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Appendix E: Selected Project Case Studies
Case Study A: Gateway Multimodal Transportation Center, St. Louis, Missouri
The financing strategy for a multimodal project in St. Louis, Missouri, illustrates how two SIB loans can be sequenced to achieve substantial project acceleration and interest cost savings for a debt-financed project. The projects are being sponsored by the City of St. Louis. The overall project comprises eight related component projects to serve customers accessing urban buses, intercity buses, light rail, passenger rail, an international airport, parking facilities,and commercial space. The projects consist of: the addition of a light rail platform and pocket track for the Metro-Link line; a street extension to serve the project; land acquisition for and development of a 600 space parking lot; a concourse building with amenities for inter-modal customers; an Amtrak/Greyhound Bus terminal; a Greyhound Bus deck; Amtrak/commuter rail trackwork; and pedestrian linkages.
The combined cost of this project is currently projected to be $31.4 million. The City was able to obtain $22.2 million worth of project financing from three sources: $6.4 million from an ISTEA demonstration project; $7 million from the state highway fund; and $8.8 million from a local sales tax. The Missouri SIB (known officially as the Missouri Transportation Finance Corporation, or MTFC) will provide two loans to the City: construction period financing to bridge an immediate project funding gap; and a debt service reserve upon issuance of bonds.
The first loan, for $18 million, will be made prior to issuance of any bonds. The City will use this loan capital for project construction. The loan will be repaid in four annual payments from the $8.8 million local sales tax—$2.2 million per year for four years. Additionally, net project income during years one through six will be applied toward MTFC principal repayment. The parking operations and the terminal building/concourse will be refinanced by the City in year six. The remaining $7.5 million loan will be repaid in a lump-sum fashion once the City sells bonds for the projects. This lump-sum repayment is commonly referred to as a takeout.
At the same time that the first loan is being retired, the Missouri SIB will provide the City with a second loan, this time for approximately $750,000. This second loan will be used to serve as a debt service reserve. As explained in Appendix B of this report, debt service reserves are required as an additional reserve fund to secure repayment of principal and interest on bonds. Unless another source of funding is available, typically a portion of the bond proceeds must be set aside to fund the debt service reserve, leaving less of the bond proceeds available to cover actual project costs. By providing the up-front cash needed to fund this debt service reserve, the loan from the Missouri SIB permits most of the proceeds from the sale of the bonds to go directly to paying for actual project costs. This, in turn, reduces the dollar amount of bonds that the City needs to issue for the project.
The benefits of SIB assistance to the City, and ultimately to all of Missouri’s residents due to the emphasis on inter-city modes of transportation within this project, are twofold. First, use of a SIB loan to cover construction costs means that the City can get the project underway right away, with up-front capital. If the City instead needed to wait for sufficient tax receipts to amass, pursuit of these activities would have been delayed by several years. Additionally, the cost of capital is greatly reduced for this project due to the interest free construction financing being provided by the MTFC.
The second benefit of SIB assistance is purely financial. Interest on the debt service reserve loan is expected to be set at 75 percent of market rates for tax-exempt, "AA" rated bonds of comparable term. In today's market, this translates into a SIB interest rate of about 4.5 percent, versus 6.0 percent. Because SIB assistance is, in effect, substituting for external debt financing, savings of about 25 percent in the later years of the project will be realized for the interest component of the debt service reserve. Consider a $7.5 million, 15-year bond issue for the project, and a SIB debt service reserve loan of $750,000. Under these conditions, the SIB's provision of the debt service reserve loan would yield present-day savings of $1,687,500, over and above the savings in inflation costs yielded through provision of the construction loan.
Case Study B: State Boad 80 Interchange Project, Palm Beach, Florida
The SR 80 Interchange project is located at the junction of SR 80 and the Florida Turnpike in Palm Beach County. The preferred alternative for the interchange design is a full cloverleaf, which would provide the highest level-of-service at the lowest cost. The estimated cost of the project is $22,350,000. Preliminary design and environmental studies are complete; project design is about 60 percent complete.
The financing structure for the SR 80 project is influenced by State statutes which prescribe a test for financial feasibility for projects financed from turnpike revenues: (i) turnpike system toll subsidies are limited to 50 percent of debt service costs during the first 15 years; and (ii) the project must generate sufficient incremental revenue to pay its incremental operating and debt service costs after 15 years of operation.
The SR 80 project will incur relatively high operating costs, as a percent of gross toll revenues, due to a mismatch between the types of trips it will serve (short, low-revenue trips) and the economics of the toll collection system it must use (a ticket system, efficient for long, high-revenue trips). This is simply due to the location of the project, which is on an existing ticket-based segment of the turnpike. Even though the project is anticipated to have steady growth in net revenues, these would not be sufficient to satisfy the financial feasibility tests noted above. Therefore, the project could not be built without additional financial assistance.
The SIB loan will be structured to pay interest costs, totaling $11.3 million for the first eight years of operations, on the toll revenue bonds issued to finance the project. This allows the project to meet the first of the above financial tests. To meet the second condition, the State of Florida is planning to contribute $11.3 million in subsidies, which will be paid into an escrow account when the project becomes operational (July 2000). These subsidies will also count as the State match for the project. Thus, the flexibility offered by the SIB loan allows the project to take advantage of revenue growth, and to defer the need for State subsidies in later years, when they can be provided more easily.
Case Study C: Oregon Vanpool Rideshare Program
The Oregon Transportation Infrastructure Bank (OTIB) plans to assist local rideshare coordinators in financing vans as part of a Statewide vanpool program. This may involve the creation of a non-profit corporation. The total cost of the program could reach $8.7 million over six years. OTIB may provide as much as $1.6 million in credit enhancements or direct loan participation. Lease arrangements with the contractors selected by rideshare coordinators or by the non-profit corporation will supply the remaining $7.1 million in project costs. The contractors will probably be commercial banks. OTIB will propose certain underwriting and collection standards to guide the contractors. The exact form of assistance will depend upon negotiation with the contractors who will provide applicant screening services, loan administration, and collection activities. OTIB anticipates leases to have an effective annual interest rate of 9 percent and to extend for four years.
Vanpool operators will realize a substantial reduction in their costs thanks to the OTIB assistance. Lower costs can be passed onto vanpool users to encourage formation of vanpools. With OTIB’s participation annual costs are lower than a typical lease program. Lower costs are attributable to: (i) an interest rate projected to be lower than would have been the case without OTIB participation; and (ii) ODOT’s annual contribution of up to $300,000 towards the administration of the program.
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