UCI Center for Urban Infrastructure The New Generation of Transportation Financing in California

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UCI Center for Urban InfrastructureThe New
Generation of Transportation Financing in
California
Tax-Exempt FinancingforPublic-Private
Transportation Projects

• Karen J. Hedlund, Esq.
• Nossaman Guthner Knox Elliott LLP
• March 7, 2003

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Few Equity Projects in the U.S. Have Gone Forward

• Virginia Greenway
• SR 91 Express Lanes
• Acquired by OCTA

• SR 57
• Franchise terminated
• SR 125 AB
• Macquarie investment

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Few Asset Sales in U.S.

• Privatizations mostly in water/wastewater sector
• Airport demonstration program a dud
• Chicago Skyway auction expected in April 2003

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Equity Investments in Tollroad Projects
US v. World(Macquarie Infrastructure)
Source Macquarie Infrastructure Group
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Cause Federal tax code discourages private
investment in highway and transit projects!
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Tax-Exempt Bonds Preclude Private InvestmentWith
Exceptions

• Since 1969 interest on private activity bonds
  subject to federal income tax
• Except exempt facilities
• Most exempt facilities bonds subject to
  statewide volume caps
• not airports, ports

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Long-term Management Contracts Constitute
Private Use

• Safe harbor for fixed fee contracts
• 15-year max term
• No compensation based on net revenues
• One-time incentive compensation payment allowed

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No Private Activity Bond Exception for
Highway/Transit

• Airport Terminals No volume cap
• Port Facilities No volume cap
• Water/Wastewater Subject to cap
• Solid Waste Leases exempt
• High Speed Rail Special provision
• Rationale no private involvement in highways in
  1970s when PAB exceptions legislated

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Result Private Deals Convert to 63-20
Non-profit Structures

• Non-profit
• Pocahontas Parkway
• S.C. Southern Connector
• Las Vegas Monorail

• Private to non-profit converted to fully public
  financing
• Tacoma Narrows

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Do We Need Private Equity? Equity Is More
Expensive!

• Equity supports higher risk
• Equity cushions debt makes debt cheaper or more
  saleable
• Projects selected on feasibility/need v. politics
• Attracts world-wide experienced owner/operators

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Advantages of Tax-Exempt Debt

• 20 lower interest cost millions over the
  life of the project
• More favorable market
• Longer maturities
• Less stringent covenants
• General comfort level with governmental issuers

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SolutionCongress must create a level playing
field for private investment
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1997/99 HICSA

• Highway Innovation and Cost Savings Act first
  introduced by Sen. Chafee in 1997
• Reintroduced in 1999
• 15 b in bonds for up to 15 highway demonstration
  projects
• Budget scoring only 102m 2000-2009
• Included in Tax Bill that passed House and Senate
  vetoed by Pres Clinton

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2001/2002 S. 870 Multitrans

• Multimodal Transportation Financing Act
  introduced by Chrm. Bob Smith (NH) May 2001
• Highways and transit
• Multimodal facilities
• Air/rail
• Truck/rail
• Volume cap exemption
• Permits second advance refunding to reduce
  financing costs upon completion of construction
  and end of ramp up
• Attempts to attach Davis-Bacon requirements could
  cost Republican support would be only
  tax-exempt bond category subject to federal
  prevailing wage requirement

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Multitrans Future Prospects?
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Contact

• Karen J. Hedlund
• Partner
• Nossaman Guthner Knox Elliott LLP
• Phone [phone] Fax [phone]
• Email khedlund_at_nossaman.com
• www.nossaman.com