------------------------------------

Growth in both freight movement and passenger travel has grown

dramatically in recent years, and is expected to continue growing. For

example, since 1980, total ton-miles and intercity passenger miles have

grown by 30 percent and 60 percent respectively, according to a recent

study by the American Association of State Highway and Transportation

Officials. Despite substantial increases in authorized Federal funding

levels for surface transportation under the Transportation Equity Act

for the 21st Century, current resources are not expected to be able to

keep pace with maintenance and preservation needs, let alone the

additional demands resulting from growth in population and goods

movement. Funding shortfalls can be particularly acute for large

infrastructure projects (costing $100 million or more) which, due to

their scale, often cannot be readily accommodated in ongoing State and

local capital renewal programs.

The economic drag created by under-investment in the nation's

transportation network is substantial, as shippers and motorists incur

increased vehicle maintenance and fuel costs, shipping delays, safety

hazards, and time delays associated with congestion and poorly

maintained roads.

The TIFIA was established to provide fractional credit assistance

to major transportation infrastructure projects--such as border

crossings, trade corridors, and intermodal transfer facilities--that

have the potential of generating substantial economic benefits both

regionally and nationally. In many cases, such projects are capable of

being supported through direct user charges or dedicated revenue

streams that can be used to access private capital and other non-

Federal funding sources. The TIFIA is designed to fill market gaps

through providing supplemental and/or subordinate capital to such

projects. It should facilitate their ability to access the capital

markets or other financing sources for the majority of their funding

needs. Through TIFIA's leverage of limited Federal funds with private

capital, these capital-intensive projects can be advanced without

displacing smaller, more traditional grant-supported projects. Federal

risk exposure should be mitigated by substantial co-investment from

non-Federal parties and the use of objective, market-based credit

evaluation criteria.

The TIFIA is authorized to receive $530 million of budget authority

to support up to $10.6 billion in nominal amounts of credit (or such

lesser amounts of credit as can be supported by the budget authority).

Under the terms of the legislation, the Federal share is limited to not

more than 33 percent of total eligible project costs. In many cases,

the actual share of TIFIA assistance may be considerably less. For

example, prior to TIFIA, three major surface transportation projects in

southern California obtained Federal credit instruments pursuant to

special appropriations from Congress. Between 1993 and 1996, the

Congress approved a $120 million standby Federal line of credit for the

San Joaquin Hills Toll Road; two standby lines of credit totaling $145

million for the Foothill-Eastern Toll Road; and a $400 million direct

Federal loan for the Alameda Corridor project. Each of these projects

would have met the threshold eligibility criteria under the terms of

TIFIA. The Federal credit assistance as a percent of total project

costs for these three investments is approximately 8.5 percent, 11.5

percent, and 17.5 percent, respectively.

Under the Federal Credit Reform Act of 1990 (FCRA), the amount of

budget authority necessary to support a Federal credit instrument

depends upon the subsidy cost (i.e., the estimated present value cost

of estimated losses that will be incurred as a result of defaults, net

of any fee income). Each project will be assigned a subsidy cost based

upon an evaluation of its credit-worthiness.

Since the actual projects under TIFIA have yet to be identified, it

is not possible at this stage to ascertain the appropriate subsidy

amounts. If, for example, the assumed average subsidy rate under TIFIA

were 10 percent, the $530 million of budget authority could support

$5.3 billion in nominal amount of Federal credit instruments, and

(assuming a 33 percent TIFIA share of project costs) an aggregate of

$15.9 billion in capital investment. This would represent a

benefit:cost ratio (total capital investment compared to federal

budgetary cost) of 30:1. If the subsidy rate averaged 5 percent, the

budget authority could support $31.8 billion in aggregate investment;

and if the subsidy rate averaged 15 percent, the budget authority could

support approximately $10.6 billion in aggregate investment. The only

costs imposed on the participants are the repayment of credit at the

U.S. Treasury rate (which in certain instances may be significantly

less than their own marginal cost of capital), a credit processing

charge, and an application charge based upon direct costs incurred by

the DOT in processing applications.

On this basis, the DOT has concluded that TIFIA will promote the

efficient functioning of project delivery and the private markets, and

will generate both direct and indirect benefits, including reduced

congestion, greater mobility, improved safety, an enhanced environment,

and greater economic growth. These benefits are anticipated to

[[Page 6001]]

far surpass the combined direct costs to the Federal Government ($530

million) and to the entities that elect to participate in the program.

Because of the voluntary nature of participation in TIFIA, this

regulatory action is not anticipated to impose any costs upon non-

participants. The DOT requests comments, information, and data from the

public and potential users concerning the economic impact of

implementing this rule and the TIFIA program.

Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354, 5 U.S.C.

601-612) requires an assessment of the extent to which proposed rules

will have an impact on small business or other small entities.

Consistent with the Regulatory Flexibility Act, the DOT has evaluated

the effects of this rule on small business or other small entities. The

NPRM proposes to implement a Federal Credit assistance program for

surface transportation projects. There will be a substantial economic

impact on the projects funded. However, the DOT anticipates that few,

if any, of the applicants for assistance, will be small entities as

defined by the Small Business Administration. For example, applicants

are likely to include States and large public, or quasi-public

entities. In addition, although it is difficult to judge how many

applications will be received, we anticipate that the DOT will offer

credit assistance to no more than a handful of projects each year.

Based on that evaluation, the DOT hereby certifies that this action

would not have significant economic impact on a substantial number of

small entities. The DOT invites public comment on this determination.

Unfunded Mandates Reform Act of 1995

The Unfunded Mandates Reform Act of 1995 (Public Law 104-4)

requires agencies to prepare a written assessment of the costs,

benefits and other effects of proposed or final rules that include a

Federal mandate likely to result in the expenditure by State, local or

tribal governments, in the aggregate, or by the private sector, of more

than $100 million annually. This proposed rule would not impose a

Federal mandate resulting in the expenditure by State, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. The rule simply implements a Federal

credit assistance program.

Executive Order 12612 (Federalism Assessment)

This action has been analyzed in accordance with the principles and

criteria contained in Executive Order 12612. The DOT has determined

that this action does not have sufficient federalism implications to

warrant the preparation of a federalism assessment. The bases for this

determination are that a) eligibility for assistance under this program

extends to both private and public entities; and b) the recipients of

credit under this voluntary program will receive a benefit, rather than

incur costs, through participation. The DOT invites public comment on

this determination.

Executive Order 12372 (Intergovernmental Review)

Given that projects receiving assistance under TIFIA may fall under

the programmatic jurisdiction of the FHWA, the FRA, or the FTA, the

relevant Catalog of Federal Domestic Assistance Program Numbers are:

20.205 highway planning and construction; 20.310 Rail rehabilitation

and improvement; and 20.500 transit capital improvement grants. The

regulations implementing Executive Order 12372 regarding

intergovernmental consultation on Federal programs and activities apply

to this program.

Paperwork Reduction Act

This document does not contain information collection requirements

for the purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501

et seq.); specifically, that fewer than ten respondents, as defined in

5 CFR 1320.3, are anticipated. Based upon preliminary assessments,

research reports, meetings with focus groups and discussions with

potential respondents, the DOT anticipates approximately six

respondents to the application annually. If in the future, the DOT

anticipates ten or more respondents annually, immediate steps will be

taken to seek approval from OMB for an information collection, as

required under the Paperwork Reduction Act.

National Environmental Policy Act

As specified under Sec. 1503 of TIFIA, and codified under

Sec. 182(c)(2) of title 23, U.S.C., each project obtaining assistance

under this program is required to adhere to the National Environmental

Policy Act of 1969, as amended (42 U.S.C. 4321 et seq.). This

rulemaking simply provides the procedure to apply for credit

assistance; therefore, by itself, this rulemaking will not have any

effect on the quality of the environment.

Regulation Identification Number

A regulation identification number (RIN) is assigned to each

regulatory action listed in the Unified Agenda of Federal Regulations.

The Regulatory Information Service Center publishes the Unified Agenda

in April and October of each year. The RIN contained in the heading of

this document may be used to cross-reference this action with the

Unified Agenda. The agency-specific proposed common rule appears at the

end of this common preamble.

List of Subjects in 23 CFR Part 180 and 49 CFR Parts 261 and 640

Credit programs--transportation, Highways and roads, Mass transit,

Railroads, Investments, Reporting and recordkeeping requirements.

Text of the Common Proposed Rule

The text of the common proposed rule appears below:

PART __--CREDIT ASSISTANCE FOR SURFACE TRANSPORTATION PROJECTS

Sec.

____.1 Purpose.

____.3 Definitions.

____.5 Limitations on assistance.

____.7 Application process.

____.9 Federal requirements.

____.11 Investment-grade ratings.

____.13 Threshold criteria.

____.15 Selection criteria.

____.17 Charges.

____.19 Reporting requirements.

Authority: 23 U.S.C. 180-189 and 315; secs. 1501 et seq., Public

Law 105-178, 112 stat. 107, 241, as amended, 49 CFR 1.48.

Sec. ____.1 Purpose.

This rule implements a Federal credit assistance program for

surface transportation projects.

Sec. ____.3 Definitions.

Eligible project costs means amounts substantially all of which are

paid by, or for the account of, an obligor in connection with a

project, including the cost of:

(1) Development phase activities, including planning, feasibility

analysis, revenue forecasting, environmental review, permitting,

preliminary engineering and design work, and other pre-construction

activities;

(2) Construction, reconstruction, rehabilitation, replacement, and

acquisition of real property (including land related to the project and

improvements to land), environmental mitigation, construction

contingencies, and acquisition of equipment; and

(3) Capitalized interest necessary to meet market requirements,

reasonably

[[Page 6002]]

required reserve funds, capital issuance expenses, and other carrying

costs during construction.

Federal credit instrument means a secured loan, loan guarantee, or

line of credit authorized to be made available under this subchapter

with respect to a project.

Investment-grade rating means a rating category of BBB minus, Baa3,

or higher assigned by a rating agency to project obligations offered

into the capital markets.

Lender means any non-Federal qualified institutional buyer as

defined in Sec. 230.144A(a) of title 17, Code of Federal Regulations,

known as Rule 144A(a) of the Securities and Exchange Commission and

issued under the Securities Act of 1933 (15 U.S.C. 77a et seq.),

including:

(1) A qualified retirement plan (as defined in Sec. 4974(c) of the

Internal Revenue Code of 1986) that is a qualified institutional buyer;

and

(2) A governmental plan (as defined in Sec. 414(d) of the Internal

Revenue Code of 1986) that is a qualified institutional buyer.

Line of credit means an agreement entered into by the Secretary

with an obligor under Sec. 184 of title 23, United States Code, to

provide a direct loan at a future date upon the occurrence of certain

events.

Loan guarantee means any guarantee or other pledge by the Secretary

to pay all or part of the principal of and interest on a loan or other

debt obligation issued by an obligor and funded by a lender.

Local servicer means:

(1) A State infrastructure bank established under title 23; or

(2) A State or local government or any agency of a State or local

government that is responsible for servicing a Federal credit

instrument on behalf of the Secretary.

Obligor means a party primarily liable for payment of the principal

of or interest on a Federal credit instrument, which party may be a

corporation, partnership, joint venture, trust, or governmental entity,

agency, or instrumentality.

Project means:

(1) Any surface transportation project eligible for Federal

assistance under title 23 or chapter 53 of title 49, United States

Code.

(2) A project for an international bridge or tunnel for which an

international entity authorized under Federal or State law is

responsible;

(3) A project for intercity passenger bus or rail facilities and

vehicles, including facilities and vehicles owned by the National

Railroad Passenger Corporation, and components of magnetic levitation

transportation systems; and

(4) A project for publicly owned intermodal surface freight

transfer facilities, other than seaports and airports, if the

facilities are located on or adjacent to National Highway System routes

or connections to the National Highway System.

Project obligation means any note, bond, debenture, or other debt

obligation issued by an obligor in connection with the financing of a

project, other than a Federal credit instrument.

Rating agency means a bond rating agency identified by the

Securities and Exchange Commission as a Nationally Recognized

Statistical Rating Organization.

Secured loan means a direct loan or other debt obligation issued by

an obligor and funded by the Secretary in connection with the financing

of a project under Sec. 183 of title 23, United States Code.

State means any one of the fifty states, the District of Columbia,

or Puerto Rico.

Subsidy amount means the amount of budget authority sufficient to

cover the estimated long-term cost to the Federal Government of a

Federal credit instrument, calculated on a net present value basis,

excluding administrative costs and any incidental effects on

governmental receipts or outlays in accordance with the provisions of

the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.).

Substantial completion means the opening of a project to vehicular

or passenger traffic.

TIFIA means the Transportation Infrastructure Finance and

Innovation Act of 1998.

Sec. ____.5 Limitations on assistance.

(a) The total amount of Federal credit offered to any project

receiving credit assistance under this part shall not exceed 33 percent

of the anticipated eligible project costs.

(b) Costs incurred prior to a project sponsor's submission of an

application for credit assistance may be considered in calculating

eligible project costs only upon approval of the Secretary. In

addition, applicants shall not include application charges or any other

expenses associated with the application process (such as charges

associated with obtaining the required preliminary rating opinion

letter) among the eligible project costs.

(c) No costs financed internally or with interim funding may be

refinanced under this part later than a year following substantial

completion of the project.

(d) Within the overall credit assistance limitation of 33 percent

of eligible project costs, the DOT may consider making multi-year

contingent commitments of budget authority and associated credit

assistance for especially large projects with extended construction

periods and financing needs. In this instance, any reservation of

future-year funding shall be made through a letter of intent and shall

be contingent on the project's demonstrating satisfactory progress to

the DOT. Depending on the overall demand for credit assistance under

this part, the DOT may limit such contingent commitments to 50 percent

of the budget authority becoming available in the applicable future

years. If such a multi-year commitment is made, each year's loan will

be tied to distinct, clearly identified project segments or stages.

Sec. ____.7 Application process.

(a) Public and private applicants for credit assistance under this

part will be required to submit applications to the DOT in order to be

considered for approval by the Secretary of Transportation.

(b) At a minimum, such applications shall provide:

(1) Documentation sufficient to demonstrate that the project

satisfies each of the threshold criteria in Sec. ____.13 and describe

the extent to which the project satisfies each of the selection

criteria in Sec. ____.15.

(2) Background information on the project for which assistance is

sought, such as the project's description, status of the environmental

permitting process, and construction schedule;

(3) Background information on the applicant and/or project sponsor;

(4) Historical information, if applicable, concerning the

applicant's financial condition, including, for example, independently

audited financial statements and certifications concerning bankruptcies

or delinquencies on other debt; and

(5) Current financial information concerning both the project and

the applicant, such as sources and uses of funds for the project and a

forecast of cash flows available to service all debt instruments.

(c) An application for a project located in or sponsored by more

than one State or other entity shall be submitted to the DOT by just

one State or entity. The sponsoring States or entities shall designate

a single obligor for purposes of applying for, receiving, and repaying

TIFIA credit assistance.

[[Page 6003]]

(d) Each fiscal year for which Federal assistance is available

under this part, the DOT will publish a Federal Register notice to

solicit applications for credit assistance. Such notice will specify

the relevant due dates, the estimated amount of funding available to

support TIFIA credit instruments for the current and future fiscal

years, contact name(s), and other details for that year's application

submissions and funding approvals. The DOT will also maintain a

centralized mailing list for sending notices to prospective applicants.

Sec. ____.9 Federal requirements.

All projects receiving credit assistance under this part shall

comply with:

(a) the relevant requirements of title 23 of the United States Code

for highway projects, chapter 53 of title 49, United States Code, for

transit projects, and Sec. 5333(a) of title 49, United States Code, for

rail projects, as appropriate;

(b) Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et

seq.);

(c) the National Environmental Policy Act of 1969 (42 U.S.C. 4321

et seq.);

(d) the Uniform Relocation Assistance and Real Property Acquisition

Policies Act of 1970 (42 U.S.C. 4601 et seq.); and

(e) other Federal and compliance requirements as may be applicable.

Sec. ____.11 Investment-grade ratings.

(a) The full funding of a secured (direct) loan, loan guarantee, or

line of credit shall be contingent on the assignment of an investment-

grade rating by a recognized bond rating agency to all project

obligations that have a lien senior to that of the Federal credit

instrument on the pledged security.

(b) An investment-grade rating must be received before the DOT will

disburse any funds.

Sec. ____.13 Threshold criteria.

(a) To be eligible to receive Federal credit assistance under this

part, a project shall meet the following five threshold criteria:

(1) The project shall be included in a State transportation plan

and, at such time as the DOT and project sponsor initially execute a

credit agreement, in an approved State Transportation Improvement

Program.

(2) The State, local servicer, or other entity undertaking the

project shall submit a project application to the Secretary of

Transportation;

(3) A project shall have eligible project costs that are reasonably

anticipated to equal or exceed the lesser of $100 million or 50 percent

of the amount of Federal-aid highway funds apportioned for the most

recently completed fiscal year to the State in which the project is

located (in the case of a project principally involving the

installation of Intelligent Transportation Systems (ITS), eligible

project costs shall be reasonably anticipated to equal or exceed $30

million);

(4) Project financing shall be repayable, in whole or in part, from

tolls, user fees or other dedicated revenue sources; and

(5) In the case of a project that is undertaken by an entity that

is not a State or local government or an agency or instrumentality of a

State or local government, the project that the entity is undertaking

shall be included in the State transportation plan and an approved

State Transportation Improvement Program as provided in paragraph

(a)(1) of this section.

(b) With respect to paragraph (a)(3), for a project located in more

than one State, the minimum cost threshold size shall be the lesser of

$100 million or 50 percent of the amount of Federal-aid highway funds

apportioned for the most recently completed fiscal year to the

participating State that receives the least amount of such funds.

(c) With respect to paragraph (a)(4), the DOT will not consider

current or future Federal funds, regardless of source, to be a

dedicated revenue source.

Sec. ____.15 Selection criteria.

(a) The Secretary shall consider the following eight criteria in

evaluating and selecting among eligible projects to receive credit

assistance:

(1) The extent to which the project is nationally or regionally

significant, in terms of generating economic benefits, supporting

international commerce, or otherwise enhancing the national

transportation system;

(2) The creditworthiness of the project, including a determination

by the Secretary that any financing for the project has appropriate

security features, such as a rate covenant, to ensure repayment;

(3) The extent to which such assistance would foster innovative

public-private partnerships and attract private debt or equity

investment;

(4) The likelihood that such assistance would enable the project to

proceed at an earlier date than the project would otherwise be able to

proceed;

(5) The extent to which the project uses new technologies,

including Intelligent Transportation Systems (ITS), that enhances the

efficiency of the project;

(6) The amount of budget authority required to fund the Federal

credit instrument made available;

(7) The extent to which the project helps maintain or protect the

environment;

(8) The extent to which such assistance would reduce the

contribution of Federal grant assistance to the project.

(b) In addition, section 182(b)(2)(B) of title 23, United States

Code, conditions a project's approval for credit assistance on receipt

of a preliminary rating opinion letter indicating that the project's

senior obligations have the potential to attain an investment-grade

rating.

(c) The DOT shall evaluate each project's distinct public benefits

(including personal and freight mobility, economic development, and

impact on international competitiveness) and contribution to program

goals (including leverage of the Federal contribution and increased

private investment in surface transportation infrastructure).

(d) The DOT may give preference to those projects for which the

total Federal contribution (including both credit and grant assistance

from any Federal source) requested is small. This preference supports

the policy goal of the DOT to position itself as a minority-share

investor in any project receiving credit assistance under TIFIA to

induce significant private co-investment.

(e) The DOT may also give preference to applications for loan

guarantees rather than other forms of Federal credit assistance. This

preference is consistent with Federal policy that, when Federal credit

assistance is necessary to meet a Federal objective, loan guarantees

should be favored over direct loans, unless attaining the Federal

objective requires a subsidy, as defined by the Federal Credit Reform

Act of 1990, deeper than can be provided by a loan guarantee.

Sec. ____.17 Charges.

(a) The DOT will require a non-refundable application initiation

charge for each project applying for credit assistance under TIFIA. The

DOT may also require an additional credit processing charge for

projects selected to receive assistance. The proceeds of any such

charges will cover a portion of the costs to the Federal Government of

soliciting and evaluating applications, selecting projects to receive

assistance, and negotiating credit agreements. For fiscal year 1999,

the DOT will require an application initiation charge of $5,000 for

each project applying for credit assistance under TIFIA. The DOT will

not require any credit processing charges for fiscal year 1999. For

fiscal years 2000 and beyond, the DOT may

[[Page 6004]]

adjust the amount of the application initiation charge, and will

determine the appropriate amount of the credit processing charge, based

on early program implementation experience in fiscal year 1999.

(b) Applicants shall not include application charges or any other

expenses associated with the application process (such as charges

associated with obtaining the required preliminary rating opinion

letter) in the total project cost for the purposes of calculating the

33 percent credit limitation referenced in Sec. ____.5(a).

(c) If, in any given year, there is insufficient budget authority

to fund the credit instrument for a qualified project that has been

selected to receive assistance under TIFIA, the Secretary may increase

the application initiation charge or the credit processing charge on

the approved applicant to reduce the subsidy cost of that project. No

such fees or charges may be included among eligible project costs for

the purpose of calculating the maximum 33 percent credit amount of

TIFIA assistance under Sec. ____.5.

Sec. ____.19 Reporting requirements.

At a minimum, any recipient of Federal credit under this part shall

submit an annual project performance report and audited financial

statements to the DOT within 120 days following the recipient's fiscal

year-end for each year during which the recipient's obligation to the

Federal Government remains in effect. The DOT may conduct periodic

financial and compliance audits of the recipient of credit assistance,

as determined necessary by the DOT. The specific credit agreement

between the recipient of credit assistance and the DOT may contain

additional reporting requirements.

1. The Federal Highway Administration proposes to add part 180 to

23 CFR Chapter I as set forth at the end of the common preamble.

2. The Federal Railroad Administration proposes to add part 261 to

49 CFR Chapter II as set forth at the end of the common preamble.

3. The Federal Transit Administration proposes to add part 640 to

49 CFR Chapter VI as set forth at the end of the common preamble.

Appendix ____--Application Checklist

Note: This appendix will not appear in the Code of Federal

Regulations.

The DOT is in the process of developing a standard application

form for credit assistance for surface transportation projects. This

appendix specifies the documentary materials that the DOT is

considering for inclusion in the standard application form. The

following list of information items derives, in part, from the DOT's

research concerning State and Federal credit assistance programs, as

well as internal DOT guidance. The following list of items

potentially to be included in a standard application form is being

provided for public comment.

a. Summary of how the proposed project satisfies each of the

threshold criteria in Sec. ____.13 and the extent to which it

satisfies each of the selection criteria in Sec. ____.15 of this

part. (Each criterion should be addressed separately by the

applicant).

b. Project information.

1. Detailed description of the project, including type of

project, geographic location, economic impact, public benefits, and

purpose or purposes.

2. Documentation sufficient to demonstrate the project's current

inclusion in the long-range State transportation plan and

anticipated inclusion in the State Transportation Improvement

Program (STIP).

3. Copies of permits and approvals required by local, regional,

State, and Federal agencies, including environmental and other

permits and approvals, and other documentation sufficient to

demonstrate compliance with other statutory and regulatory

requirements.

4. Documentation specifying the project's status with regard to

conformance with the National Environmental Policy Act of 1969

(NEPA).

5. Description of project construction phases and timeline.

6. Description of the current condition of all facilities

relating to the project.

7. Description of the maintenance and operation plan for the

project.

c. Applicant information.

1. Legal applicant's name, headquarters address, mailing

address, phone and fax numbers.

2. Primary contact person's name, title, address, phone and fax

numbers.

3. Full description of type of sponsoring entity (general

partnership, limited partnership, corporation, other), the parties

forming the entity, and the date on which the entity was

established.

4. Applicant's tax identification number.

5. Name of the entity that will exercise ownership control of

project.

6. Names of the entities charged with planning, developing, and

operating the project.

7. Names of various other parties involved in the project with

description of responsibilities and evidence of agreements or

commitments.

8. Disclosure of current or past litigation involving the

parties that will own, plan, develop and/or operate the project.

d. Historical financial information relating to the applicant.

1. Signed, audited financial statements.

2. Credit references or release forms.

3. Federal income tax returns.

4. Certification and/or resolution of any delinquency or default

on Federal debt.

5. Bankruptcy history.

e. Initial financial plan for the project.

1. Initial total cost estimate.

i. Costs of feasibility studies.

ii. Costs of preliminary engineering.

iii. Costs of environmental assessment.

iv. Costs of right of way.

v. Costs of construction.

vi. Costs of construction engineering/inspection.

vii. Costs of project management.

viii. Costs relating to financing.

ix. Proposed cost containment strategies (e.g., design-build,

use of cost control teams, management cost control strategies, and

value engineering).

2. Implementation plan for the project.

i. Schedule, presented in annual increments, for completing and

operating the project based on initial base year costs adjusted for

inflation and any cost escalation.

ii. Methodology for all cost assumptions.

iii. Sources of potential future cost estimates (e.g.,

environmental costs, litigation costs, overtime costs, and value

engineering savings).

3. Funding sources: all proposed sources and uses of project

funds presented as annual amounts.

i. Supporting documentation to verify the availability of all

sources of public and private funding.

ii. Comparison of annual amounts available for project

obligations versus annual obligation needs.

4. Cash flows: Long-term pro-forma cash flow projection clearly

delineating all cash flows by category (revenues and expenses) and

subcategory (e.g., operations and maintenance, debt service to

senior bondholders, debt service to the Federal Government,

reserves) and specifying coverage ratios for each year.

5. Type of Federal credit assistance that the applicant is

requesting and proposed terms (e.g., amount, maturity, allowances

for prepayment and deferral).

6. Proposed timing and use of disbursements of requested Federal

credit assistance.

7. Proposed collateral/security for Federal credit assistance.

8. Copy of preliminary rating opinion letter on senior debt

obligations from at least one nationally recognized rating agency.

9. Copy of narrative financial analysis and/or feasibility

study, including documentation to support revenue projections, such

as traffic studies and regional economic projections, as applicable.

10. For loan guarantees, additional documentation including

copies of the obligation agreement between the proposed guaranteed

lender and borrower, background information on the proposed

guaranteed lender, and other data specifically pertaining to a loan

guarantee.

f. Any other information which the DOT may deem necessary for

project evaluation and selection.

[[Page 6005]]

Issued in Washington, DC on January 28, 1999.

Kenneth R. Wykle,

Federal Highway Administration Administrator.

Jolene M. Molitoris,

Federal Railroad Administration Administrator.

Gordon J. Linton,

Federal Transit Administration Administrator.

[FR Doc. 99-2637 Filed 2-5-99; 8:45 am]

BILLING CODE 4910-22-P