National Academies Press: OpenBook
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Suggested Citation:"Front Matter." National Research Council. 2021. Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt. Washington, DC: The National Academies Press. doi: 10.17226/26422.
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Suggested Citation:"Front Matter." National Research Council. 2021. Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt. Washington, DC: The National Academies Press. doi: 10.17226/26422.
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© 2021 National Academy of Sciences. All rights reserved. NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed, and implementable research is the most effective way to solve many problems facing state departments of transportation (DOTs) administrators and engineers. Often, highway problems are of local or regional interest and can best be studied by state DOTs individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation results in increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. Recognizing this need, the leadership of the American Association of State Highway and Transportation Officials (AASHTO) in 1962 initiated an objective national highway research program using modern scientific techniques— the National Cooperative Highway Research Program (NCHRP). NCHRP is supported on a continuing basis by funds from participating member states of AASHTO and receives the full cooperation and support of the Federal Highway Administration (FHWA), United States Department of Transportation, under Agreement No. 693JJ31950003. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply endorsement by TRB and any of its program sponsors of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. DISCLAIMER To facilitate more timely dissemination of research findings, this pre-publication document is taken directly from the submission of the research agency. The material has not been edited by TRB. The opinions and conclusions expressed or implied in this document are those of the researchers who performed the research. They are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; the FHWA; or the program sponsors. The Transportation Research Board, the National Academies, and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. This pre-publication document IS NOT an official publication of the Cooperative Research Programs; the Transportation Research Board; or the National Academies of Sciences, Engineering, and Medicine. Recommended citation: WSP USA and B Reese Advisory. 2021. Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt. Pre-publication draft of NCHRP Research Report 990. Transportation Research Board, Washington, D.C.

ii Contents Figures ........................................................................................................................................... iv Tables ............................................................................................................................................. v Key Terms..................................................................................................................................... vi Acronyms .................................................................................................................................... viii Summary ........................................................................................................................................ 1 Chapter 1. Introduction................................................................................................................ 9 1.1 Purpose ................................................................................................................................................. 9 1.2 Context ................................................................................................................................................. 9 1.3 Approach ............................................................................................................................................ 10 1.4 Guidebook Framework ....................................................................................................................... 13 1.5 Guidebook Organization ..................................................................................................................... 13 Chapter 2. National Context for Debt Issuance ....................................................................... 15 2.1 Overview ............................................................................................................................................ 15 2.2 Laws, Regulations and Guidelines...................................................................................................... 15 2.3 Federal Transportation Financing Programs ....................................................................................... 18 Chapter 3. Phase 1: The Decision Process – Planning for Debt Issuance .............................. 21 3.1 Overview ............................................................................................................................................ 21 3.2 Determining the Need to Issue Debt ................................................................................................... 21 3.3 Developing Guiding Policies and Tools ............................................................................................. 22 3.4 Surface Transportation Debt-Financing Approaches & Debt Types .................................................. 32 3.5 Iterative Learning and Strategy Enhancement .................................................................................... 36 3.6 Summary – Phase 1 ............................................................................................................................ 38 Chapter 4. Phase 2: Individual Transaction Preparation & Development ........................... 39 4.1 Overview ............................................................................................................................................ 39 4.2 Determining the Timing and Amount of the Issuance ........................................................................ 41 4.3 Determining the Type of Sale ............................................................................................................. 46 4.4 Confirming the Debt Approach .......................................................................................................... 50 4.5 Soliciting and Engaging Professional Support ................................................................................... 54 4.6 Selecting and Engaging with Credit Rating Agencies ........................................................................ 56 4.7 Developing Relevant Debt Documents ............................................................................................... 60 4.8 Summary – Phase 2 ............................................................................................................................ 65 Chapter 5. Phase 3: Marketing & Placement of Individual Transactions ............................ 66 5.1 Overview ............................................................................................................................................ 66 5.2 Bond Pricing Strategy ......................................................................................................................... 66 5.3 Marketing Individual Transactions ..................................................................................................... 73 5.4 Closing Requirements and Guidelines ................................................................................................ 78 5.5 Summary – Phase 3 ............................................................................................................................ 81 Chapter 6. Phase 4: Post-Issuance Compliance Strategy ........................................................ 82 6.1 Overview ............................................................................................................................................ 82 6.2 Introduction to Post-Issuance Compliance Requirements .................................................................. 83

iii 6.3 Structure: Issuer-Managed Compliance vs. Centralized Compliance ................................................. 86 6.4 Capacity and Resources ...................................................................................................................... 89 6.5 Data Collection & Management ......................................................................................................... 91 6.6 Strategy to Track Changes and Adjust to Changes ............................................................................. 92 6.7 Establish a Repeatable/Reliable Process ............................................................................................. 93 6.8 Phase 4 – Summary ............................................................................................................................ 96 Chapter 7. Conclusion ................................................................................................................ 97 Appendix A: Additional Resources ........................................................................................... 99 Appendix B: Major Debt Types & Corresponding Debt-Financing Vehicles..................... 104 References .................................................................................................................................. 114

iv Figures Figure 1. Challenges & Solutions Addressed in this Guidebook .......................................................... 2 Figure 2. Phases of Debt Issuance and Management ............................................................................ 3 Figure 3. Challenges & Solutions Addressed in this Guidebook ........................................................ 10 Figure 4. Case Studies – Geographic Diversity ................................................................................... 11 Figure 5. Case Studies – Programmatic Diversity ............................................................................... 12 Figure 6. Phases of Debt Issuance and Management .......................................................................... 12 Figure 7. Examples of Restrictions on Debt Issuance ......................................................................... 25 Figure 8. Foundational Components of a Debt Affordability Study ................................................... 30 Figure 9. Programmatic Debt Approach Example .............................................................................. 32 Figure 10. Programmatic Approaches to Surface Transportation Debt ................................................. 34 Figure 11. Iterative Learning to Define a Debt Strategy ....................................................................... 36 Figure 12. Individual Transaction Preparation & Development Overview ........................................... 40 Figure 13. Overview: General Obligation Bonds .................................................................................. 53 Figure 14. Types of Professional Support ............................................................................................. 54 Figure 15. Differences in Engaging with Credit Rating Agencies ........................................................ 59 Figure 16. Credit Rating Agency Presentation Outline ......................................................................... 59 Figure 17. Debt Document Considerations ........................................................................................... 61 Figure 18. Official Statement Cover Page ............................................................................................. 63 Figure 19. Official Statement Summary Page ....................................................................................... 64 Figure 20. Competitive Sale Overview ................................................................................................. 67 Figure 21. Negotiated Sale Overview .................................................................................................... 68 Figure 22. Negotiated Bond Pricing Process ......................................................................................... 69 Figure 23. Bond Pricing by Maturity – Official Statement ................................................................... 70 Figure 24. Federal & State Law Compliance Requirements ................................................................. 85 Figure 25. Post-Issuance Compliance Management Structures ............................................................ 86 Figure 26. Phases of Debt Issuance and Management .......................................................................... 97

v Tables Table 1. Guiding Icons ....................................................................................................................... 13 Table 2. Municipal Securities Rulemaking Board Rules Subcategories ............................................ 17 Table 3. Overview: Competitive & Negotiated Sales ........................................................................ 47 Table 4. Types of Debt & Revenue Pledge ........................................................................................ 50 Table 5. Comparison: Confirmation of Debt Approach ..................................................................... 51 Table 6. Financial and Legal Outside Professionals – Descriptions .................................................. 55 Table 7. Debt Document Definitions ................................................................................................. 60 Table 8. Bond Pricing by Method of Sale .......................................................................................... 71 Table 9. Differences in Marketing ..................................................................................................... 74 Table 10. Differences in Practices for Meeting Closing Requirements ............................................... 79 Table 11. Categories of Requirements & Relevant Authorities ........................................................... 83 Table 12. Variation in Effective Practices for Managing Roles & Responsibilities for Post- Issuance Compliance ........................................................................................................... 87

vi Key Terms The following is a list of key terms used throughout this Guidebook taken from NCHRP Synthesis 513, Evolving Debt Finance Practices for Surface Transportation (unless otherwise endnoted).1 Arbitrage – With respect to the issuance of multiple securities, arbitrage usually refers to the difference between the interest paid on tax-exempt bonds and the interest earned by investing the proceeds of the tax- exempt bonds in higher-yielding taxable securities. Federal income tax laws generally restrict the ability to earn arbitrage in connection with tax-exempt bonds or other federally tax-advantaged bonds. The 1986 Tax Reform Act states that these earnings must be rebated periodically to the federal government unless certain conditions are met. Credit – Promise of future payment given in exchange for money, goods, or services today. Debt instrument – A mechanism by which debt is issued (i.e., bonds, notes, and loans). Debt type – Category of debt as defined by the security, such as general obligation, revenue-backed, or tax-backed. Specific examples of debt types include general obligation bonds, toll revenue bonds, grant anticipation revenue vehicles (GARVEEs), lease revenue bonds, and loans from federal credit programs. Debt service – The sum of required principal and interest payments for a given period. Debt structure – The rate structure and maturity structure for a debt type. Financial advisor – Commonly refers to an individual or firm that advises the issuer or other obligated person on matters pertinent to the issue, such as structure, timing, marketing, fairness of pricing, terms and bond ratings. A financial advisor may also be employed to provide advice on subjects unrelated to a new issuance of municipal securities, such as advising on cash flow and investment matters in connection with outstanding municipal securities.2 Issuer – The public entity borrowing money through the issuance of securities. Long-term – Obligations that generally have a maturity of five to ten years. Municipal Securities – A general term referring to a bond, note, warrant, certificate of participation or other obligation issued by a state or local government or their agencies or authorities (such as state agencies, cities, towns, villages, counties or special districts or authorities). A prime feature of most municipal securities is that interest or other investment earnings on them are generally excluded from gross income of the bondholder for federal income tax purposes. Some municipal securities are subject to federal income tax, although the issuers or bondholders may receive other federal tax advantages for certain types of taxable municipal securities.3 Official Statement – A document generally required for each new issue that contains information about the nature of the security being offered and the revenue-pledged sources of payment behind the security. Pay-as-you-go-funding – Describes government funding of capital outlays from current revenues or grants rather than by borrowing. Proceeds – The money received by the issuer from the delivery of a bond issuance. The total proceeds include any variation of the price from par (discounts or premiums) and accrued interest. Revenue Pledge – A promise to use targeted sources of revenue for the payment of debt service—a known source of security. A revenue pledge differs from a lien in that the targeted source is not readily available or identifiable (e.g., revenues from the project being financed by the bonds that has not yet been constructed).

vii Security – Generally, an instrument evidencing debt of or equity in a common enterprise in which an investment is made on the expectation of financial return. The term includes notes, stocks, bonds, debentures or other forms of negotiable and non-negotiable equities or evidences of indebtedness or ownership.4 Short-term – Obligations that generally have a maturity of less than 1 year.

viii Acronyms ADOT ................................................................................................ Arizona Department of Transportation CDOT ............................................................................................... Colorado Department of Transportation CRA ........................................................................................................................... Credit Rating Agencies CTB .....................................................................................................Commonwealth Transportation Board DBF ........................................................................................................... Florida Division of Bond Finance DOT ................................................................................................................. Department of Transportation EMMA .................................................................................................. Electronic Municipal Market Access FA ..................................................................................................................................... Financial Advisors FAF ............................................................................................................ Financial Accounting Foundation FDOT .................................................................................................. Florida Department of Transportation FHWA ........................................................................................................ Federal Highway Administration FINRA ............................................................................................ Financial Industry Regulatory Authority FTA ................................................................................................................ Federal Transit Administration GAAP .......................................................................................... Generally Accepted Accounting Principles GAN ........................................................................................................................ Grant Anticipation Notes GARVEE ............................................................................................ Grant Anticipation Revenue Vehicles GASB ........................................................................................ Governmental Accounting Standards Board GFOA ........................................................................................... Government Finance Officers Association GO .....................................................................................................................................General Obligation HPTE ....................................................................................... High Performance Transportation Enterprise IRS .......................................................................................................................... Internal Revenue Service MassDOT ................................................................................. Massachusetts Department of Transportation MSRB ............................................................................................. Municipal Securities Rulemaking Board MTA .................................................................................................. Metropolitan Transportation Authority NCHRP ........................................................................... National Cooperative Highway Research Program OBM ........................................................................................................ Office of Budget and Management ODOT ..................................................................................................... Ohio Department of Transportation OMS ................................................................................................................ Office of Municipal Securities OS ...................................................................................................................................... Official Statement P3 .......................................................................................................................... Public-Private Partnership PAB ............................................................................................................................. Private Activity Bonds PTC ....................................................................................................... Pennsylvania Turnpike Commission RFP ................................................................................................................................ Request for proposal RRIF ............................................................................. Railroad Rehabilitation and Improvement Financing RTRS ............................................................................................ Real-Time Transaction Reporting System S&P ................................................................................................................................... Standard & Poor’s SEC ..................................................................................................... Securities and Exchange Commission SHORT ......................................................................................... Short-term Obligation Rate Transparency SIB ...................................................................................................................................Social Impact Bond SIFMA ....................................................................... Securities Industry and Financial Market Association

ix STIP ................................................................................... Statewide Transportation Improvement Program TIFIA ................................................................... Transportation Infrastructure Finance and Innovation Act TxDOT .................................................................................................. Texas Department of Transportation USDOT ..................................................................................................... US Department of Transportation VDOT ............................................................................................... Virginia Department of Transportation

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The passage of Dodd-Frank and the COVID-19 pandemic are among the factors that have made the environment for tax-exempt debt issuers increasingly challenging and complex.

The TRB National Cooperative Highway Research Program's pre-publication draft of NCHRP Research Report 990: Guidebook for Effective Policies and Practices for Managing Surface Transportation Debt is designed to help surface transportation agencies improve the development and execution of debt management policies, procedures, and practices.

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