On December 4, 2015, President Obama signed into law the five-year Fixing America’s Surface Transportation (FAST) Act. The FAST Act has significant implications for many players in the U.S. transportation sector, including the P3 industry.
For the public-private partnership (P3) industry, the FAST Act contains both positives and negatives.
On the positive side, the FAST Act directs the U.S. Department of Transportation (U.S. DOT), with other federal agencies, to develop guidelines for conducting coordinated environmental project reviews. This could result in P3 projects coming to market with less delay associated with multi-agency environmental reviews. As guidelines are promulgated, the industry will get a better sense as to the true benefits of this change.
Another general positive is the continuation of TIFIA for the next five years. Changes to TIFIA in the FAST Act appear to have a mixed impact on the P3 industry.
Within 180 days of the enactment of the FAST Act, the U.S. DOT is tasked with developing an expedited application process for loans under the TIFIA program. It is expected that the loan terms would be similar to past TIFIA loans. However, loans made under the expedited process cannot exceed US$100 million and repayment of such loans must commence within five years of disbursement. As such, the expedited TIFIA process may not be as attractive for the larger P3 projects with longer construction timelines.
The FAST Act does reduce the name plate TIFIA investment amount from the current US$1 billion per annum to the range of US$275 - US$300 million annum for the years 2016-2020. In practice, the US$1 billion per year has not been used (and surplus funds had to be returned to the Highway Trust Fund), so the reduction may not have a material impact in practice. In addition, the reduction in TIFIA funding is mitigated by other provisions of the FAST Act.
First, the FAST Act expands the eligibility for other Federal funds to be used on projects in conjunction with TIFIA loans. Examples of Federal funds that may now be used in conjunction with TIFIA are the National Highway Performance Program and Surface Transportation Program block grants.
In addition, the FAST Act creates a new Nationally Significant Freight and Highway Projects (NSFHP) program with funding on average of US$900 million annually. Under the NSFHP program, states may compete for grants for large-scale transportation projects designed to reduce congestion and facilitate the efficient movement of freight. What is unclear is whether states will use the grants to facilitate P3 projects.
The FAST Act also provides for the expedited delivery of grants for up to eight P3 projects, provided that the grant amount cannot exceed 25% of the total project cost.
The FAST Act creates a National Surface Transportation and Innovative Finance Bureau within the U.S. DOT that will be tasked with administering the application process for TIFIA, NSFHP, and other U.S. DOT funds, in addition to providing technical assistance to states that wish to consider a P3 program. This was intended to help consolidate and expedite these application processes, especially where multiple sources of funding are being requested.
However, the FAST Act also officially establishes the Council on Credit and Finance, which has to approve U.S. DOT grants and loans and is an added layer of review.
The foregoing provides an overview of key provisions of the FAST Act that will likely impact the P3 industry. The complete FAST Act is extensive and has many other provisions specific to highway, rail, and water projects.