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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