United States Senate Amendment 2137 to House Resolution 3684 Passes United States Senate 69‐30

August.13.2021

Please see our follow-up Insight for further details following passage of the Act by the House of Representatives.


The following is a high-level summary of key components of the “Infrastructure Investment and Jobs Act” that will meaningfully impact the infrastructure / public-private partnership (“P3”), renewable energy and public finance sectors. The Infrastructure Investment and Jobs Act passed the United States Senate on August 10, 2021, and includes $450 billion in spending to renew existing programs and $550 billion in new federal spending allocated, in part, as follows:

Roads & Bridges

$110 billion

Electric Vehicles

$15 billion

Water Infrastructure

$55 billion

Railways

$66 billion

Ports and Waterways

$17 billion

Western Water Infrastructure

$8 billion

Airports

$25 billion

Reconnecting Communities

$1 billion

Broadband

$65 billion

Public Transit

$39 billion

Power Infrastructure

$65 billion

Resiliency

$47 billion

In addition to providing direct grant and credit programs to fund and finance the above sectors, the Infrastructure Investment and Jobs Act also implements critical policy changes to improve the P3, renewable energy and public finance sectors. While passing the Senate on August 10th was a major hurdle, the Infrastructure Investment and Jobs Act still requires approval by the House of Representatives and is politically expected to be passed only once a $3.5 trillion reconciliation bill is also fully passed in the House of Representatives.

Section #

High-Level Summary

Commentary

Infrastructure / Public-Private Partnerships

Sec. 11508(d) P3 Value for money analysis for federally assisted projects

  • Any federally assisted project under 23 USC 106(h)(3) valued at $500 million or more will be required to perform a value-for-money analysis (or equivalent) (a “VfM”) where a project sponsor intends to carry out the project through a public-private partnership agreement.
  • Any block grant recipient under 23 USC 133 may use the proceeds to perform a VfM analysis.
  • Requiring all P3 project public-partners to have conducted a VfM to be eligible for receiving funds under the Transportation Infrastructure, Finance and Innovation Act (“TIFIA”) Loan Program.

Generally these provisions are helpful to the P3 industry as the modifications will provide more funding and awareness of VfM analysis, which serves as the underlying foundation for P3 project implementation. However, the language could be improved to require a VfM for all federally assisted projects under 23USC106(h)(3) regardless of whether the project sponsor intends to carry out the project as a P3. This is consistent with the program described below in Sec. 70701.

Sec. 70701 Value for Money Analysis for TIFIA or RRIF Funded Projects

  • TIFIA / RRIF Requirements – During the planning and development process, prior to signing a project development agreement, the public partner must conduct a VfM analysis for any project that: (i) has an estimated cost of more than $750 million, (ii) is carried out by a State or local government (including airport or port authority), (iii) is in a State with P3 authority, (iv)intends to submit or does submit a letter of interest to TIFIA for a loan and (v) is anticipated to generate user fees or other revenue that could support the capital and operating costs of a project.
  • VfM Elements – The legislation goes into further detail describing the key elements of a VfM, including analysis of benefits and risks of a P3, determination of risk premiums and externality benefits of a project.
  • Reporting – Within two (2) years of enactment, the Build America Bureau must provide a report identifying best practices for private financing of projects.

This section will now require that P3 be considered as an option for any project intending to use TIFIA or Railroad Rehabilitation and Improvement Financing (“RRIF”). VfM analysis may identify P3 projects relative to design-build or design-bid-build delivery, in part, due to the anticipated long-term life-cycle savings delivered under a P3 model.

Additionally, the best practices report required by Build America Bureau could be used as a basis for potential standardization of P3 contracting which could aid in accelerating the industry if implemented properly.

Sec. 11404 Congestion Relief and Interstate Tolling

  • Congestion Relief – Establishes a congestion relief grant program for State or metropolitan planning organizations in urbanized areas of one million people or more to fund construction and implementation costs for congestion relief programs.
  • Federal Share – The federal share must not exceed 80% of the total project cost.
  • Grant Size – Minimum grant size is $10 million.
  • Interstate tolling – Projects receiving grants under this program will be eligible to toll interstate highways so long as it is permitted under State / local law and the rates meet certain requirements under the law.

Enabling interstate tolling for certain eligible projects is an expansion of the current federal prohibition on tolling of new interstate toll lanes.

Sec. 11305 Alternative Contracting methods

Enables the Secretary of Transportation to utilize alternative contracting methodology, including long-term concession agreements and any other method permitted by a State under Title 23, on behalf of any Federal land management agency that receives funding under Sections 203, 204 or 308.

This should enable the Secretary of Transportation to procure a P3 project on behalf of certain federal land management agencies. Delivering P3s at the Federal level has been infrequent due to the challenges in scoring a P3 project relative to other delivery models under OMB Circular A-11, Appendix B scoring rules.

Industry organizations are looking to expand this authority to other non-transportation related federal agencies and to also address the scoring challenges through a P3 pilot program.

Sec. 21205
Build America Bureau Rural & Tribal Assistance Pilot Program

  • Build America Bureau Technical Assistance – Build America Bureau will establish a Pilot Program to provide State, local and tribal governments with technical, legal and financial advisory assistance for the following:

    Evaluation of potential projects to be delivered through alternative delivery methods; and

    Development phase activities, including feasibility studies, statutory and regulatory frame work analysis, evaluating opportunities for private financing and project bundling and revenue forecasting and funding / financing options analysis, VfM, preliminary engineering / design work and environmental review.

  • Engagement of Advisors – Build America Bureau will be entitled to retain advisors and legal counsel to provide assistance with each of the above activities and to directly advise eligible entities through the Build America Bureau. Eligible entities will also be able to retain these advisors directly and separately (at their own cost) without conflict to the Build America Bureau.
  • Best Practices – Additional tools, templates and best practices for alternative delivery will be published on the Build America Bureau website.
  • Applications – The Pilot Program will be required to be open for receipt of applications within 180days of the bill’s enactment and applications received must be reviewed and acted on within 60-90 days of receipt.
  • Funding – Over $12 million for the initial five years.

This Pilot Program, while focused on non-urbanized areas of 150,000 people or less, is an important initial step for the United States in further establishing a federal level P3 center of excellence similar to those in other jurisdictions, including Canada and Australia that take a more active role in P3 project implementation. Enabling Build America Bureau to engage and fund advisor costs on behalf of State and local governments should help enable jurisdictions without the human or financial resources to allocate resources to exploring the feasibility of the P3 method.

This legislation can be improved in the House by increasing the funding substantially from the proposed $12 million. Alternative delivery projects typically require significant advisory services and therefore, this program will need more funding to move the needle across the industry.

Eligible entities that may want to engage advisors directly with Federal grant money can utilize the Rural Surface Transportation Grant Program described below.

Sec. 11311 Efficient Implementation of NEPA

Allows for any Federal land management agency to rely upon an environmental assessment prepared by the Federal Highway Administration.

This should streamline Federal environmental reviews by eliminating the need for more than one Federal agency to review the adequacy of an environmental impact statement. If enacted, this legislation can meaningfully accelerate the Federal environmental review process for land development projects.

Sec. 12001 TIFIA Amendments / S. Amendment 2354 to S. Amendment 2137

  • Asset Class Expansion – Adds transit-oriented development, airport, and plant and wild-life conservation projects as eligible projects for the receipt of a TIFIA loan.
  • 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.
  • Processing Timelines – Build America Bureau must provide an applicant with a specific timeline for approval of an application, but in no case will it be later than 150-days.
  • Streamlined Approvals – For projects that meet certain criteria, including projects with terms that substantially conform to conventional terms established by the National Surface Transportation Innovative Finance Bureau, are financed with 33% or less of TIFIA financing, are A rated, the contract for the project can be entered into within 90-days after the date a Federal credit instrument is obligated under the TIFIA program and has the requisite federal environmental approvals, the Secretary will provide a written notice informing the applicant whether it has been approved within 180-days of the Bureau commencing its creditworthiness review.
  • 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 – TIFIA application status reports will be posted on the internet monthly and quarterly.
  • Bonding – Requirement 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.

These changes (1) broaden the accessibility of TIFIA to new asset classes like airports and transit oriented development and (2) generally could make TIFIA more user friendly by streamlining approval time periods and adding transparency around the entire process through real-time monthly and quarterly online public reporting.

With respect to bonding, this amendment appears to make explicit a process which TIFIA presumably goes through when underwriting the credit worthiness of a typical P3 project to date, which is ensuring there is proper performance and payment security.

Sec. 21301 RRIF codification and reforms

  • Repayment of Credit Risk Premium – Provides for the credit risk premium paid as part of a RRIF loan to be returned, with interest accrued, when all obligations of a loan are repaid.
  • Extended Term – Allows for up to a 75-year term following substantial completion of a project.
  • Streamlined procedures – Requires the Secretary of Transportation to develop streamlined 90-day application and approval procedure for loans not exceeding $150 million.
  • Transparency – Requires the Secretary of Transportation 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.
  • Appropriation – $50 million for each fiscal year of 2022 through 2026 and $70 million for payment of credit risk premium.

The modifications made to the TIFIA program were also carried through in large part to the RRIF program. Critically, the RRIF program has been less utilized than TIFIA in part because of the requirement to pay the credit risk premium, which under TIFIA is appropriated and federally funded. Adding a feature that allows for the credit risk premium to be returned to the borrower, with interest, upon full repayment may increase the financial viability of certain projects which can qualify for RRIF loans.

Additionally, the legislation’s clarification that if a RRIF loan is repaid with non-federal funding, such loan does not count towards the federal share portion for purposes of a State or local entity receiving other federal grants cures an ambiguity in the existing law that may be important for projects that rely on federal funding and state/local contributions to attract private investment or support construction costs.

Sec. 71001 Technical Assistance for Asset Monetization Projects

  • Technical Assistance Program – Establishes a grant program to fund State and local government technical, financial and legal advisory service costs for alternative delivery pre-implementation costs, including (i) identifying appropriate assets or projects for asset concessions, (ii) developing and issuing a request for proposals, (iii)conducting a VfM, (iv) risk analysis, and (v)project structuring (a “Technical Assistance Grant Program”).
  • Asset monetization – The program is intended to provide up to $2 million grants for pre-implementation costs necessary to deliver a project that requires an “asset concession payment” from a private developer.
  • Federal Share – The federal share can be up to 100% of the eligible costs.
  • State Cap – Each State will be capped at $4 million during any 3-year period.
  • Job Displacement – The asset concession cannot result in displacement, job loss or wage reduction for the existing workforce.
  • VfM – A VfM is required to determine whether asset monetization will deliver additional public benefits relative to other alternative options.
  • Tolling Restrictions – The terms of the asset concession cannot increase the cost of such project and shift that cost (through tolls, user fees or otherwise) to taxpayers with annual incomes of less than $400,000 per year.
  • Funding – $20 million will be available from 2021-2025.

Providing up to $2 million per project to fund up-front advisory fees should incentivize less capitalized jurisdictions to explore P3 and asset monetization as an alternative delivery model. The State cap of $4 million over 3 years will potentially limit a State’s ability to initiate feasibility activities for multiple projects within the 3-year period. Additionally, the restriction on raising tolls to fund the project may also be a challenge for those projects that have dynamic or regularly adjusted tolling.

Sec. 11132 Rural Surface Transportation Grant Program

  • Rural Technical Assistance Grant Program – Creates a nearly identical program to the Technical Assistance Grant Program described above targeted at assisting State and local governments in rural areas to deliver infrastructure projects. Rural is defined as areas outside an urbanized area with a population of over 200,000.
  • Eligible Project Costs – For the Rural Grant Program eligible project costs are expanded from the Technical Assistance Grant Program to include actual construction and land acquisition, in addition to development phase planning activities typically done by a governmental entity prior to entering into a project agreement.
  • Project Eligibility – To receive funding a project must be expected to begin construction within 18 months after the date of obligation of the funding, and must involve either a highway, bridge or tunnel, tribal transportation projects, certain highway freight projects highway safety improvement projects and projects that can help develop an integrated mobility management system.
  • Grant Amount – Grants may not be less than $25 million, except for small projects for which the Secretary is required to set aside 10% of the amounts made available for the program in each fiscal year.
  • Federal Share – The Federal share of the cost of a project carried out with a grant under this program may not exceed 80%.

This program can help fund pre-development costs of State and local governments exploring various delivery models, including alternative delivery and P3. One expectation is that this additional funding will help enable jurisdictions to procure P3 projects where such jurisdictions would not otherwise have the funding necessary to initiate a P3 project.

$25 million in funding per grant is significant and represents a meaningful contribution toward the costs necessary to take a P3 project from conception to procurement.

Requiring projects to commence construction within 18 months of the obligation of funding may be too short, depending on the design of the project, permitting and stakeholder requirements, and other factors. Adherence to this requirement may require local and State governments to “commence construction” with preliminary site investigations and other pre-construction activities.

Broadband

Sec. 60102 Grants for Broadband Deployment

Sec. 60401 Enabling Middle Mile Broadband Infrastructure

  • Underserved Areas – $100 million to be allocated to each State to provide grants for reliable broadband services in historically underserved areas.
  • Middle-Mile – $1 billion from 2022 through 2026 dedicated toward funding middle-mile infrastructure and promote broadband connection resiliency through the creation of alternative network connection paths to avoid single points of failure.

Broadband P3 projects have historically been challenged due in part to the inability to generate independent commercial revenue from dark fiber. The additional federal money could provide the “gap funding” necessary to enable more economically feasible broadband P3 projects in jurisdictions outside of major commercial hubs across the United States.

Additionally, providing funding for middle-mile infrastructure will help enable connectivity in areas that otherwise do not have the underlying commercial basis for such expansion.

Public Finance

Sec. 80401 Private Activity Bonds for Qualified Broadband Projects

 

  • Modified Section 142(a) of the Internal Revenue Code by adding qualified broadband projects as a facility eligible for private activity bonds.
  • The program is targeted toward underserved areas where more than 50% of the residential households do not have access to high speed internet.

Adding a program for broadband projects to be financed with private activity bonds, in addition to the federal grant programs described above, should facilitate the buildout of broadband infrastructure that otherwise could not be implemented without such federal assistance. However, the narrow definition of qualified broadband projects may reduce the overall impact of the program.

Sec. 80402 Carbon Dioxide Capture Facilities

  • Modified Section 142(a) of the code by adding qualified carbon dioxide capture facilities as a facility eligible for private activity bonds. These facilities include (i) “eligible components” of an industrial carbon dioxide facility or (ii) a direct air capture facility as defined in section 45Q(e)(1).
  • Eligible components are defined as equipment installed in an industrial carbon dioxide facility that is (i) used to capture, treat, purify, compress, transport or store on site carbon dioxide or (ii) integral or functionally related and subordinate to a process which converts a solid or liquid product from coal, petroleum residue, biomass, or other materials which are recovered for their energy or feedstock value into a synthesis gas composed primarily of carbon dioxide and hydrogen for direct use or subsequent chemical or physical conversion.

This program can provide financing options for the carbon capture industry, which historically would not have access to tax-exempt debt capital.

It should be noted that Section 45Q tax credit for carbon capture and sequestration is subject to reduction for projects that are financed with tax-exempt bonds.

Sec. 80403 Increase in National Limitation Amount for Qualified Highway or Surface Freight Transportation Facilities

Increases the current private activity bond cap on qualified highway and surface freight transportation facilities from $15billion to $30billion.

Private activity bonds have been critical to reducing the cost-of-capital on P3 projects across the United States. The current $15 billion cap is almost entirely exhausted and therefore increasing this cap will unlock the opportunity for more qualified P3 projects to be financed over the next several years.

Energy

Sec. 11401 Grants for charging and fueling infrastructure

  • Grant Program – Establishes a grant program (within 1 year of enactment) for the deployment of publicly accessible electric vehicle charging infrastructure, as well as hydrogen, propane and natural gas fueling infrastructure along designated alternative fuel corridors, accessible to all drivers of electric, hydrogen, propane and natural gas vehicles. Grants will be provided up to a maximum amount of $15 million.
  • Eligible Entities – Entities eligible for grants: (A)a State or political subdivision of a State; (B) a metropolitan planning organization; (C) a unit of local government; (D) a special purpose district or public authority with a transportation function, including a port authority; (E) an authority, agency, or instrumentality of, or an entity owned by, one or more entities described above.
  • Eligible Users for the Private Sector – Eligible grant recipient may use the grant funds to contract with a private entity for the acquisition, construction, installation, maintenance, or operation of charging and/or fueling infrastructure, and may use a portion of the funds to provide operating assistance to a private entity for the first 5 years of operations after installation.
  • Cost-Sharing – An eligible grant recipient and a private entity may enter into a cost-sharing agreement under which the private entity submits to the eligible entity a portion of the revenue from the charging and/or fueling infrastructure.

This is critical funding for the electric vehicle industry while many original equipment manufacturers (OEMs) are expanding their footprint in the electric vehicle space. OEMs could use this funding to expand charging capacity at dealerships across the United States.

Sec. 41001 Energy Storage & 41007 Renewable Energy Projects

Authorizes appropriations of $740 million for research, development, grants, and implementation of energy storage, geothermal, wind and solar technologies, and technologies to recycle solar and wind assets.

This funding can be utilized by the industry to advance research and development in the renewable energy sector and is a starting point for significantly more funding to be made available through the reconciliation.

Carbon Capture

Sec. 11403 Carbon reduction program

Allows for States to utilize federal funds for projects to support the reduction of transportation emissions.

These funds can be utilized for carbon capture projects that are implemented in connection with transportation infrastructure assets and help drive coordination and synergy between the carbon capture industry and the surface transportation sector.

Carbon Utilization / Capture Sec. 40301 - 40308 & 41004

  • Carbon Utilization Program – Provides for grants to States, local governments or public utilities or agencies to procure and use commercial or industrial products that (i) use or are derived from anthropogenic carbon oxides; and (ii) demonstrate significant net reductions in lifecycle greenhouse gas emissions compared to incumbent technologies, processes, and products. Approximately $50 million to $70 million per year will be appropriated for this program for a total of $310 million.
  • Carbon Capture Technology – Provides $100 million from 2022 through 2026 for the development of a program by the Federal government for research and development of front-end engineering and design for carbon dioxide transport infrastructure necessary to enable deployment of carbon capture, utilization and storage technologies
  • Carbon Capture Financing Program – Establishes a TIFIA equivalent federal financing / credit assistance program for common carrier carbon dioxide transportation infrastructure or associated equipment, including pipeline, shipping, rail, or other transportation infrastructure, that will transport or handle carbon dioxide captured from anthropogenic sources or ambient air, as the Secretary of Energy determines to be appropriate. $600 million will be appropriated for years 2022 and 2023 and $300 million will be appropriated for each of 2024 to 2026.
  • Large Scale Carbon Storage Commercialization Program – $2.5 billion grant program available from 2022-2026 for the development of a commercialization program under which funding will be provided for the development of new or expanded commercial large-scale carbon sequestration projects and associated carbon dioxide transport infrastructure, including funding for the feasibility, site characterization, permitting, and construction stages of project development.
  • Secure Geologic Storage Permitting – $25 million is authorized for 2022-2026 for the permitting of Class VI wells for the purpose of geologic sequestration.
  • Grant Program for Regional Direct Air Capture Hubs – $3.5 billion will be available from 2022-2026 to fund a program that will provide funding for eligible projects that contribute to the development of 4 regional direct air capture hubs.
  • Geologic Carbon Sequestration on the Outer Continental Shelf – Changes to the definition of Leases, Easements and Rights of Way for Energy Related Purposes; definitions of carbon dioxide stream and carbon sequestration.

Significant funding is necessary for the development of comprehensive, national carbon capture program. The $2.5 billion in funding for the Commercialization Storage program will be critical seed capital for the industry.

Presently, carbon dioxide capture must take place near the site of capture, so as to minimize the cost of transport. Federal government financing could expand the technology to capture carbon dioxide.

Only a handful of Class VI wells has been permitted due to the lengthy permitting process. Funding for these permitting activities could help facilitate the delivery of these projects.

$3.5 billion for the development of direct air capture hubs is significant as the use of hubs is widely considered necessary to the development of a national carbon capture program.

The changes create the statutory framework required for the leasing of sites within the Outer Continental Shelf for carbon sequestration.