CIAM-UTC-REG46
Research Team
PI: Jonathan Gifford, George Mason University
Co-PI: Carter Casady Co-PI, George Mason University
Funding Sources
George Mason University Federal Share — $75,000
George Mason University Match Share — $75,000
Total Project Cost — $150,000
Agency ID or Contract Number
69A3551847103
Start and End Dates
01/04/2022 — 07/05/2023
Project Description
The onset of the Covid-19 pandemic laid bare the fragility of many transportation infrastructure projects. In the United States alone, several public-private partnership (P3) projects were delayed, put on hold, or cancelled altogether because of the pandemic while many others remain at risk [1 – 2]. Significant declines in transportation-related revenues have also left state and local governments fiscally constrained [3 – 4].
As a result, the U.S. Department of Transportation (USDOT) has received growing “interest from existing borrowers to refinance their loans to help mitigate pandemic-related revenue loss and to take advantage of low interest rates” [5]. This has led to a flurry of “advance refunding” activity over the last year at the Build America Bureau—the U.S. federal government’s single point of coordination for state and local governments, transit agencies, railroad companies, special authorities, special districts, joint ventures, public-private partnerships, and private entities looking to secure transportation infrastructure financing [6 – 12].
Advance refunding involves issuing a new bond or loan at a lower interest rate to replace an outstanding bond or loan. The proceeds are typically invested in an escrow portfolio of Treasury securities whose cash flows pay off the outstanding issue until the call date [13]. This effectively results in immediate cashflow savings [14]. For example, an advance refunding loan from USDOT to the Central Texas Regional Mobility Authority in March 2021 will save the Authority more than $80 million in interest [12].
From an asset management perspective, we are interested in studying the Build America Bureau’s use of advance refunding as a means of addressing pandemic-related budgetary problems in transportation projects.
Using an exploratory, case-oriented approach, the proposed research will specifically pursue the following objectives:
1. Document the extent of pandemic-related, advance refunding activity undertaken by the USDOT’s Build America Bureau (i.e., number of loans affected and estimated savings)
2. Compare the motivations for and effects of this advance refunding across different project cases from both the borrower’s and lender’s perspective
3. Develop theoretical as well as practical recommendations about use of advance refunding as a fiscal stimulus measure in transportation projects