On November 15, 2021, President Biden signed into law the
Infrastructure Investment and Jobs Act, H.R. 3684, as amended (the
“Infrastructure Act”). The Infrastructure Act is based on
the framework agreed on between the Biden administration and a
bipartisan group of US senators (the “Framework”); it
previously was approved by the Senate on August 10, 2021 and by the
House of Representatives on November 5, 2021.
The Infrastructure Act will provide over $840 billion in federal
investment in infrastructure, including $550 billion in new
spending over 5 years for various projects such as roads and
bridges, rail, public transit, ports and waterways, airports, and
broadband. This investment includes a $382.9 billion, 5- year
surface transportation authorization that is $89.9 billion over
baseline and includes funding for highways as well as rail, mass
transit, and other transportation. The stability of this multi-year
authorization and commitment to additional spending is likely to
provide significant incentives for the private sector to invest in
infrastructure.
In addition to the overall incentive provided by the general
increase in programs and funding, the Infrastructure Act includes a
number of new provisions intended to encourage public-private
partnerships (“P3s”) and private sector investment in
infrastructure, including new initiatives related to electric
vehicles and carbon capture that are likely to interest private
investors. This Legal Update provides a summary of these key
provisions.
Congress also continues to consider additional infrastructure
spending under the Build Back Better Act, H.R. 5376 (the
“Build Back Better Act”), which may provide additional
opportunities for private investment in infrastructure. The current
version of the Build Back Better Act includes investments in
high-speed rail, affordable housing, and the reduction of
transportation-related greenhouse gas emission. Additional
information regarding certain key programs proposed under the Build
Back Better Act are described at the end of this Legal Update.
A.Key Provisions Relating to Private Sector Investment and
P3s
The Infrastructure Act includes provisions likely to encourage
private sector investment to assist in accomplishing key
infrastructure initiatives. As further described below, these
include expansion of private activity bonds (“PABs”)
authorization, expansion of Transportation Infrastructure Finance
and Innovation Act (“TIFIA”) and Railroad Rehabilitation
and Improvement Financing (“RRIF”) program eligibility,
technical assistance for asset recycling, and a value for money
study requirement for major infrastructure projects. These
provisions could strengthen opportunities for P3s to play a
critical role in the development, financing, and operation of US
infrastructure.
EXPANDED PABS AUTHORITY
Increase of PABs Authority for Surface Transportation
Projects. Section 80403 of the Infrastructure Act
increases the cap on surface transportation PABs from $15 billion
to $30 billion. Without this increase, nearly all of the current
cap has been committed. Doubling this limit will allow many more
state and local governments to take advantage of this lower-cost
financing tool for surface transportation P3 projects.
Additional Projects Eligible for PABs. The
Infrastructure Act expands the scope of allowable uses for PABs to
include certain broadband projects and carbon capture projects:
- Broadband: Section 80401 of the Infrastructure Act
adds the financing of qualified broadband projects to the list of
allowable uses for exempt facility bonds under Section 142(a) of
the Internal Revenue Code. Qualified projects are defined as
projects that cover census block groups where more than 50% of the
residential households do not have access to broadband service;
specific metrics are included for improved service. Additionally,
75% of any exempt facility bond issued for a qualified broadband
project does not count toward the required allocation of state PAB
volume cap, and if all of the property to be financed by net
proceeds of the bonds is owned by a governmental unit, state volume
cap is not required. - Carbon Capture: Section 80402 of the Infrastructure
Act adds financing for qualified carbon dioxide capture facilities
to the list of allowable uses for exempt facility bonds under
Section 142(a) of the Internal Revenue Code. Qualified carbon
dioxide capture facilities are defined to include both the eligible
components of industrial carbon dioxide facilities (e.g., those
that emit carbon dioxide) as well as direct air capture facilities
(as defined in 45Q(e)(1) of the Internal Revenue Code). Eligible
components include any equipment installed in an industrial carbon
dioxide facility that is used for the purpose of capture,
treatment, transportation, or storage of carbon dioxide produced by
the facility or that is integral or functionally related and
subordinate to a process that converts materials (e.g., coal
product, petroleum residue, biomass) recovered for their energy or
feedstock value into a synthesis gas composed primarily of carbon
dioxide and hydrogen. These eligible components generally overlap
with, but are not identical to, facilities eligible for the related
tax credit available under Section 45Q of the Internal Revenue
Code. If the eligible components of an industrial carbon dioxide
facility are designed with a capture and storage percentage that is
less than 65%, the percentage of the cost of the eligible
components installed in such facility that may be financed with
these tax-exempt PABs may not be greater than the designed capture
and storage percentage. State PAB volume cap is required, but 75%
of any exempt facility bond issued for a qualified carbon dioxide
capture facility does not count toward the required allocation of
volume cap. Further, if a facility is financed with these PABs, the
related tax credit available under Section 45Q of the Internal
Revenue Code will be reduced by up to 50% of the otherwise
available credit. The Framework acknowledged that the price of
building facilities for these technologies can involve significant
costs and states an intention for private investment through PABs
to encourage commercial deployment to reduce such costs and achieve
scale.
CHANGES TO TIFIA
Asset Class Expansion. Section 12001 of the
Infrastructure Act authorizes the expansion of projects eligible
for the TIFIA program. Notably, this includes authorization for
airport-related projects, expanded transit-oriented development
projects, and wildlife conservation projects. The TIFIA program
provides key credit assistance to major infrastructure projects
through secured loans, loan guarantees, and standby lines of credit
with low interest rates and flexible repayment terms. Currently,
however, eligible projects are limited to surface transportation
projects, including highway, transit, railroad, intermodal freight,
and port access projects. Making airport projects eligible will
encourage greater investment in US airports, which will be
particularly useful as the air travel industry continues to recover
from the COVID-19 pandemic. Section 12001 also adds
transit-oriented development projects as eligible for the TIFIA
program. Residential, commercial, and related infrastructure
activities that are physically or functionally related to passenger
rail stations or multimodal facilities that include rail service
that incorporate private investment may qualify for the TIFIA
program. Finally, Section 12001 adds as eligible wildlife
conservation projects that mitigate the environmental impacts of
otherwise TIFIA-eligible transportation infrastructure
projects.
Other Amendments: Section 12001 also makes
various other notable changes to the TIFIA program. These
include:
- Credit Ratings: Raises the bar for when an
investment-grade rating is required from two rating agencies as
opposed to one from $75 million to $150 million. - Bonding: Requires that TIFIA ensure that there is
appropriate payment and performance security for any project
financed by TIFIA regardless of any requirements by the applicable
state and local government. - Processing Timelines: Requires that the Build America
Bureau provide an applicant with a specific timeline for approval
of an application, but in no case will it be later than 150
days. - Streamlined Approval Process: Requires that projects
that meet certain criteria be approved or denied not later than 180
days after the applicant is notified that creditworthiness review
has begun. These criteria include projects where the TIFIA program
share of eligible project costs is 33% or less, that are A-rated,
that have terms that substantially conform to conventional terms
established by the National Surface Transportation Innovative
Finance Bureau, where the contract for the project can be entered
into within 90 days after the date a federal credit instrument is
obligated under the program, and that have the requisite federal
environmental approvals. - Maturity Date: Expands the final maturity date from 35
years to up to 75 years for assets with an estimated life of more
than 50 years. - Transparency: Requires that TIFIA application status
reports be posted on the internet monthly and quarterly.
CHANGES TO RRIF
Repayment of Credit Risk Premium: Section 21301
of the Infrastructure Act provides for the return of credit risk
premiums paid, including accrued interest, to the original source
when all obligations of the loan or loan guarantee have been
satisfied. The Infrastructure Act appropriates $50 million each
fiscal year of 2022 through 2026 and $70 million for payment of
credit risk premium. RRIF funding may be used to acquire, improve,
or rehabilitate intermodal or rail equipment or facilities and to
develop new intermodal or railroad facilities. RRIF funding may
also be used to reimburse expenses and refinance outstanding debt
obligations relating to these activities.
Other Amendments: Section 21301 also makes
various other notable changes to the RRIF program. These
include:
- Extended Term: Allows for up to a 75-year loan term
following substantial completion of a project. - Streamlined Procedures: Requires the Secretary of
Transportation (the “Secretary”) to develop a streamlined
90-day application and approval procedure for loans not exceeding
$150 million. - Transparency: Requires the Secretary to disclose
details regarding the loan approval process, including a
description of key rating factors used by the Secretary to
determine credit risk. - Non-Federal Share: Clarifies that if the loan is
repaid with non-federal funds, the loan will count as the
non-federal share portion for purposes of receiving other federal
grant money.
TECHNICAL ASSISTANCE FOR ASSET CONCESSIONS
The Infrastructure Act creates a new program that will
distribute $100 million over 5 years for the purpose of making
technical assistance grants for communities engaging in P3s under
Section 71001. The program, which will be administered by the US
Department of Transportation (“DOT”), will fund technical
assistance expert services grants to state, tribal, and local
governments “to facilitate access to expert services” and
“to enhance the technical capacity of eligible entities to
facilitate and evaluate public-private partnerships in which the
private sector partner could assume a greater role in project
planning, development, financing, construction, maintenance, and
operation, including by assisting eligible entities in entering
into asset concessions.” Asset concessions are defined by the
Infrastructure Act as long-term lease agreements where the
concessionaire agrees to provide 1 or more asset concession
payments and to maintain or exceed the condition, performance, and
service level of the infrastructure asset. These grants will only
be used for projects eligible under TIFIA (including airports
subject to the new authorization described above) and that meet
certain other eligibility requirements. Maximum distribution
amounts are set at $2 million for technical assistance grants and
$2 million for expert services retained by an eligible entity, and
there is a statewide maximum of no more than $4 million during any
3-year period for the eligible entities within each state.
The Infrastructure Act imposes the following requirements as
conditions to receiving such grant for any asset concession for
which the grant provides direct assistance:
- The asset concession may not prohibit, discourage, or make it
more difficult for the relevant public entity to construct new
infrastructure, to provide or expand transportation services, or to
manage associated infrastructure in publicly beneficial ways along
a transportation corridor or in the proximity of a transportation
facility that was part of the asset concession; - The relevant public entity must have adopted binding rules to
publish all major business terms of the proposed asset concession
not later than 30 days before entering into such concession to
enable public review; - The asset concession may not result in displacement, job loss,
or wage reduction for the existing workforce of the relevant public
entity or other public entities; - The relevant public entity or the concessionaire must carry out
a value for money analysis to compare the aggregate costs and
benefits to the relevant public entity of the asset concession
against alternative options to determine whether the asset
concession generates additional public benefits and serves the
public interest; - The full amount of any asset concession payment received by the
relevant public entity, less any amount paid for related
transaction costs, must be used to pay infrastructure costs of the
public entity; and - The terms of the asset concession may not result in any
increase in costs under the asset concession being shifted to
taxpayers with an annual household income of less than $400,000 per
year, including through taxes, user fees, tolls, or any other
measure for use of an approved infrastructure asset. It is
anticipated that further guidance regarding the expectations for
these requirements will be provided through regulations.
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