State Infrastructure Banks – a tool to finance rural infrastructure projects

A State Infrastructure Bank (SIB) is a revolving loan fund program established and administered by a state to provide low-cost loan financing to surface transportation projects within the state. SIBs can be capitalized with Federal-aid surface transportation funds and matching state funds or capitalized with a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan to lend to rural infrastructure projects as discussed below.

A federally capitalized SIB can offer loans and credit assistance to public and private sponsors of Title 23 highway construction projects, Title 49 transit capital projects, and Title 49 (subtitle V) railroad projects.

Background information on SIBs can be found at the Center for Innovative Finance Support website:

https://www.fhwa.dot.gov/ipd/finance/tools_programs/federal_credit_assistance/sibs/

TIFIA loans to capitalize Rural Project Funds

The Fixing America’s Surface Transportation Act (FAST Act) expanded TIFIA eligibility to enable the use of TIFIA credit assistance to capitalize a Rural Projects Fund (RFP) within a SIB. The Infrastructure Investment and Jobs Act (IIJA), also known as the “Bipartisan Infrastructure Law”, includes the statutory provisions to continue SIB RPFs.

A designated SIB established within a DOT or other state agency with lending authority can borrow between a minimum $10 million and maximum $100 million from TIFIA, at a reduced interest rate, and then on-lend the loan proceeds to sponsors of rural infrastructure projects. This financing option allows TIFIA to further widen its reach particularly to communities with projects costing less than $10 million. These communities cannot borrow from TIFIA RPI directly due to $10 million minimum project eligible costs size limitation.

The SIB RPF has a two-tier lending approach:

• TIFIA - SIB RPF capitalization loan: a SIB borrows from TIFIA to capitalize a Rural Projects Fund within its structure for financing multiple rural projects.
• SIB loans to borrowers with eligible project: the SIB lends from the Rural Projects Fund capitalized by TIFIA, where TIFIA loan proceeds can be used to finance up to 80 percent of the rural infrastructure projects’ costs.

Note: TIFIA loan proceeds can be used to finance up to 80 percent of project costs.

TIFIA loans to SIBs have attractive features and benefits, including:

• Fixed interest rates equal to one half (1/2) of the U.S. Treasury rate of equivalent maturity of the loan (at the time of closing). Note that traditional TIFIA loans have interest rates equal to the U.S. Treasury rate (at the time of closing). The subsequent loans the SIB makes to rural borrowers must be at or below the TIFIA rate.
• Higher share of eligible project costs. The traditional TIFIA loan is sized at 33 percent of eligible project costs, and up to 49 percent for rural projects. A SIB loan to eligible borrowers can cover up to 80 percent of project costs.
• Fee waiver. TIFIA applicants are typically charged a fee to cover US DOT’s financial and legal advisory costs required to process a loan. These fees may be waived for TIFIA SIB capitalization loans less than $75 million.
• One rating. A typical TIFIA financing requires ratings of the Federal credit instrument and any senior debt from at least two credit agencies. For TIFIA SIB capitalization loans, only one rating agency opinion is required.
• Financing for multiple projects. TIFIA statutes do not restrict the number of loans or the size of individual loans the SIB can make to rural projects, so the SIB can finance multiple rural projects for a program or a pool of projects with a loan obtained through a single TIFIA application and credit review process.
• Use of federal funds with SIB RPF loans. Sponsors of eligible rural projects can use any source of funding including Federal assistance in combination with a SIB RPF loan.

Eligible Applicants. Public entities, including any state transportation agency, existing SIB, or a state-level lending institution, with the authority to:

• Establish a SIB or similar state-level financial intermediary with a separate account designated as a Rural Projects Fund, and
• Enter into a cooperative agreement with the US DOT pursuant to §23 U.S.C. 610. A public entity can apply on behalf of a SIB, or the SIB can apply directly, depending on its authorizing powers.

Eligible Projects. The TIFIA loan proceeds deposited in a Rural Projects Fund within a SIB may be used to make loans for projects defined as:

• A surface transportation project located in an area that is outside an urbanized area with a population greater than 150,000 individuals, as determined by the Bureau of Census.
• For projects crossing rural-urban boundaries, the project is considered “rural” if more than 50 percent of project eligible costs are in the rural area.

Any surface transportation project that meets the above definition and is eligible for assistance under U.S.C. Title 23 or Chapter 53 of Title 49 could be financed with a SIB RPF loan. SIB RPF loans can be provided to both public and private sponsors of eligible rural infrastructure projects.

For more information: BuildAmerica@dot.gov

Frequently Asked Questions about TIFIA SIB RPFs:

How can a SIB be established and receive a TIFIA capitalization loan?

To establish a SIB, a cooperative agreement is executed between the Federal Highway Administration (FHWA), or Federal Transit Administration (FTA), or Federal Rail Administration (FRA), as applicable, and the responsible state official. One or more Federal modal administrations can be signatories depending on the types of projects that will be financed with SIB RPF loans.

A cooperative agreement is the legal document that establishes the SIB, outlines the structure of the SIB, and specifies the requirements both for program and fund management, including the administration of the SIB, financial assistance policies, accounting and audit procedures, and compliance.

Where within a state governmental structure can a SIB be established?

There are a variety of administrative structures that will work for establishing a state-level SIB program. When the SIB Pilot Program was launched under the NHS Act of 1995, the most common choice implemented was to establish and administer the SIB within a State Department of Transportation. However, the administration and operation of the SIB can be in another state agency, in an independent entity within a state, or structured among two or more state agencies with shared responsibilities. For example, a state financing authority with a revolving fund program could potentially establish a SIB for the purpose of providing loans to fund surface transportation projects, depending on its legal authority.

What is the process for seeking a TIFIA SIB RPF loan?

Applicants seeking a TIFIA SIB RPF loan would follow all stages and requirements of the standard TIFIA application process described on the Review and Approval Process page. Applicants must demonstrate their creditworthiness and state of readiness to provide rural project loans via the SIB. The US DOT will assess the institutional capacity of the SIB to administer and disburse the requested TIFIA loan proceeds within the requisite time frame and will evaluate the creditworthiness of the proposed repayment source for the TIFIA RPF capitalization loan.

A state entity applying for a TIFIA SIB RPF loan must have the legal authority to establish a SIB and create a Rural Projects Fund within its SIB. While some states have had sufficient authority under their current law for the establishment and operation of a SIB, many other states have needed to enact specific enabling legislation authorizing the creation of a SIB.

What Federal requirements apply to rural infrastructure projects receiving a SIB loan?

All rural infrastructure projects receiving assistance from the SIB’s Rural Projects Fund must comply with the Federal requirements that apply to projects under title 23 and title 49, as applicable, pursuant to the provisions in 23 U.S.C. §610(h). These requirements include (but are not limited to):

• National Environmental Policy Act, otherwise known as NEPA
• Buy America
• Davis Bacon Act, which establishes prevailing wage rates for all federally funded or assisted projects
• Title VI (Civil Rights Act)

What are the eligible sources of repayment for a TIFIA SIB loan?

The TIFIA statute requires a dedicated pledged revenue source for repayment of TIFIA credit assistance. For a TIFIA direct loan to capitalize a RPF within a SIB, the DOT will consider any dedicated revenue sources available to the SIB, including repayments from the SIB’s loans for rural infrastructure projects. The DOT will determine the acceptability of pledges or forms of collateral as dedicated revenue sources on a case-by-case basis. Without exception, the Secretary will not accept a pledge of Federal funds, regardless of source, as security for a credit instrument.

Are there specific requirements that apply to the loans made by the SIB from the TIFIA proceeds in the Rural Projects Fund?

Loans made by SIBs from a Rural Projects Fund must comply with certain specific requirements, as set forth in section 610 of Title 23 U.S. Code, including:

1. the SIB loan cannot exceed 80 percent of the cost of carrying out the rural infrastructure project;
2. the SIB loans to sub-borrowers must bear interest at or below the interest rate on the TIFIA loan used to capitalize the Rural Projects Fund;
3. repayment of the SIB loan by the sub-borrower must commence not later than 5 years after completion of the project; and (iv) the term of the SIB loan cannot exceed 30 years after the date of the first payment on the loan.

The final maturity of the TIFIA SIB loan capitalizing a RPF shall not exceed 35 years after the date on which the secured loan is obligated, which is the date the TIFIA loan agreement is executed.

Is there a limitation on the maximum Federal assistance for a rural project receiving a TIFIA SIB RFP loan?

A sub-borrower of a SIB may use Federal sources, including Federal grants or other Federal (non-TIFIA) loans, in combination with the SIB Loan, to fund more than 80 percent of the costs of carrying out a rural infrastructure project, so long as the proceeds of the SIB Loan do not exceed 80 percent of the costs.