Tuesday, January 10, 2006

River of pork is set to flow to public-private consortiums

DOT sets new plan in motion

Private road builders could use bonds

By Humbarto Sanchez
The Bond Buyer
Copyright 2006

The U.S. Department of Transportation has set the wheels in motion for private firms to start applying for authority to use up to $15 billion in tax-exempt private-activity bonds under a new program enacted into law last year that is designed to help finance the construction of highway and certain freight transportation projects.

“Parties who wish to take advantage of the tax exempt financing….are invited to apply to DOT for an allocation of this authority,” the department said in a notice published in the Federal Register. “Upon receipt, the Department will consider the application in light of applicable statutory requirements and the availability of tax-exempt authority for the type and location of the project for which the allocation is requested.”

The notice, which was published January 5, also seeks comments from those interested in using the new bond program, which was treated as part of the massive surface transportation law signed into law by President Bush last summer. The Comments -- which can be submitted throughout the program’s 10-year life -- will be used by the DOT to fine tune the bond program if the agency decides it is necessary.

The notice is intended to provide guidance to the bond program, in lieu of going through the lengthy process of developing official regulations, and to officially open the door for applications to be submitted, according to the DOT official.

In October, another agency official told the Bond Buyer that the DOT planned to issue a notice to guide the program’s operation. He also said that the agency did not intend to issue official regulations in order to avoid a slow, cumbersome and bureaucratic process and get the program started as soon as possible..

A separate Treasury Department release – which is expected to refer the DOT notice – is also likely to be issued, according to a source familiar with the program. But it was not clear when it would be published.

Private activity bonds are debt instruments issued by state and local governments where the bond proceeds are used to benefit a non-public issuer, such as a private company. Before the transportation law was enacted, private-activity bonds could be issued to finance 13 different types of projects, but not highways.

The new law allows private companies to benefit from up to $15 billion in private activity bonds that are also exempt from the state-by-state private-activity bond volume cap to finance the construction of highway projects and rail- to- truck freight transfer facilities.

Under the private-activity bond curbs, enacted in 1986, the issuance of private-activity bonds are limited this year to $80 per resident, or 246.6 million, whichever is greater. But the new bonds authorized in the highway law are subject to a nation-wide limit of $15 billion. The transportation law also stipulates that bonding authority would be allocated by the DOT and would expire at the end of 2015.

In its notice, the DOT included a list of 14 items that an applicant may wish to include in its application, but stressed that it “is not specifying any form for an application, nor is it requiring all or any of the information listed below to be included in the initial application.”

In addition to basic information, such as a description of the project, the amount of allocation requested, details of the financial structure, project schedule and readiness, the DOT also listed proposed date of bond issuance, a draft bond counsel opinion letter, a project schedule and a declaration that the information is accurate.

But the notice doe not put any limit on the amount of bonds that may be used for any one project and does not place a time limit on applications.

The notice, however, does stress that project schedules and pond issuance must take place as planned.

“The department is particularly concerned that once it makes an allocation, tax-exempt facility bonds are issued in a timely fashion,” the notice said. Hence, if the schedules agreed upon in the final allocation action are not met, the allocation may be withdrawn.”

Public-private consortiums that are planning to build roads or truck-to-rail freight transfer facilities are expected to apply for bond allocation under the program, possibly including pending toll road projects in Georgia and Texas, an observer said yesterday.

© 2006 The Bond Buyer www.bondbuyer.com