What's going on with the Silver Line (Part 2)? MWAA's TIFIA Loan Application

All of a sudden, there is a plethora of news articles about the Silver Line, some enthusiastic about progress, others concerned about further delays.  

In the next few paragraphs, I try to work through the various issues discussed in these articles and provide a bit clearer (but maybe no more accurate) picture of what’s going on with the Silver Line?  I post links to all the articles I reference so, if you want, you can draw your own conclusions.

Another string of local reporting has focused on the fact that the northern Virginia Congressional delegation reported that MWAA has been asked by the Department of Transportation to apply for a TIFIA loan.  Here is how the Federal Highway Administration (FHA) describes TIFIA:

The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides Federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects of national and regional significance. TIFIA credit assistance provides improved access to capital markets, flexible repayment terms, and potentially more favorable interest rates than can be found in private capital markets for similar instruments. TIFIA can help advance qualified, large-scale projects that otherwise might be delayed or deferred because of size, complexity, or uncertainty over the timing of revenues. Many surface transportation projects - highway, transit, railroad, intermodal freight, and port access - are eligible for assistance. Each dollar of Federal funds can provide up to $10 in TIFIA credit assistance - and leverage $30 in transportation infrastructure investment.

The TIFIA credit program may provide to States (including D.C. and Puerto Rico), localities, or other public authorities, as well as private entities undertaking projects sponsored by public authorities, three types of financial assistance:

·         Secured loans are direct Federal loans to project sponsors offering flexible repayment terms and providing combined construction and permanent financing of capital costs.

·         Loan guarantees provide full-faith-and-credit guarantees by the Federal Government to institutional investors, such as pension funds, that make loans for projects.

·         Lines of credit are contingent sources of funding in the form of Federal loans that may be drawn upon to supplement project revenues, if needed, during the first 10 years of project operations.

Here’s how Lori Aratani at  the Washington Post reported it:  “The Metropolitan Washington Airports Authority and two of its partners in the $5.6 billion rail project, Fairfax and Loudoun counties, have been asked by the Department of Transportation to apply formally for a federal loan — a sign that they are likely to receive the funds they have requested.”  Aratani goes on to report that the amount applied for is $1.9 billion, but it is actually just short of $2.0 billion—the one-third maximum allowed for TIFIA financed projects—for the total cost of the $6.0 billion Silver Line project, including the counties’ share.  

For more than a year, the FHWA and the “funding partners”—MWAA, Fairfax, and Loudoun counties—have been going back and forth following the funding partners' letter of interest to help assure than any loan application meets FHWA’s standards.  That's a lot of "re-do's" for a single project.  

That leaves us a little confused at the enthusiasm expressed by our elected officials, especially Rep. Gerry Connolly’s comment, reported by Aratani,  that the “announcement is a huge victory for Northern Virginia and commuters in the Dulles Corridor.”  Well, maybe; then again, maybe not. 

Actually, it appears several options are now on the table as the application's processing goes forward:

• FHWA could still reject the application it has invited the funding partners to submit.

• FHWA could provide a loan guarantee only, which would lower the interest rate paid on the debt MWAA and the counties will have to issue and thereby offer the opportunity for a slower growth in DTR tolls.

• FHWA could approve all or some part of a full $2.0 billion loan to the Metrorail project which would further lower interest costs and toll increases.   Don’t count on that happening anytime soon.

• There may be other options, but that’s all I can think at the moment.

Except for rejection, all of these TIFIA support options would reduce financing costs for Silver Line construction and ease the rate at which DTR tolls would increase.   Maybe surprisingly, the loan guarantee may offer the greatest reduction in toll increases if it is available for the full $6 billion cost of the line.  This would offer the “full faith and credit” of the US Government to the project and allow interest rates to drop substantially—by half or more—including existing debt for Phase 1. 

The near-term impact of such financing appears to be overstated in some reports, however.  Aratani reports, "Officials from the MWAA said the low-interest federal loan, combined with $300 million in funding from Virginia, could mean that tolls are likely to remain at current levels until 2018."  Actually, the promise made (OK, a promise by politicians) was that the $300 million from Virginia would obviate the need for toll increases through 2015 all by itself.  So a full loan could extend that to 2018, but that would be the less cost-effective way to handle the federal financing.  By our calculations, applying the loan's benefits in terms of reduced toll increases over the life of the debt would yield the lowest net present value cost to toll road users--rather than a big splash in the first three years or so.