Innovative Financing/Public Private Partnerships

TO THE ATTENTION OF: Division Offices Planning Staffs

The purpose of this message is to provide information elaborating upon the FHWA/FTA Final Rule on statewide and metropolitan transportation planning and programming processes, which was published in the Federal Register on February 14, 2007, and became effective on March 16, 2007. Over the past few months, we have received inquiries from several Division Offices on issues involving the inclusion of innovative finance mechanisms, PPPs, and tolling/pricing strategies in fiscally constrained metropolitan transportation plans, Transportation Improvement Programs (TIPs), and Statewide Transportation Improvement Programs (STIPs).

In general, both public and private sources of funding are to be reflected in the financial information and financial plans that support the metropolitan transportation plan, TIP, and STIP. Financing techniques (to the extent they are utilized) to be included in the supporting financial plans include:

• Tolls and pricing;
• Grant Anticipated Revenue Vehicles (GARVEE bonds) and/or Grant Application Notes (GANs);
• State Infrastructure Banks (SIBs); and
• Transportation Infrastructure Finance and Innovation Act (TIFIA) credit assistance.

The following questions are intended to provide additional perspective on addressing these strategies and innovative finance mechanisms as part of transportation plan and program development.

1. How should PPPs be treated in the metropolitan transportation plan, TIP, and STIP?

   PPPs 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. PPP projects often are undertaken to supplement conventional procurement practices as a way to achieve cost and time efficiencies and expand funding sources, thereby reducing demands on constrained public budgets.

   Some of the funding sources used to support PPPs include: (a) shareholder equity; (b) grant anticipation bonds (GARVEEs and GANs); (c) revenue and general obligation bonds; (d) private activity bonds; (e) bank loans; (f) SIB loans; (g) TIFIA credit assistance; (h) direct user charges (tolls and transit fares) leveraged to obtain bonds; (i) normal Federal-aid formula funds; and (j) other public agency dedicated revenue streams made available to a private franchisee or concessionaire (e.g., leases, direct user charges from other tolled facilities, and shadow tolls).

   Like any other transportation project, the funding sources associated with financing a PPP project generally are to be "reasonably expected to be available." The exception is the first two years of the TIP and STIP in air quality nonattainment and maintenance areas, in which projects shall be limited to those for which funds are "available" or "committed" (see 23 CFR 450.104 for the definitions of these terms). A PPP project may be "reasonable" if there are indications of support by the Governor and/or other appropriate local/regional decision makers and a strategy exists for securing necessary approvals within the time period for implementing the affected project(s). Other indictors of "reasonableness" for PPP projects are if a State or local jurisdiction has had past success in implementing PPP's, and if enabling State legislation is in place.

2. How should tolling/pricing strategies be treated in the metropolitan transportation plan, TIP, and STIP?

   The following considerations should be kept in mind:

   1. While tolling/pricing may be a means to pay back a variety of funding mechanisms (e.g., bond measures, private equity, and State revenues), toll revenues, in their own right, may not necessarily be the primary funding mechanism for a particular project or strategy.
   2. The existence of State enabling legislation allowing a State and/or a locality(ies) to pursue alternative funding through the use of tolling and/or PPPs is a key first step in determining fiscal constraint "reasonableness," particularly for the metropolitan transportation plan.
   3. Knowing the parameters or rules for the new tolling or pricing provisions also is important. For example:
      • Are the tolling/pricing provisions only available for a specific type of project?
      • Can the tolling/pricing provisions only be used in certain corridors or municipalities?
      • How much funding is available each year through the proposed program?

For additional information, please contact Harlan Miller, Planning Oversight and Stewardship Team, at (202) 366-0847; John Humeston, Planning Oversight and Stewardship Team, at (404) 562-3667; or your assigned Planning Stewardship Liaison (see http://www.fhwa.dot.gov/hep/liaisons.htm).