by James A. Bacon
Fears of repeating another Solyndra or Fannie Mae/Freddie Mac fiasco shadowed discussions of an innovative Virginia Transportation Infrastructure Bank (VTIB) at the Commonwealth Transportation Board meeting today.
Funds from the VTIB, which will be capitalized initially with $283 million, will help finance transportation projects that might not otherwise be built. Initially, the bank will provide loan guarantees or pledges against other types of financial leverage. Repayments of principal and interest will be reinvested in new projects. Eventually, the bank may provide outright grants.
The infrastructure bank is a centerpiece of the McDonnell administration’s strategy to jump-start construction of transportation projects in Virginia. The administration plans to borrow $3.4 billion during its four-year term, a sum it hopes to leverage through toll-financed public-private partnerships. The infrastructure bank will chip in resources to help close deals for projects large and small, drawing upon revenue streams as diverse as developer proffers or leases from airport hangars. “If you’ve got a good financial adviser, you can turn one dollar into three or four dollars,” Transportation Secretary Sean Connaughton told the board.
Talk of leverage and loan guarantees was disconcerting to some members, however. “Do we have the safeguards in place to make sure this doesn’t turn into another Solyndra?” asked James E. Rich, the Culpeper District representative, referring to the solar-panel manufacturer that recently went belly up after the Obama administration guaranteed $535 million in the company’s debt.
John Lawson, chief financial officer of the Virginia Department of Transportation, outlined how the infrastructure bank would work. The Virginia Resources Authority (VRA) will administer the bank, while the CTB will set policies and have the final say over project approvals. The bank is expected to lend or grant money mainly to local governments or authorities, but private companies working under a public-private partnership agreement also are eligible. Loans will be amortized over as many as 35 years; principal payment can be delayed for five years after substantial project completion. Interest rates will be pegged to the rate paid by AAA government entities, but lower rates may be negotiated.
The VTIB will rate projects by 18 scoring criteria, such as project readiness, impact on air quality, safety enhancements and the recipient’s credit worthiness.
Of all the criteria, creditworthiness of the recipient is the most critical, asserted Cord A. Sterling, the Fredericksburg District representative. Other scores could be perfect, but a weak credit ranking should be an automatic disqualifier, he said.
“This is not Fannie Mae or Freddie Mac selling bundled loans,” insisted Connaughton. For the most part, the CTB will be considering projects that it has already voted to include in the Six-Year Improvement Plan. “This is just one tool in the tool chest.” In a worst case scenario, if the loan recipient goes under, said Connaughton, Virginia ends up with the underlying transportation asset — something it would have paid to build anyway.
Also, said the transportation secretary, the Virginia Resources Authority, which will help run the bank, has the financial savvy to sniff out the dubious financings. The VRA has issued $4.2 billion of dollars of loans for 875 scandal-free projects ranging from government buildings and solid-waste projects to brownfield remediation and oyster restoration.
The first project could well originate in Chesapeake, said Connaughton, with a nod to representatives from the Hampton Roads city in the audience. Not all projects will be for roads and highways, he added. He has already received inquiries for “ports” and “space,” the last presumably referring to the Wallops Island space-launch facility. “You’ll see loans for things you’ve never seen before.”
Connaughton said he would like to get the first projects financed before the General Assembly reconvenes in January, but he will be running on a tight schedule. Board members refused to sign on before details of the bank were published and the public had a chance to provide input. The next opportunity to vote on acceptance will be in December.
This article was written thanks to a sponsorship by the Piedmont Environmental Council.
