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8 1.1 Purpose This guidebook provides an issuer-oriented, step-by-step approach to surface transportation debt issuance and management and contains effective practices that can help issuers throughout the process. Effective practices, which is a term that will be used throughout this guidebook, refers to approaches to debt issuance and management that help issuers manage their surface transportation debt programs. Depending on a practitionerâs familiarity with the material, prac- titioners can use this guidebook as a reference document when they have a specific question about the process, as an introductory document to the field of transportation debt issuance and management, or as an educational document used to identify ways to improve an existing trans- portation debt program. This information is designed to support practitioners given the changing economic and municipal finance landscape. This guidebook provides material to practitioners to identify and implement strategies that will help them with the following: ⢠Consistently monitor and adhere to debt affordability principles; ⢠Develop effective and contextual debt policies and procedures; ⢠Facilitate inter- and intra-agency coordination; ⢠Communicate and market debt offerings; ⢠Monitor post-issuance compliance; and ⢠Meet the expectations and requirements of investors, rating agencies, and regulatory bodies. 1.2 Context Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the environment for tax-exempt debt issuers has become increasingly challenging and complex. Additionally, new regulations and greater scrutiny by federal regulators is causing issuers to assess the rigor and effectiveness of their debt management practices. Further, due to the COVID-19 crisis, municipalities are contending with addressing and rebounding from the economic fallout and making sound financial approaches and programs even more important. NCHRP Synthesis 513: Evolving Debt Finance Practices for Surface Transportation identified that fewer than a dozen state DOTs had a formal debt policy or comprehensive written proce- dures. Recognizing the need to improve surface transportation debt management, more than 20 chief financial officers of state DOTs and other transportation issuers endorsed the develop- ment of a guidebook presenting best practices in this area. Prior studies have also identified key challenges currently facing surface transportation agency debt management professionals. These challenges include the following: ⢠Accessing complete information about the stateâs or agencyâs comprehensive debt obliga- tions, often making it difficult for debt management staff to effectively do their jobs; C H A P T E R 1 Introduction
Introduction 9  ⢠Responding to economic uncertainty following economic downturns and uncertainty sur- rounding federal funding and new federal tax reforms; and ⢠Determining the impacts of technological advances on traditional revenue sources like the gas tax. To address these challenges, practitioners can benefit from guidance on how to effectively manage the specific day-to-day duties of their role in debt management. In Figure 1, these challenges are paired with practices that can help to address them. Amid these challenges, surface transportation agencies have increasing responsibilities to meet the mobility needs of residents, businesses, and visitors as they strive to support the quality of life and economic development within their jurisdictions. It is important that surface transportation agencies have access to a broad range of practices and strategies for effective debt management. While not all such strategies and practices are applicable to every state DOT or surface transpor- tation agency, the purpose of this guidebook is to help surface transportation agencies improve the development and execution of debt management policies, procedures, and practices. 1.3 Approach This guidebook comprises two primary sources of information: (1) a synthesis of guidance documents collected through a literature review and (2) insights from debt management prac- titioners from transportation and finance agencies across the United States collected through case study interviews and relevant state-specific documents. The goal of the study is to integrate guidance and research material with the real-world experience of managing surface transpor- tation debt, acknowledging that effective practices for debt program management are often context-dependent. The findings of the literature review are integrated into the content of this guidebook, which synthesizes material from over 120 resources relevant to surface transportation debt financ- ing. The sources range from high-level resources that capture a snapshot of the status of debt financing for surface transportation to detailed resources on specific aspects of debt financial management (e.g., guidance on federal debt programs). The literature review includes sources from federal institutions with authority over municipal debt issuance, state debt management policies, and guidance materials on each phase of the debt management process. The case study research consists of in-depth reviews of key debt management documents and interviews with debt management practitioners in six states and two transportation agencies. Figure 2 depicts the following agencies: ⢠Arizona, ⢠Colorado, Figure 1. Challenges and solutions addressed in this guidebook.
10 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt ⢠Florida, ⢠Massachusetts, ⢠Ohio, ⢠Virginia, ⢠State of New York Metropolitan Transportation Authority (MTA), and ⢠Pennsylvania Turnpike Commission (PTC). The case study research is a means of examining key debt management practices not identi- fied by the literature review as well as effective practices practitioners utilize in their day-to- day work. The case studies represent geographic diversity and variety in the frequency of debt issuance, size of debt portfolio, and structure and administration of the debt issuance and management processes. In Figure 3, the case studies are arranged based on issuance frequency and the number of issuance-specific decisions they make; the size of the icons indicates the rela- tive size of the programs. The issuance frequency was determined based on data available on outstanding debt and official statements. The number of issuance-specific decisions is (1) meant to be relative to other case studies and (2) based on information learned from interviews with debt-financing practitioners at these agencies. Figure 3 summarizes the diversity of case studies selected for this research, thus highlighting how this guidebook captures a diverse set of effec- tive practices for debt issuance and management. This guidebook illustrates the four key phases of debt issuance and management, as sum- marized in Figure 4. ⢠Phase 1: The decision processâplanning for debt issuance ⢠Phase 2: Individual transaction preparation and development ⢠Phase 3: Marketing and placement of individual transactions ⢠Phase 4: Post-issuance compliance strategy Figure 2. Case studiesâgeographic diversity.
Introduction 11  This phase-based framework provides a reader-friendly approach to organizing this material. This approach is not meant to create false distinctions between the different aspects of the debt issuance and management process. Ultimately, each phase is interdependent and the work in different phases often overlaps. 1.4 Framework To help practitioners identify effective policies, procedures, and practices for their unique program, this guidebook is organized into several key categories: ⢠Key decision-making factors, ⢠Tools, ⢠Coordination and communication, and ⢠Leveraging outside professionals. Key decision-making factors discuss background information and considerations that practi- tioners must weigh before determining a course of action. Tools are discrete practices that prac- titioners can adopt to support and carry out their decisions, such as debt management policies. The process, communication, and coordination icon (Table 1) indicates when communication can be used to enhance and support better decision-making outcomes and debt management practices. Leveraging outside professionals indicates when consultants such as financial advisors (FAs) and bond counsel can and should be engaged to help inform decision-making. Figure 3. Case studiesâprogrammatic diversity. The Decision ProcessâPlanning for Debt Issuance Individual Transaction Preparation and Development Marketing and Placement of Individual Transactions Post-Issuance Compliance Strategy Figure 4. Phases of debt issuance and management.
12 Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt This guidebook uses the icons shown in Table 1 to call a readerâs attention to different types of examples. 1.5 Organization This guidebook is organized as follows: ⢠Chapter 2 describes the national context for debt issuance for surface transportation, including relevant federal agencies and information on federally administered financing programs. ⢠Chapter 3 explains Phase 1 of the debt issuance and management process, which includes iden- tifying the need to issue debt, defining debt policies, and continuing to learn from past issuances. ⢠Chapter 4 explains Phase 2 of the process, which describes the process and provides guidance for individual transaction preparation and development. ⢠Chapter 5 describes Phase 3 of the process, which deals with marketing and placement of individual transactions. ⢠Chapter 6 describes Phase 4 of the process, which deals with post-issuance compliance strategy. ⢠Chapter 7 provides the conclusion. ⢠Appendices provide additional material to help practitioners discern effective practices for their program: â Appendix A provides additional resources for each phase of the debt issuance and manage- ment process. â Appendix B describes the major types of debt and their corresponding debt-financing mechanisms, including eligibility requirements, advantages, and disadvantages. ⢠The eight case study reports are available to readers on the National Academies Press website (www.nap.edu) by searching for NCHRP Research Report 990: Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt. High-level decision-making and approaches to debt issuance and management Process, communication, and coordination Effective tools Table 1. Guiding icons.