[Federal Register Volume 60, Number 89 (Tuesday, May 9, 1995)]
[Notices]
[Pages 24682-24684]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11241]
[[Page 24681]]
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Part III
Department of Transportation
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Federal Transit Administration
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Innovative Financing Initiative: Administrative Policies and Procedures
Facilitating Use of Innovative Finance Techniques in Federally-Assisted
Projects: Notice
Federal Register / Vol. 60, No. 89 / Tuesday, May 9, 1995 /
Notices
[[Page 24682]]
DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
Innovative Financing Initiative: Administrative Policies and
Procedures Facilitating Use of Innovative Finance Techniques in
Federally-Assisted Transit Project
AGENCY: Federal Transit Administration, DOT.
ACTION: Notice.
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SUMMARY: This Notice describes innovative financing methods and asset
management tools which may be used in connection with projects
receiving assistance from the Federal Transit Administration (FTA) in
order to facilitate financing, leverage Federal, State and local funds,
and otherwise increase the effectiveness of transit capital projects.
FOR FURTHER INFORMATION CONTACT:
Janette Sadik-Khan, Associate Administrator for Budget and Policy,
(202) 366-4050, or Paul Marx, (202) 366-1675, Room 9310, 400 7th Street
SW., Washington, DC 20590.
SUPPLEMENTARY INFORMATION: The Intermodal Surface Transportation
Efficiency Act of 1991 (ISTEA) encourages more efficient management and
enhancement of our Nation's public transit infrastructure through the
creation of public/private investment partnerships. In addition
Executive Order 12893, ``Principles for Federal Infrastructure
Investments,'' signed by the President on January 26, 1994, directs
each executive department ``to ensure efficient management of
infrastructure * * *'' and ``to encourage private sector investment,
which is a key objective of our efforts to promote innovative
financing.'' Underlying this guidance is the notion that market-
oriented financing and management techniques can be effective tools for
meeting our Nation's needs for infrastructure investment. To further
these directives, on September 12, 1994, FTA published a Notice
regarding its Innovative Financing Initiative in the Federal Register
(59 FR 46878) in which FTA requested information from its grantees
about their use of innovative financing techniques in local transit
projects.
This Notice combines in a single document current innovative
financing methods and assets management tools and indicates, where
appropriate, changes in administrative practice or policy guidance that
may facilitate their use. Grantees and others in the transit community
may find it useful to have in one publication a summary of the
permissible financing and management techniques under FTA's grant
programs. Grantees should, however, refer to the appropriate FTA
regulations, circulars, reports, and publications that explain these
techniques in greater detail, or contact their FTA Regional Office for
further guidance and assistance.
The discussion below is divided into two broad categories,
Innovative Finance Techniques and Asset Management Tools.
FTA Innovative Finance Techniques
This section describes innovative financing techniques which may be
used in connection with Federal transit assistance. In general, the
techniques can be used with new projects financed with the FTA
Urbanized Area Formula Program (49 U.S.C. 5307, formerly Section 9 of
this Federal Transit Act, as amended) funds, as well as with Title 23,
United States Code (e.g., Surface Transportation Program (STP) and
Congestion Mitigation and Air Quality program (CMAQ)) funds transferred
to be used for transit projects. In most cases, the techniques can also
be used with funds from the Capital Program (49 U.S.C. 5309, formerly
Section 3), as well as Nonurbanized Area Formula program (49 U.S.C.
5311, formerly Section 18), and Elderly and Persons and Disabilities
Program (49 U.S.C. 5310, formerly Section 16) funds. Many of the
procedures can also be used with respect to assets previously acquired
with Federal transit assistance. For clarity, each technique is
described separately. Grantees should take note that two or more
techniques may be combined in the same project to generate additional
savings or to further enhance private financing.
FTA generally supports use of innovative financing concepts that
enhance the effectiveness of public transit investment by either
generating increased investment or by reducing overall project costs.
The following techniques and provisions of Federal transit laws are
illustrative of the types of innovation that FTA will support. The list
is not exclusive; grantees interested in pursuing techniques not listed
here should contact their FTA Regional Office. FTA will evaluate
proposals on a case-by-case basis, and where appropriate make further
changes in administrative procedures, or if necessary, revise its rules
and regulations to make such changes.
Leasing. FTA funds may be used to lease, rather than
purchase, transit equipment and facilities. Urbanized Area Formula
Program (49 U.S.C. 5307, formerly Section 9) funds may be used to cover
the costs of new an pre-existing leases, so long as leasing is more
cost effective than a direct purchase. FTA regulations at 49 CFR part
639 prescribe how leasing of transit equipment may be eligible.
Moreover, FTA permits on a case-by-case basis, using slightly different
criteria, such leasing under the Capital Program (49 U.S.C. 5309,
formerly Section 3), Nonurbanized Area Formula Program (49 U.S.C. 5311,
formerly Section 18), and Elderly and Persons with Disabilities Program
(49 U.S.C. 5310, formerly Section 16).
Certificates of Participation (COPs). Certificates of
Participation (COPs) are a type of leasing arrangement in which bonds
are issued to finance the purchase of transit assets. Typically, the
public transit agency (lessee) enters into a lease with a trustee or
non-profit entity (lessor) for the assets it wishes to acquire. The
lessor then transfers its rights to receive the lease payments made by
the transit agency to the bond holders. The cash paid by the bond
holders is used to purchase the assets that will be leased by the
transit agency. The transit agency makes lease payments from local
revenue sources and FTA grants. Title to the assets is held by the
trustee for the security interest of the bond holders during the life
of the transaction (usually 7 to 12 years). Use of this technique may
allow transit agencies to use future reserves of local and federal
revenues to accelerate equipment purchases. Although historically FTA
recipients have engaged in COPs transactions solely for the purchase of
vehicles, this technique may also be used to acquire facilities.
Approximately six of these have taken place with federally funded
equipment. Further guidance on the use of COPs can be found in FTA
Report No. FTA-MA-90-7005-93-1 (``How to Evaluate Opportunities for
Cross Border Leasing and COPs,'' November 1993).
Joint Development. Under 49 U.S.C. 5309(a)(5) and (f) and
49 U.S.C. 5309(a)(7) (formerly Sections 3(a)(1)(D) and 3(a)(1)(F)),
Capital Program funds can be used for a variety of joint development
activities, so long as they are physically or functionally related to a
transit project and they enhance the effectiveness of the transit
project. Further, consistent with the additional flexibility in funding
and decisionmaking afforded by ISTEA, FTA has recently interpreted the
Capital Program (49 U.S.C. 5309) and the Federal Transit laws (49
U.S.C. 5301 et seq.) to allow such joint development projects under the
Urbanized Area Formula Program (49 U.S.C. 5307, formerly Section 9), as
well as the STP (23 U.S.C. 133) and the CMAQ Program (23 U.S.C. 149)
when these funds are [[Page 24683]] transferred to FTA for a transit
project. Similarly, by this Notice, FTA is also alerting its grantees
to the fact that assets previously acquired with FTA funds may be used
for such joint development purposes. For example, land now used for
station parking and no longer needed for transit purposes may be
converted to use in a transit-related development project.
Certain cross-cutting Federal requirements will apply to the
activities supported by Federal transit funds; however, such
requirements would not apply to the commercial project itself, since
Federal funds cannot be used for the construction of commercial
revenue-producing facilities. FTA program funds may be used for the
overall planning of a transit project, including the commercial
revenue-producing facilities, so long as such commercial facilities are
part of an overall transit-related project.
Use of Proceeds from Sale of Assets in Joint Development
Projects. To facilitate joint development activities, FTA permits the
sale of real property and property rights acquired with FTA assistance,
in the following instances.
Real property that is no longer needed for transit purposes may be
sold and the proceeds may then be used to purchase other real property
for a transit-supportive development. If the real property is leased,
the proceeds are considered program income and may be used for any
transit purpose.
Air rights over transit facilities constructed with
Federal funds may be sold to developers and the proceeds retained as
program income for future use in mass transit, rather than returned to
the Treasury.
Cross Border Leases. A cross border lease is a mechanism
which permits investors in a foreign country to own assets in the
United States, lease them to an American entity, and receive tax
benefits under the laws of their own country. FTA will permit the
encumbrance of federally funded assets under a cross border lease so
long as the grantee maintains continuing control and use of the asset
in mass transit, and the benefits of the transaction outweigh the risks
to the grantee. Grantees should provide FTA with the details of the
transaction for review on a case-by-case basis. FTA's policy on Cross
Border Leases is contained in FTA Circular 7020.1 (``Cross Border
Leasing Guidelines''). Further guidance on cross border leases is
available in FTA Report No. FTA-MA-90-7005-93-1, cited previously.
Capital Cost of Contracting. FTA permits grantees to count
a portion of the costs of a contract with a private operator for
transit service operations as a capital cost eligible for FTA capital
program funding. This policy is described in more detail in FTA
Circular 7010.1 (``Capital Cost of Contracting''). This policy
generally applies to contracting for providing transit services where
the use of facilities and equipment is provided as a part of a transit
service contract.
Innovative Procurement Approaches. FTA encourages grantees
to use a wide variety of innovative procurement techniques. These can
include multi-year rolling stock procurements, forming consortia to
facilitate efficiencies of scale in rolling stock procurements, or
using design-build (``turnkey'') as a method of infrastructure project
delivery. Grantees can also consider use of vendor-financing in
procurements, such as ``super-turnkey,'' in which the contract calls
for borrowing by the design-build contractor, with the costs, including
interest, paid off over time using Federal grant funds. Further
information on this form of procurement is available in FTA Report No.
FTA-MA-08-7001-92-1, ``Turnkey Procurement: Opportunities and Issues.''
State Transit Finance Support. FTA encourages States and
local governments to develop the capability to provide support for
transit finance initiatives. Where State law permits, FTA capital funds
can be used to support transit-related State finance entities, such as
transportation banks. Such finance entities could provide a range of
financing options, including cross border leases, certificates of
participation, joint procurements, and the like, that may not otherwise
be available to the smaller transit agencies. While FTA capital program
funds can be used to cover the initial capitalization, they cannot be
used to cover the ongoing operating costs of such a program.
Revoling Loan Funds. By this Notice, FTA announces that
Federal grant funds may be used to support State or local revolving
loan funds established in accordance with appropriate State laws. These
funds would be available to provide direct loans for transit projects,
or to acquire equipment and facilities and lease them to providers of
public transportation in their States. Payments to retire the loans or
service the leases, including accrued interest, would be used to fund
other transit projects. Such a revolving loan fund could be used in
combination with pooled procurements, State or locally issued bonds,
joint development, and other techniques to generate income for transit
investment or to reduce the overall cost of transit capital investment.
As with the State Transit Finance entities, FTA funds can be used to
cover the initial capitalization, but they cannot be used to cover the
ongoing operating costs of such a program.
Deferred Local Match. FTA permits grantees to defer the
payment of the local share of transit projects. Under this policy,
grantees may, with prior approval from FTA, draw down 100 percent of
the first 80 percent of project cost of former section 3 (49 U.S.C.
5309), 8 (49 U.S.C. 5303), 9 (49 U.S.C. 5307), 16 (49 U.S.C. 5310), 18
(49 U.S.C. 5311) and 26 (49 U.S.C. 5320) projects, covering the local
share of the costs at the end of the project. See, ``Policy Statement
on Local Share Issues,'' 57 FR 30880, July 10, 1992.
Transfer of Federal Interest. In order to facilitate the
implementation of certain innovative financing transactions involving
the lease or encumbrance of an asset, FTA will permit the concentration
of the Federal interest in a portion of assets acquired with Federal
funds, leaving the remaining portion unencumbered by any Federal
interest. For example, where a fleet of 100 vehicles is acquired with
Federal funds with a local share of 20 percent, the Federal interest
may be concentrated in 80 of those vehicles, leaving the remaining 20--
the local share--of the vehicles without any Federal interest.
Moreover, this separation of Federal and local interests allows the
grantee to explore other financing techniques, such as using the local
share for COPs or cross border leases to leverage additional funds, or
using short-term lending, or debt subordination, where arbitrage issues
could be involved. For example, the portion of a fleet or facility
without Federal interest could be mortgaged, and the proceeds used to
earn interest or act as credit enhancement on a bond issue supporting a
major investment, thus generating savings for the transit authority.
Like Kind Exchange. FTA permits the transfer of the
remaining Federal interest in an asset to be transferred to a new asset
in order to facilitate the early replacement of such assets. For
example, under the FTA Like Kind Exchange policy (described in more
detail in 57 FR 39328, August 28, 1992), buses which have reached only
one-half their expected useful life may be sold and the proceeds may be
used to pay part of the cost of like-kind replacement vehicles, so long
as the remaining Federal interest in the vehicles which are sold is
applied to the new vehicles. In such cases, the proceeds of the sale
[[Page 24684]] of the vehicles does not have to be returned to the
Federal government.
Incidental Non-Transit Use. FTA-funded facilities may also
be used for limited non-transit purposes. For example, FTA funds may be
used for acquisition of a Compressed Natural Gas fueling facility which
will be used both by the transit operator's vehicles as well as other
public vehicles. In such a case, FTA will participate in the capital
costs of the facility proportionate to the needs for transit
operations, including any designed-in reserve capacity necessary to
assure reliable transit service. However, non-transit use should be
incidental, i.e., not detract from or interfere with the mass transit
use of the facility. FTA will determine what use is incidental on a
case-by-case basis. It should be noted that 49 CFR parts 604 and 605
prohibit the use of FTA-funded facilities for charter and schoolbus
purposes.
FTA Asset Management Tools
Transfer of Federally-Assisted Assets. 49 U.S.C. 5334(g)
allows existing, federally supported assets to be transferred for
another public use when they are no longer required for transit
purposes. For example, if a bus garage is no longer needed for transit
purposes, it may be transferred to local municipal ownership for use in
support of general public services. This new provision may also have
application in support of innovative financing techniques, for example,
by permitting transfer of ownership of assets acquired with Federal
funds to local public use in return for other local support for
transit. These transfers are subject to very specific statutory
conditions and must be approved in advance in writing by FTA.
Coordinated Urban and Rural Services. Assets acquired with
FTA funds may be used for any purpose which is eligible for FTA
funding. Thus, assets acquired with Urbanized Formula Program funds (49
U.S.C. 5307, formerly Section 9) or Capital Program (49 U.S.C. 5309,
formerly Section 3) funds may be used in a rural setting together with
assets acquired under the Nonurbanized Area Formula Program (49 U.S.C.
5311, formerly Section 18), as part of a coordinated rural/urban
system. Likewise, assets acquired for service in non-urbanized areas
can be used in urbanized areas as part of such a coordinated rural/
urban system.
Corridor Preservation/Advance Right of Way Acquisition. In
limited circumstances, FTA program funds can be used to acquire and
preserve existing transportation corridors and rights of way for future
use in transit fixed guideway projects, or existing corridors and
rights of way acquired with local funds can be used as local match for
FTA grants. Indeed, should there be an increase in the market value of
an existing corridor or right of way acquired with local funds only
before the use of that property for a transit project, the property
would be accepted as a local match for an FTA grant at its increased
value. Acquisitions of existing corridors and rights of way with FTA
funds are subject to two important constraints: (1) The FTA/Federal
Highway Administration (FHWA) requirement for completion of a Major
Investment Study before a major investment project can be programmed
for construction funding; and (2) the prohibition on advance land
acquisition that would prejudice the ultimate decisions on mode and
alignment for any transportation project prior to completion of the
National Environmental Policy Act (NEPA) studies for that project.
The preceding are example only. FTA welcomes all ideas and projects
that have the potential to leverage existing or planned infrastructure
investment, or that will help to reduce public transportation costs
over time. Grantees interested in pursuing these and other options
should refer to the appropriate FTA regulations or publications
referenced in this Notice or contact their FTA regional office to
discuss their plans in more detail.
FTA will continue to make full use of its regulatory and statutory
flexibility in fostering innovative financing proposals for transit.
However, in all cases, projects must comply with all other statutory
and regulatory requirements such as the NEPA, Civil Rights Acts,
Americans with Disabilities Act, the Clean Air Act, and the
Administrative Procedures Act.
Issued on: May 2, 1995.
Gordon J. Linton,
Administrator.
[FR Doc. 95-11241 Filed 5-8-95; 8:45 am]
BILLING CODE 4910-57-M
