Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt (2022)

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B-1   This appendix summarizes major debt types and debt-financing vehicles. It is not intended to be comprehensive of all types of debt and debt-financing mechanisms available to issuers. The section is organized in two parts. Part I includes debt types categorized by the type of security, and Part II includes types of debt vehicles, or methods by which debt is accessed. A P P E N D I X B Major Debt Types and Their Corresponding Debt-Financing Vehicles

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES Administered and managed by state or local agencies An unlimited tax GO bond is typically a security backed by the full- faith and credit revenue pledge and total taxing power of the local government. The GO revenue pledge means the local government promises to do everything it can to meet debt service1 GO bonds are essential financing instruments for tax- supported capital projects Must be issued by a government entity with tax revenues to pledge Capital projects of any size delivered and financed by a government Tax-exempt High credit quality resulting in low borrowing costs Economic limit on the level of taxation that a tax base can bear Government's mandate to provide essential public services and pay retiree pensions may also have strong claims on revenue and taxing power The unconditional and open-ended nature of the GO revenue pledge typically means a local government legally commits all its revenue- producing powers to meet debt service1 Moody’s https://www.moodys.com/ Part I. Debt Types Municipal Bonds – General Obligation Bonds

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES States and transportation agencies are responsible for managing toll revenue-backed bonds Toll revenue- backed bonds are issued to finance the construction of highways, bridges, and tunnels, and toll revenues generated from the toll facilities are used to cover debt service Toll revenue- backed bonds allow states and transportation agencies to issue debt for large capital projects with assurance that there is a dedicated revenue stream to cover debt service Eligibility requirements are set on a case-by-case basis, by: State constitution Statute State and local regulations Bond resolution Surface transportation construction projects, mainly toll highways Dedicated revenue stream for debt service Develop a revenue stream for future projects Need to identify consistent revenue stream Can be lower credit rating and thus higher debt cost Toll Revenue-Backed Bonds Tax-Supported Debt ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES States, municipalities, and authorities individually manage tax- supported debt Tax-supported debt is debt that is secured by dedicated taxes, such as motor fuel taxes, or other operating funds available to the issuing agency Tax-supported debt is intended to support a range of project and programmatic needs, with the assurance of a dedicated revenue stream Eligibility requirements are set by: State constitution Statute State and local regulations Voter referenda (in certain instances) Bond resolution Transportation programs Transportation projects or a set of projects Debt is issued with a dedicated revenue source pledged to bond holders Agencies might not raise the projected or required revenues to meet revenue pledges and fund transportation needs. Inflation adjustments and the growth in alternative fuel sources (for gas tax) can limit revenues Source: Weiner, Jennifer. 2013. “Assessing the Affordability of State Debt.” Research Report 13–2. Boston, MA: New England Public Policy Center, Federal Reserve Bank of Boston.

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES FHWA oversees GARVEEs, issuing guidance and/or rules GARVEEs may be issued by States and State subsidiaries, including cities, counties and other public authorities “A debt-financing instrument (commonly a bond) authorized to receive federal reimbursement of debt service and related financing costs ”1 GARVEEs are designed to provide the flexibility to make more short- term investments in infrastructure projects without the upfront capital cost. Additionally, GARVEES can be used to refinance existing bonds Projects must be eligible for federal- aid highway funding and be part of the Statewide Transportation Improvement Program Large-scale capital projects Costs to delay the project outweigh the costs to finance the project Projects that offer substantial economic development Accelerate construction Low interest rates Leverage federal funds Interest costs May limit future flexibility May require enabling legislation Sources: Frederick Werner, and Vivian Gutierrez. 2015. “Grant Anticipation Revenue Vehicles (GARVEE) Bonds: Essentials of Innovative Finance Workshop Puerto Rico and U.S. Virgin Islands.” USDOT Federal Highway Administration. 2014. “GARVEE Guidance (Grant Anticipation Revenue Vehicles).” 1FHWA Center for Innovative Finance Support. “Grant Anticipation Revenue Vehicles.” https://www.fhwa.dot.gov/ipd/fact_sheets/garvees.aspx#:~:text=A%20GARVEE%20is%20a %20debt,State%2C%20or%20a%20public%20authority. Grant Anticipation Bonds – Grant Anticipation Revenue Vehicles (GARVEEs) ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES FTA oversees GANs, issuing guidance and/or rules GANs may be issued by States and State subsidiaries, including cities, counties and other public authorities "Notes issued on the expectation of receiving grant funds, usually from the federal government. The notes are payable from the grant funds, when received.”1 GANs are designed to provide the flexibility to make more short-term investments in transit-related infrastructure projects without the upfront capital cost. Projects must be eligible for federal- aid transit funding and be part of the Statewide Transportation Improvement Program Large-scale capital projects Costs to delay the project outweigh the costs to finance the project Projects that offer substantial economic development Accelerate construction Low interest rates Leverage federal funds  Interest costs  May limit future flexibility  May require enabling legislation Source: BATIC Institute. “Transportation Funding & Financing.” http://www.financingtransportation.org/funding_financing/financing/bonding_debt_instruments/municipal_public_ bond_issues/gans.aspx 1Municipal Securities Rulemaking Board, Glossary of Municipal Securities Terms. http://www.msrb.org/glossary/definition/note.aspx Grant Anticipation Bonds – Grant Anticipation Notes (GANs)

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES Management and oversight provided by transportation agencies and private entities. USDOT has provided some guidance. A contractual agreement made between a public authority (federal, state, local) with a private entity, in which the two groups leverage their skills and share the risks to deliver a service. P3s come in a variety of forms and degrees of partnerships P3s, such as those involving availability payments, could include significant long-term repayment to the private partner, which may or may not be considered as a type of debt1 P3s offer transportation agencies the opportunity to leverage private financing to meet infrastructure/ transportation needs, when agencies do not have the funds to support the project independently State legislation must be in place to allow for P3s to be carried out, and this statute sets the parameters of how P3s must be conducted within that state Ranging from design-build to design-build, finance, operate, maintain Potential time and cost savings Potential private financing Potential project acceleration Lifecycle efficiencies Potentially improved project quality Risk transfer Maintain some amount of public control/ accountability Limited public control Risk of default or bankruptcy Source: Gibson, Bryan, Candice Y. Wallace, and Roy E. Sturgill. 2015. “Synthesis of Public-Private Partnerships: Potential Issues and Best Practices for Program and Project Implementation and Administration.” Academic. Kentucky: Kentucky Transportation Center. 1Ratings agencies have weighed in on the debt implications of P3s, such as in How Standard and Poor’s Treats Public-Private Partnerships in U.S. State and Local Debt Analysis (available at http://www.ncsl.org/Portals/1/Documents/fiscal/JSugdensouthern16.pdf) and Rating Criteria for Availability-Based Projects (Fitch) (available at https://www.fitchratings. com/site/dam/jcr:2879869e-8099-48e9-969d-26966dce39bb/Rating%20Criteria%20for%20Availability-Based%20Projects.pdf). Note that a P3 may not always involve a repayment stream that appears similar to State debt. For instance, a revenue-risk P3 could be financial self-sufficient, requiring little to no long-term State contributions. Part II. Debt Vehicles Private Financing Via Public-Private Partnerships (P3s)

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES FHWA allocates federal funds, assists with set-up and oversight, issues rules and/or guidance for funding eligibility States manage SIBs and decide which projects win funding States may also fund SIBs themselves with state funds State enabling legislation may be required SIBs are State revolving funds supported by federal or state monies that seed local public and private transportation projects. SIBs might provide credit assistance (e.g., loans) to public and private parties. Repaid loan funds are then issued for future projects in a revolving fund SIBs serve as a revolving fund mechanism at the state level that can support future project needs when loans are repaid Eligibility provisions for a SIB are set forth in the act under which the SIB is established: NHS Act of 1995 TEA-21 SAFETEA-LU FAST Act Title 23 (highways) and Title 49 (transit) projects are the only eligible projects that federally funded SIBs can fund SIBs can serve as an addition or supplement to state transportation grant programs Support lower- priority projects Accelerate the start of projects that might be delayed Support projects not eligible for grants Provide seed funding for projects that are typically difficult to finance Few states capitalize their SIBs in a significant way, which limits their usability to finance surface transportation projects Generally, SIBs only fund small projects, which may limit their utility Source: TIFIA Risk Management and Financial Operations Team and TIFIA Joint Program Office. 2016. “Credit Assistance Overview.” May 24. State Infrastructure Banks

ADMINISTRATION DEFINITION OBJECTIVES ELIGIBILITY REQUIREMENTS CANDIDATE PROJECTS MAIN ADVANTAGES MAIN DISADVANTAGES BAB provides management and oversight of TIFIA program TIFIA is a federal credit program that supports transportation projects that are deemed to be of national or regional significance TIFIA is intended to support projects across the U.S. that provide public benefit and stimulate capital market investment, ranging from transit-oriented development projects to rural infrastructure projects Minimum anticipated project costs must be at least $10 million for transit-oriented development, local, and rural projects Statutory credit assistance limit of 49% (but policy limits participation to 33%, except for rural projects) of anticipated eligible project costs Senior debt required to receive a minimum of one investment-grade rating Project must be included in STIP Highways and bridges Transit and railroad projects Pedestrian and bicycle infrastructure networks Surface transportation elements of port projects Loans up to $100 million can be made to capitalize a SIB to fund rural projects Low interest rates Long-term, upfront, fixed cost, permanent financing Flexible repayment terms Borrower/Revenue source can be minimum investment grade For projects of less than $75 million, TIFIA’s outside advisor costs may be waived depending on funding availability Cap on federally funded subsidy amount available nationwide Application process can be costly and time intensive Requires consistent revenue stream to repay debt Requires investment-grade credit rating for senior debt Project must have dedicated revenue source Source: TIFIA Risk Management and Financial Operations Team and TIFIA Joint Program Office. 2016. “Credit Assistance Overview.” May 24. Federal Loan Programs – Transportation Infrastructure Finance and Innovation Act (TIFIA)

Abbreviations and acronyms used without denitions 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 GHSA Governors Highway Safety Association 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

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