Alternative Funding for the Inland Waterways Trust Fund

Is there a “there” there?

Jorge Romero

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K&L Gates Maritime Group

 One of the largest maritime law and policy practices in Washington, D.C.

 Represent all major sectors of the maritime industry before Congress, Executive Branch agencies, and in the courts.

 Assist clients in complex transactions, drafting legislation and supporting advocacy documents, developing comprehensive strategies to affect public policy, and advocating their interests before federal and state governments. 2

Jorge Romero

Background:  General corporate and financing practice  Focus on vessel construction, financing, documentation, and transactions  Clients in the inland waterways, non-profits and associations 3

Agenda:

 High-level look at these alternative financing options:  Long-term Bonds  Public-Private Partnerships  Other creative options 4

Warning! Complexities Ahead

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To simplicity 6

Long-term Bonds

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Warning: High Finance Math Ahead

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Background facts:



Resources

available:  IWTF is “bankrupt,” “insolvent” – there are no reserves left.

 Only money “there” is the future deposits from the fuel tax, estimated at $85 million/year.

 With a 50/50 cost share for new construction and rehabilitation, this means $

170 million/year

.

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Background facts (cont.):



Need

:  Best current number for

unconstrained

need is: 

$17 billion over next 20 years

.

 Money needed to fund as of today:  (a) Unfunded portion of projects under construction +  (b) authorized projects =

$7 billion

 So the Corps/Users Board Inland Marine Transportation System Investment Strategy Team will come out with a figure

between $7 and $17 billion

 Let’s say $

12 billion

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Two Basic Options:

 Direct issuance of federal government obligations  E.g. Treasury bills or bonds  Federally-guaranteed obligation issued by a third party  SBA  Title XI 11

How it would work:

Congress Trust Fund Collateral: Appropriation $$ Fuel Tax $$ Periodic Payments Bond Purchasers $$ Bond Proceeds $$ Corps/Bank 12

How it would work:

Congress Appropriation $$ Trust Fund Fuel Tax $$ Bond Purchasers Bond Proceeds $$ Corps/Bank 13

Advanced Mathematics: at current levels

 If we take the stream of funds available

today

and ask a banker how much we can borrow with that over 25 years, here are some answers: Yearly payment for 25 years $170 million/year Amount that can be borrowed at: 5.5% $3 billion 3.5% $4.8 billion 14

Advanced Mathematics: at historic levels

 If we take the

average

the last few years … : of the funds expended over Yearly payment for 25 years $262 million/year Amount that can be borrowed at: 5.5% $4.7 billion 3.5% $7.4 billion 15

Advanced Mathematics: at double current levels

 If we take

double

today … : the stream of funds available Yearly payment for 25 years $340 million/year Amount that can be borrowed at: 5.5% $6.2 billion 3.5% $9.7 billion 16

Summary Table

Yearly payment for 25 years $170 million/year $262 million/year $340 million/year Amount that can be borrowed at: 5.5% $3 billion $4.7 billion $6.2 billion 3.5% $4.8 billion $7.4 billion $9.7 billion 17

Summary Graph

$12,000,000,000.00

$10,000,000,000.00

$8,000,000,000.00

$6,000,000,000.00

$4,000,000,000.00

$2,000,000,000.00

$0.00

$170 million @ 5.5% $170 million @ 3.5% $262 million @ 5.5% $262 million @ 3.5%

Resources

$340 million @ 5.5% $340 million @ 3.5% 18

Observations:

     Bonding authority probably will not supply the total need, but don’t know how short.

Highly sensitive to interest rates.

Can’t hock the same thing twice.

 If you need more money later, you need to get it Doesn’t make much difference as to how much you can borrow if you go to 12, 25, 30 or 50 years.

In the real world:  You wouldn’t borrow all of the money at once, but in tranches;  You would have transaction costs to consider.

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Policy consideration:

 Will Congress give up the annual appropriations ritual?

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Public-Private Partnerships

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Another word of Caution …

 Warning! Complexities Ahead 22

Another word of Caution …

To simplicity 23

Possibilities:

 Many flavors of PPPs  Catalogued fairly exhaustively in the IWR’s Water Resources Outlook - Budget Constraints and the Corps Consideration of Public-Private Partnerships: Where Is the Money Going to Come From?, December 2008 (Wilson & Starler) 24

Two likely candidates: Option One

   Private party gets right to design, build, finance, operate, and maintain one or more locks and dams.

And

collect revenue from operations.

 What revenue?:   Tolls? Sounds like lockage fee.

Annual expenditures from IWTF plus appropriations? Is that bankable?

Plus:

In setting revenue level for a lock, private operator and its investors would expect a return on investment, which would be greater than interest on debt.

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Option One, cont.:  Thoughts/questions?

 Since operations and maintenance are already covered 100% by appropriations, why turn this over to private entity?

 If you take away O&M, what are you really asking the private party to do?

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Two likely candidates: Option Two

 Private party gets right to design, build, and finance,

but not

operate and maintain, one or more locks and dams.

 Thoughts/questions:  How do you pay the private party? What revenue stream do you give them?

 The same revenue that would pay off the bonds? Why not just write them a check with the bond proceeds?

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Possible Third Option:

 Non-profits or co-ops  No profit motive  Revenue still an issue 28

Final thought on privatization of infrastructure:

 As IWR study points out:  Privatization is not without risk  We have been there before  Government has bailed out bankrupt agencies in the past 29

Creative Ideas Department

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Miracle: Loaves and Fishes

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Magic:

Harry Potter and the Inland Waterways Trust Fund?

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Climate Legislation:

    House bill prohibits emitting GHG without allowances Bill sets number of allowances that EPA will issue per year Bill allocates allowances to certain classes of individuals (electricity consumers, etc.), states and government agencies, and programs (new technologies, etc.) Emitters of GHG have to buy allowances; generating revenue for allocation recipients 33

Climate legislation:

 What if the Inland Waterways Trust Fund were be a recipient of allocations?

 Inland transportation is clean tech  Supports meeting climate goals 34

What Might Climate Allocations Be Worth?

 CBO estimates allowances will be worth $15/ton in the first year (2012)  In 2012, the bill provides for 4.6 billion tons of GHG  4,600,000,000 x $15.00 =

$69 billion

 Estimated to go up to

$119.6 billion

by 2019  One percent of that would be between

$690 million

and

$1.2 billion per year

.

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Questions?

Comments?

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Thanks!

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