Federal regulations are putting the brakes on U.S. Department of Transportation funding designed to boost transit-oriented development projects near public transit.
“We need to make it easier to build in any way we can,” said Sen. Brian Schatz, D-Hawaii. “Providing low interest capital through TIFIA and RRIF is one means, but for it to work and spur the kind of development that we had planned for it needs to be more easy to use.”
Schatz, who chairs the Senate subcommittee on Transportation, Housing and Urban Development, and Related Agencies made the observations during a hearing Tuesday. The subcommittee nests under the Senate Appropriations Committee.
The Transportation Infrastructure Finance and Innovation Act, and the Railroad Rehabilitation & Improvement Financing programs are both administered through the DOT’s Build America Bureau.
Both programs are positioned to play key roles in building major infrastructure projects and affordable housing, which also leverages private activity bonds. So far, the performance hasn’t lived up to the promise.
“Since Congress provided this new authority, only one TIFIA loan has been awarded to a TOD project which notably did not include any residential components,” said subcommittee Vice Chair, Sen. Cindy Hyde-Smith, R-Miss.
The Build America Bureau has $100 million in grants available over the next five years for public entities doing pre-development work to structure public-private partnerships for transportation and transit-oriented development projects.
Academics, real estate developers and Dr. Morteza Farajian, executive director at the Build America Bureau agree the programs are being held back by their own regulations.
“TIFIA legislation requires investment- grade credit ratings,” said Farajian. “While this level of rating protects taxpayers from defaults, it can be unattainable for certain TOD projects. Typically, rating agencies do not rate real estate deals that have both construction and long-term financing elements as these are not common practice in the market.”
Plugging the real estate development component into TOD usually requires the formation of Special Purpose Entity, a temporary legal entity that functions as a limited partnership, which usually has no credit history that can be judged by the ratings agencies.
The requirement to use American-made components in housing is creating another speed bump.
“Buy America requirements that are impactful and make sense for billion- or trillion-dollar infrastructure projects are unnecessary deal killers on smaller scale real estate projects,” said Dr. Tracy Hadden Loh, a fellow at the Brookings Institution.
“We want these projects to be great housing, built to contemporary building standards, but the kinds of heating and cooling systems that are used in the best quality LEED buildings are only manufactured abroad.”
The National Environmental Policy Act was cited as another major roadblock to getting new projects across the finish line.
“DOT’s NEPA process is lengthy and incompatible with projects that also need to attract private equity capital in order to complete their capital stack,” said Hadden Loh. “That kind of project succeeds or fails based on the time it takes for a project to go from conception to occupancy and stabilization.”
A Brookings panel discussion in
The subcommittee provided a sympathetic ear while exploring the notion of establishing a cross-agency task force to simplifying the loan process by removing the investment grade requirement on construction land to developers.
“My understanding is a bunch of these projects potentially have an FHA portion of their capital stack and a TIFIA portion,” said Schatz. “If that’s true, and something comes in through FHA and Ginnie Mae, hasn’t the federal government established its credit worthiness? Why wouldn’t that suffice in terms of meeting the statute?”