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22 Capital Leases Leasing capital equipment or facilities may also facilitate acquisition for airports that do not have adequate funding up front or cannot get the necessary approvals to issue bonds (see Figures 17 and 18). LEVERAGING FUTURE GRANTS Airport operators occasionally issue GARBs that are intended to be repaid with future federal grant funds. Leveraging FAA Letters of Intent FIGURE 18 Fort Wayne International Airport--Capital lease FAA issues multiyear LOIs to provide AIP grant funding to paid with operating funds. certain airports for airfield projects. Grants scheduled to be received under an LOI are not always received when project Washoe County (Reno, Nevada) in 1993 and the city costs are incurred. For large-scale capital projects a majority of St. Louis in 2000. of the expenditures typically occur in the first few years, · Commercial paper--The MinneapolisSt. Paul Metro- whereas the duration of an LOI is usually between 5 and politan Airports Commission issued subordinated com- 10 years. To address the resulting cash-flow shortage over mercial paper notes in 2000 to be repaid by LOI grants the initial years, some airport sponsors have leveraged grants to be received over the next 10 years. The commission scheduled to be received in an LOI to obtain upfront funding. Approaches to leveraging an LOI include: considered issuing LOI-secured debt, but decided instead to pledge general airport revenues. If LOI receipts do · Bonds--Airport sponsors have long used LOI grants to not materialize, the commercial paper could be repaid pay debt service on outstanding bonds on a double-barrel from subordinated airport revenues. basis. The investment community has identified credit concerns related to pledging future LOI grants as security Leveraging Security Grants from TSA for debt, including that an LOI is not a binding obligation of the government and LOIs are dependent on appro- TSA grants have been available on a limited basis since FFY priations by Congress, LOI entitlement payments are 2003, funded, in part, by federal user fees. Grants have been dependent on enplanements levels, LOI payments are issued as multiyear LOIs as well as 1-year grants called Other dependent on actual expenditures, and LOI payments Transaction Agreements (OTAs) to fund baggage screening may decrease owing to a change in hub status or PFC infrastructure. Through FFY 2004, TSA executed eight LOIs amount collected. However, a few airport operators to provide grant funding to each of nine airports over a 3- or have actually pledged the funds as security for the 4-year period. The last payment related to these LOIs is bonds. Two examples are the Airport Authority of scheduled to be issued in FFY 2007, subject to annual Con- gressional appropriations. In FFY 2003 and FFY 2004, TSA issued LOIs to the following airport operators, in the order in which they were granted: · Massachusetts Port Authority (BOS) · Dallas/Fort Worth International Airport Board (DFW) · Port of Seattle (SEA) · City and county of Denver, Department of Aviation (DEN) · Clark County (Nevada) Department of Aviation (LAS) · Los Angeles World Airports (LAX and ONT) · City of Phoenix, Aviation Department (PHX) · City of Atlanta, Department of Aviation (ATL). Six of the eight airport operators issued debt to be repaid with annual TSA LOI grant funds and used the bond FIGURE 17 Denver International Airport--Capital proceeds to build infrastructure for in-line systems. The equipment leases. bonds were generally issued as short-term variable-rate bonds
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23 expected to be fully repaid once the final LOI payments and within Miami International Airport (Innovative Finance are received (FFY 2007). The operators of the airports in Brochure--Credit Assistance 2006). Los Angeles and Phoenix used the grant funds and did not issue debt. Seven credit assistance programs are state-directed pro- grams enabled through federal-aid funding. The best point Owing to concerns about making multiyear commit- of contact is the relevant state department of transportation ments without the safeguards of a trust fund or other form (DOT). of guaranteed future year funding, and because the funding stream has not supported additional long-term grant agree- · State Infrastructure Bank (SIB)--The National High- ments, TSA has provided only 1-year grants since FFY 2004 way System Designation Act of 1995 (NHS Act) through OTAs. To date, approximately 33 OTAs have been enabled states to capitalize transportation credit assis- issued by TSA. tance banks modeled on wastewater State Revolving Loan Funds. The SIB program provides loans, credit enhancement, and other forms of assistance (such as Federal and State Credit Assistance for Airport bond banks) to eligible surface transportation projects. Access Projects Thirty-nine states participated in the NHS pilot. In Credit assistance to facilitate development of surface trans- TEA-21, Congress allowed only four states--California, portation projects, and in some cases airport access projects, Florida, Missouri, and Rhode Island--to use new TEA- is available at the federal and state levels. 21 funding for capitalization. Because program imple- mentation and capitalization levels vary from state to state, the best source of information about SIB assis- The Transportation Infrastructure Finance and Innovation tance is the state DOT (see Figure 19). Act (TIFIA), created in 1998 as part of the Transportation · Section 129 loan--These loans allow states to use Equity Act for the 21st Century (TEA-21), allows U.S. regular federal-aid highway apportionments to fund DOT to provide direct credit assistance to sponsors of major loans to projects with dedicated revenue streams. A transportation projects. The TIFIA credit program offers three state may direct lend federal-aid highway funds to distinct types of financial assistance--direct loans, loan guar- toll and non-toll projects that must have a pledge antees, and standby lines of credit--to public and private of a dedicated repayment source to secure the loan. sponsors of large surface transportation projects that meet Section 129 loans must be paid beginning 5 years certain eligibility criteria: after construction is completed and payment must be completed within 30 years of the date federal funds · The project must be included in a state transportation were authorized for the loan. States have the flexi- plan, and before an agreement is made for federal credit bility to negotiate interest rates and other terms of assistance, must be in an approved State Transportation Section 129 loans. Improvement Program. · The entity undertaking the project must submit a proj- ect application. · A credit rating or preliminary opinion letter from a rat- ing agency indicating that the project's senior debt obligations have the potential of being investment grade is required with the application. · Eligible project costs must equal and exceed the lesser of $100 million or 50% of the amount of federal-aid highway funds apportioned to the states for the most recently completed fiscal year. · Project financing must be repayable in part or in whole from tolls, user fees, or other dedicated revenue sources. · If the project is not undertaken by a state or local gov- ernment or an agency or instrument of a state or local government, the project must be included in both the state transportation plan and an approved State Trans- portation Improvement Plan. TIFIA credit assistance backed by a regional gas tax and rental car fees helped complete the financing for a $1.3 bil- FIGURE 19 Fort LauderdaleHollywood International lion Miami Intermodal Center, designed to improve access to Airport--SIB loans.