Evolving Debt Finance Practices for Surface Transportation (2017)

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76 Appendix d proposed Research needs Statement i. problem number To be assigned by NCHRP staff. ii. problem Title Guidebook for Effective Debt Management Policies and Practices for Surface Transportation iii. Literature Search Summary As part of NCHRP Synthesis 20-05, Topic 47-07 Evolving Debt Finance Practices for Surface Trans- portation, a detailed literature review was conducted. The result shows limited existing research on this specified topic. While there is significant research on general debt management policies and debt afford- ability measures, there is very limited existing literature as it relates specifically to transportation debt. Some of the available material is also only available through commercial sources, such as independent rating agencies. iV. Research problem Statement Given an increase in the amount and types of financings being utilized to pay for transportation investments coupled with an increasingly complex regulatory environment for municipal debt, state departments of trans- portation (DOTs) are facing a number of challenges in administering and managing their debt programs. These challenges include: maintaining an affordable level of debt, complying with post issuance compliance requirements, determining the appropriate debt tool to use to meet financing needs, determining when it is appropriate to refund existing debt, selecting qualified advisors including bond counsel, financial advisors, investment bankers, and trustees among others, selecting the appropriate issuance method, and communicat- ing to stakeholders about debt affordability parameters. To overcome such challenges, state DOTs constantly seek to improve debt management policies and procedures. State DOTs have a wide range of policies in place to guide the management of their debt programs. Such policies cover types of debt and related security, debt affordability beyond bond covenant and statu- tory limitations, method of sale, refunding savings guidelines, use of variable rate debt guidelines, selec- tion of advisors, use of derivatives, debt structuring practices, debt issuance practices, use of credit ratings and selection of ratings services, practices related to investment of proceeds, disclosure practices, post issuance compliance practices, and market and investor relations efforts, among others. Developing and adhering to effective debt management policies that provide guidelines and restrictions regarding the amount and type of debt issued, the issuance process, and the management of the debt portfolio will improve the quality of decisions and provide justification for the use and structure of debt while identify- ing and monitoring adherence to stated policy goals. NCHRP Synthesis 20-05, Topic 47-07 Evolving Debt Finance Practices for Surface Transportation highlighted that state DOTs are issuing an increasing amount of debt and utilizing an increasing variety of financing mechanisms. This is occurring while they are faced with greater regulatory scrutiny. At least one DOT has recently been subject to enforcement action by the US Securities and Exchange Commission for violations related to municipal debt (see attached article from Governing Magazine, dated August 25, 2016). In many instances, state DOT personnel lack a clear understanding of approaches to debt and policies to guide debt management. There is a need for developing a guidance and best practices document that addresses the following questions, among others: • Why do states have the debt management policies they have currently? • What areas of debt issuance and debt management are covered by the policies? • What parameters do the policies place on debt issuance practices and management? • Are the policies formally adopted by the relevant governing body?

77 • How often are the policies reviewed and updated? • How do state DOTs look at affordability of transportation debt beyond bond covenants and statutory debt limits? Specifically: – What debt policies do state DOTs have in place to measure affordability? What are the similarities and differences in these policies across states? – How do states integrate transportation debt with other state debt in considering capacity and affordability? – How is tax supported debt treated relative to revenue supported debt such as toll bonds? – How are GARVEE bonds factored into debt affordability policies? – How do state DOTs communicate to stakeholders and decision-makers about debt capacity and affordability? V. Research Objective The primary objective of the proposed research is to develop a deeper understanding of the debt issuance and management policies that states follow related to transportation debt. The final deliverable will be a guidebook to help state DOTs develop and implement effective debt management policies. The primary audience for the guidebook will be state DOT financial managers but will also have relevance to elected officials, state DOT chief executive officers, and federal agencies with a role in providing technical assis- tance and oversight as it relates to state DOT financial management. Vi. estimate of problem Funding and Research period Recommended Funding: Recommended funding for the project is $250,000 to $300,000. Research Period: It is estimated that 15 to 18 months will be required to perform the research. Vii. Urgency and potential Benefits Based on the findings from NCHRP Synthesis 20-05, Topic 47-07, the results showed that most DOTs would benefit from guidance related to debt issuance and management policies given the increased com- plexity of debt mechanisms as well as the changing regulatory environment. Therefore, the benefits of this research will extend to all state DOTs and other transportation agencies to provide guidance for the creation of or update to debt management policies that reflect the current municipal market as well as the current trends in transportation financing mechanisms. Viii. implementation planning The target audience for the research findings and products are state DOT financial managers but it will also have relevance to elected officials, state DOT chief executive officers, and federal agencies with a role in providing technical assistance and oversight as it relates to state DOT financial management. The research product can best be championed by state DOT Chief Financial Officers as well as Chief Executive Officers of these agencies. The newly formed U.S.DOT Build America Bureau and the Build America Transportation Investment Center (BATIC) Institute as well as FHWA and FTA also may have roles in disseminating results. The AASHTO Standing Committee on Finance and Administration, as well as the Subcommittee on Transportation Finance Policy, will have the greatest interest in the products of this study and also the greatest opportunity for dissemination of its results. ix. persons developing the problem Statement Tamar Henkin, High Street Consulting Group Lisa Danka, Arizona Department of Transportation (contact info below) x. AASHTO Monitor—Pending further information regarding role and responsibilities, Lisa Danka is interested in being considered.

78 xi. Submitted by The primary contact for this submission is: Lisa Danka Debt Management and Compliance Administrator Arizona Department of Transportation 206 S 17th Avenue, #200B Phoenix, AZ 85007 (602) 712-7441 ldanka@azdot.gov Those submitting and/or endorsing the project include: Bill Flowers Director of Finance & Audits/CFO Alabama Department of Transportation Kristine Ward Chief Financial Officer Arizona Department of Transportation Lorie H. Tudor, P.E. Deputy Director and Chief Operating Officer Arkansas State Highway and Transportation Department Norma Ortega Chief Financial Officer CalTrans Robert C. Card Bureau Chief, Finance and Administration Connecticut Department of Transportation Max Azizi Office of Policy Federal Highway Administration Robin M. Naitove, CPA Comptroller Florida Department of Transportation Angela Whitworth Treasurer Georgia Department of Transportation Dave Tolman Controller Idaho Transportation Department Chris J. Herrick, P.E. Director of Planning & Development and Interim Director of Fiscal & Asset Management Kansas Department of Transportation Merl Hackbart Provost Distinguished Service Professor of Public Policy Martin School of Public Policy University of Kentucky Steven Watson Deputy CFO Office of Finance Maryland Department of Transportation

79 Tracy Hatch Deputy Commissioner/Chief Financial Officer/Chief Operating Officer Minnesota Department of Transportation Michael J. Keays Finance Administrator Controller Division Nebraska Department of Roads Rich Winning Chief Financial Officer Ohio Department of Transportation Matthew C. Downs OAKSenterprise Project Director, Division of Finance Ohio Department of Transportation Russell Hulin CFO and Deputy Director Oklahoma Department of Transportation Travis Brouwer Assistant Director Oregon Department of Transportation Ben Orsbon, FAICP Office of the Secretary South Dakota Department of Transportation Benjamin Asher Director, Project Finance, Debt & Strategic Contracts Division Texas Department of Transportation Amy Arnis Assistant Secretary/CFO Washington State Department of Transportation John Davis Management Services Manager Wyoming Department of Transportation

Abbreviations and acronyms used without definitions in TRB publications: A4A Airlines for America AAAE American Association of Airport Executives AASHO American Association of State Highway Officials AASHTO American Association of State Highway and Transportation Officials ACI–NA Airports Council International–North America ACRP Airport Cooperative Research Program ADA Americans with Disabilities Act APTA American Public Transportation Association ASCE American Society of Civil Engineers ASME American Society of Mechanical Engineers ASTM American Society for Testing and Materials ATA American Trucking Associations CTAA Community Transportation Association of America CTBSSP Commercial Truck and Bus Safety Synthesis Program DHS Department of Homeland Security DOE Department of Energy EPA Environmental Protection Agency FAA Federal Aviation Administration FAST Fixing America’s Surface Transportation Act (2015) FHWA Federal Highway Administration FMCSA Federal Motor Carrier Safety Administration FRA Federal Railroad Administration FTA Federal Transit Administration HMCRP Hazardous Materials Cooperative Research Program IEEE Institute of Electrical and Electronics Engineers ISTEA Intermodal Surface Transportation Efficiency Act of 1991 ITE Institute of Transportation Engineers MAP-21 Moving Ahead for Progress in the 21st Century Act (2012) NASA National Aeronautics and Space Administration NASAO National Association of State Aviation Officials NCFRP National Cooperative Freight Research Program NCHRP National Cooperative Highway Research Program NHTSA National Highway Traffic Safety Administration NTSB National Transportation Safety Board PHMSA Pipeline and Hazardous Materials Safety Administration RITA Research and Innovative Technology Administration SAE Society of Automotive Engineers SAFETEA-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (2005) TCRP Transit Cooperative Research Program TDC Transit Development Corporation TEA-21 Transportation Equity Act for the 21st Century (1998) TRB Transportation Research Board TSA Transportation Security Administration U.S.DOT United States Department of Transportation

TRANSPORTATION RESEARCH BOARD 5 0 0 F ifth S tre e t, N W W a s h in g to n , D C 2 0 0 0 1 A D D R ESS SER VICE R EQ UESTED NO N-PRO FIT O RG . U.S. PO STAG E PA ID CO LUM BIA, M D PER M IT NO . 88 Evolving Debt Finance Practices for Surface Transportation NCHRP Synthesis 513 TRB ISBN 978-0-309-39007-1 9 7 8 0 3 0 9 3 9 0 0 7 1 9 0 0 0 0