
[Federal Register: September 29, 2010 (Volume 75, Number 188)]
[Notices]               
[Page 60165-60168]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se10-123]                         

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

 
Notice Regarding Consideration and Processing of Applications for 
Financial Assistance Under the Railroad Rehabilitation and Improvement 
Financing (RRIF) Program

AGENCY: Federal Railroad Administration (FRA), Department of 
Transportation (DOT).

ACTION: Notice of priorities for consideration of applications.

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SUMMARY: Under this notice, FRA is providing the basis for its 
consideration of potential applications for financial assistance under 
the RRIF Program authorized by 45 U.S.C. 821 et seq.

DATES: This notice is effective for all applications received by FRA 
after October 29, 2010.

FOR FURTHER INFORMATION CONTACT: Barbara Amani, Chief of the Credit 
Programs Division, Office of Railroad Development, Federal Railroad 
Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590 
(telephone: (202) 493-6051; fax: (202) 493-6333; and e-mail: 
Barbara.Amani@dot.gov); or Casey Symington, Attorney Advisor, Office of 
Chief Counsel, Federal Railroad Administration, 1200 New Jersey Avenue, 
SE., Washington, DC 20590 (telephone: (202) 493-6349; fax: (202) 493-
6068; and e-mail: Casey.Symington@dot.gov).

SUPPLEMENTARY INFORMATION: Title V of the Railroad Revitalization and 
Regulatory Reform Act of 1976, Public Law 94-210 (1976), authorized a 
program of financial assistance necessary to furnish assistance to 
railroads for facilities maintenance, rehabilitation, improvements and 
acquisitions. FRA used this financial assistance program to provide 
financial assistance to portions of the then-fiscally challenged rail 
industry. The program was most active during the four years following 
the enactment of the statute. The improving financial condition of the 
rail industry subsequent to enactment of the Staggers Rail Act of 1980 
and the partial economic deregulation of the rail industry helped 
improve the larger railroads' access to private capital, reducing 
interest in the program.
    The Federal Credit Reform Act of 1990 resulted in fundamental 
changes in all federal credit programs, by requiring that the subsidy 
cost of any federal credit assistance be reserved prior to the credit 
assistance being made available. Although the subsidy cost required an 
appropriation, FRA's subsequent annual appropriations acts contained a 
specific prohibition on the use of FRA's funds for this purpose. As a 
result, use of the Title V program was limited to projects specifically 
authorized by Congress.
    A secondary impact of the Staggers Rail Act of 1980 was a more 
liberalized approach to restructuring railroads, which led to the 
growth in the number and importance of short line and regional 
railroads (also known as Class III and Class II railroads). A number of 
studies conducted during the 1980s and 1990s concluded that significant 
portions of the short line and regional railroad industry were 
challenged by deferred maintenance and a lack of access to the private 
capital markets at rates and terms comparable to debt financing 
opportunities available to the larger, Class I railroads.
    In 1998, Title V of the Railroad Revitalization and Regulatory 
Reform Act of 1976 was amended by the Transportation Equity Act for the 
21st Century of 1998, Public Law 105-178 (1998) (TEA-21) to establish 
the RRIF Program. TEA-21 authorized a program of financial assistance 
to the rail industry in the form of loans and loan guarantees and other 
financial instruments. The program was subsequently amended and 
expanded in the Safe, Accountable, Flexible, Efficient Transportation 
Equity Act: A Legacy for Users, Public Law 109-59 (2005) (SAFETEA-LU) 
and the Rail Safety Improvement Act of 2008 (RSIA), Division A of 
Public Law 110-432.
    TEA-21 addressed capital needs by providing a program of loans and 
loan guarantees for rail investment purposes. A combined total of $3.5 
billion in direct loans and loan guarantees was

[[Page 60166]]

authorized to be outstanding at any one time. One billion dollars were 
specifically reserved for non-Class I railroads. The financial terms 
available for such loans were significantly better than those available 
to Class III and Class II railroads in private markets. Those terms 
included a term up to 25 years and an interest rate equal to the 
treasury rate for similar-term securities. Most importantly, the TEA-21 
amendments provided that non-Federal sources could pay the subsidy cost 
of the loan (referred to in the RRIF Program as the Credit Risk 
Premium) on behalf of an eligible applicant. Thus, FRA through the RRIF 
Program could provide financial assistance without the need for an 
appropriation or any other specific act by Congress.
    SAFETEA-LU amended the RRIF Program to, among other things, 
increase the amount of financial assistance available from $3.5 billion 
to $35 billion, and to increase the amount reserved for other than 
Class I railroads from $1 billion to $7 billion. SAFETEA-LU also 
repealed, by statute, certain regulatory provisions. The RRIF program 
was further amended in the RSIA to extend the maximum term of a loan 
under the RRIF program from 25 years to 35 years. A total of 22 loans 
in an aggregate initial principal amount of $779 million have been made 
under the RRIF Program since TEA-21 was enacted. Of these, a total of 3 
loans in an aggregate initial principal amount of $381 million have 
been repaid.
    This notice supplements the existing notice of evaluation criteria 
for the RRIF Program published in the Federal Register on September 26, 
2005 (70 FR 56207) and provides policy guidance.
    The public has an interest in how federal funds are allocated, 
including use of federal loans. To provide sound stewardship of federal 
funds, the Secretary of Transportation has authority and discretion in 
approving loan applications. That authority has been delegated to the 
Administrator of the Federal Railroad Administration (49 CFR 1.49(t)). 
In exercising discretion to evaluate the merits of proposed loans, the 
Administrator may consider public policy priorities and federal credit 
policies as outlined in the Office of Management and Budget Circular A-
129, Revised, November 2000. FRA will perform a cost-benefit analysis 
of each loan or loan guarantee application and examine public benefits 
derived from the loan relative to the amount of financial assistance 
committed to achieve those public benefits. Proposals generating public 
benefits using limited federal financial assistance to achieve policy 
goals will be viewed more favorably than proposals generating limited 
public benefits with significant federal RRIF assistance. Please note 
that the collection of information associated with the RRIF Program is 
currently approved under OMB No. 2130-0580. This approval expires on 
January 31, 2013.
    Priority Projects: Selection of projects falls into eight 
priorities for RRIF financial assistance as described in 45 U.S.C. 
822(c). These priorities are restated below with clarifying language 
(where appropriate) and consistent with DOT's Strategic Plan FY 2010-FY 
2015 ``Transportation for a New Generation'' (draft).
    FRA will give priority to projects that--
    (1) Enhance public safety. This is DOT's highest programmatic 
priority. FRA will prioritize projects that ensure safe and efficient 
transportation choices. DOT's goal is to improve public health and 
safety by reducing transportation-related fatalities and injuries and 
improving the safety experience for all transportation system users, 
including passengers, employees, pedestrians and motorists. In 
determining which projects best enhance public safety, FRA will pay 
particular attention to projects that do the following: Address 
specific chronic safety concerns, including those identified during 
periodic inspections by FRA's Office of Railroad Safety; facilitate 
implementation of enhancements of signal and train control systems; 
reduce or eliminate the potential for accidents at highway-rail at-
grade crossings; limit the access to rail infrastructure by trespassers 
and other unauthorized persons; lead to a sustained improvement in the 
class of track as defined by FRA's safety regulations; and/or lead to 
the operation of safer railroad equipment.
    (2) Enhance the environment. FRA prioritizes projects that promote 
environmental sustainability of transportation through investments that 
focus on energy efficiency and environmental quality. DOT pursues 
transportation policies and investments that reduce carbon emissions 
and protect the human and natural environment. In determining which 
projects best further those goals, FRA will give priority to 
investments that do the following: Reduce the consumption of fossil 
fuels and otherwise improve energy efficiency of rail operations; 
reduce air pollutant emissions from rail equipment and facilities, 
including acquisition of locomotives meeting the U.S. Environmental 
Protection Agency's locomotive emissions standards; facilitate the 
development of intercity and commuter rail public transportation 
alternatives to single occupant motor vehicle transportation; reduce 
the levels of noise emitted from rail operations, including reductions 
of noise experienced by on-board personnel; and/or reduce the 
contribution of pollutants into the Nation's waterways. It is important 
to note that applications for financial assistance under the RRIF 
Program will require environmental review in compliance with the 
National Environmental Policy Act (NEPA).
    (3) Promote economic development, and (4) Enable United States 
companies to be more competitive in international markets. FRA will 
prioritize projects that build a foundation for economic 
competitiveness. DOT fosters transportation policies and investments 
that serve the travelling public and freight movement to bring lasting 
economic and social benefit to the Nation. DOT seeks to encourage the 
expansion and development of domestic manufacturing of transportation 
systems and equipment in a manner consistent with law. In determining 
which projects best promote economic development and enable American 
companies to be more competitive in international markets, FRA will pay 
particular attention to projects that do the following: Lead to the 
construction, reconstruction or improvement of infrastructure or the 
acquisition of equipment or other capital assets on both freight and 
passenger (including commuter) rail corridors and related intermodal 
and multi-modal facilities that address capacity constraints in the 
Nation's transportation system and deliver integrated transportation 
system improvements, while spurring domestic employment in both the 
short-term and long-term; facilitate the development of new industries 
and businesses' access to the Nation's transportation system; and/or 
improve the efficiency and reduce the cost of freight movements of 
domestic products into global commerce. To further address these 
priorities, FRA will expect recipients of direct loans or loan 
guarantees under the RRIF Program to agree to use funds provided to 
them under the RRIF Program to purchase steel, iron and other 
manufactured goods produced in the United States for the project. 
Mitigating factors include but are not limited to limitations on 
sufficient quantity, availability and quality; inability to purchase 
and have delivered rolling stock or power train equipment within a 
reasonable time; and whether including domestic material would increase 
the cost of the overall project by more than 25 percent.
    (5) Are endorsed by the plans prepared under 23 U.S.C. 135 by the

[[Page 60167]]

State or States in which they are located.
    (6) Preserve or enhance rail or intermodal service to small 
communities or rural areas, and (7) Enhance service and capacity in the 
national rail system. FRA will prioritize projects that support the 
development of interconnected, livable communities. DOT promotes place-
based policies that provide transportation choices and improve the 
quality of life for all Americans. In determining which projects will 
best preserve or enhance rail or intermodal service to small 
communities or rural areas and enhance service and capacity in the 
national rail system, FRA will pay particular attention to projects 
that do the following: Preserve access for small communities and rural 
America to the Nation's rail system; facilitate the development of rail 
and rail-related intermodal facilities that encourage the reduction of 
highway freight transportation in urban areas; facilitate the 
development of rail-related intermodal passenger facilities that 
improve the operation of and expand the public's access to public 
transportation; and/or provide investments that expand the access to 
intercity passenger and commuter rail transportation by persons with 
disabilities.
    (8) Materially alleviate rail capacity problems which degrade the 
provision of service to shippers and would fulfill a need in the 
national transportation system. FRA will prioritize projects promoting 
a state of good repair for transportation assets to ensure a reliable 
and safe rail system. In determining which projects best enhance 
service and capacity in the national rail system, alleviate rail 
capacity problems which degrade the provision of service to shippers 
and fulfill a need in the national transportation system, FRA will give 
priority to projects that do the following: Assure sustained 
performance of rail and rail-related intermodal infrastructure and 
equipment in a safe, reliable and efficient manner, including the 
replacement of capital assets before they reach the end of their 
economic and useful life; permit rail infrastructure to accommodate 
safe operation of 286,000 pound rail cars; and/or incorporate into the 
rail infrastructure innovative design and construction procedures, 
innovative quality assurance practices, and/or innovative materials to 
extend the useful life of assets and reduce onsite repairs, 
rehabilitation and reconstruction.
    Eligible Purposes: A list of eligible purposes is provided in 45 
U.S.C 822(b). Although that section permits RRIF financial assistance 
for certain categories of refinancing, FRA believes the greatest 
benefit to the public of providing financial assistance under the RRIF 
Program occurs when that assistance is used to directly fund capital 
improvements. In particular, the RRIF Program has its most positive 
impact by directly financing those improvements that would not 
otherwise be undertaken, or whose undertaking would be substantially 
delayed without RRIF assistance. Thus, in considering whether to 
approve a loan or loan guarantee under the RRIF Program, FRA will give 
more weight to those projects that need the type of financial 
assistance provided by the RRIF Program to be financially feasible. FRA 
is mindful that Congress at times imposes statutory mandates on the 
rail industry that require certain specific investments by specified 
times. In order to meet those statutory requirements, some eligible 
applicants may be required to divert available fiscal resources away 
from other investment needs, including investment needs that align with 
DOT's strategic goals. In those circumstances, such statutory mandates 
will also be afforded greater weight, to the extent that the applicant 
can demonstrate the adverse impact on its investment plan if RRIF 
financial assistance were not made available. FRA will also consider 
the applicant's use of other forms of federal assistance and subsidies 
including tax credits and grant programs in its financing plan.
    FRA will also consider applications for RRIF financial assistance 
for projects that the applicant would and could undertake without such 
assistance. It will be the obligation of the applicant to identify with 
specificity how the public's interest would benefit from RRIF financial 
assistance when compared to use of conventional funding. It is the 
difference between the two scenarios that can be viewed as the net 
benefit to the public of providing financial assistance under the RRIF 
Program. FRA will evaluate this net benefit in comparison to the amount 
of financial assistance required to achieve this benefit. FRA intends 
to include requirements in its RRIF loan documents to ensure that the 
net financial benefit made available through the RRIF financial 
assistance results in increased public benefits.
    The refinancing of eligible capital investments poses similar 
issues. In a refinancing, RRIF financial assistance is not required to 
achieve the benefits of the project being refinanced. Thus, when 
reviewing RRIF applications for refinancing, FRA will expect that the 
financial resources made available by refinancing at the favorable 
rates under RRIF be used by the applicant to achieve public benefits. 
However, proposals to use RRIF funds directly for capital improvements 
will be given preference over those that include refinancing. FRA will 
evaluate those benefits against the cost of the financial assistance in 
order to assess the overall benefit of the application. Examples of 
preferred uses from the decreased cost of capital from a RRIF loan are: 
Improving cash flow to implement a demonstrably expanded capital 
improvement program, preserving the viability of a rail service, or 
lowering the debt service obligation burden of States and public 
agencies. In considering requests for RRIF loans to refinance debt, FRA 
will evaluate the borrower's ability to efficiently access private 
sector capital. FRA will request that prospective borrowers describe 
the terms of equivalent debt that they believe would be available from 
private sector sources and the amount they anticipate to save should a 
RRIF loan be approved. As described above, FRA intends to protect the 
public benefits of a RRIF loan through binding covenants in its loan 
documents when appropriate.
    Requests to refinance debt incurred to finance the acquisition of a 
railroad by an equity owner raise different considerations. Under the 
statute, FRA may refinance debt that was originally incurred for any 
eligible purpose stated in 45 U.S.C. 822(b)(1)(A). Under the statute, 
RRIF loans may not be incurred to refinance outstanding debt incurred 
for purposes other than the acquisition, improvement or rehabilitation 
of eligible rail equipment or facilities. Since RRIF loans may not be 
used to refinance outstanding debt incurred to acquire, for example, 
goodwill or intangibles, FRA's ability to refinance acquisition debt is 
limited. The value of railroad property, like the value of any other 
asset, is normally set by the market. FRA is concerned that the 
potential for long-term, low-cost federal refinancing of short-term, 
high-cost acquisition debt might skew the true value of the assets 
being acquired, and perhaps even have an inflationary impact in the 
rail industry as a whole. RRIF financial assistance for refinancing the 
acquisition of eligible railroad property might encourage transactions 
that otherwise would not be made or transactions by entities that might 
lack the full knowledge of the rail industry that will be needed to 
assure the sustainability of the railroad. In considering proposed 
financing or refinancing debt, in particular short-

[[Page 60168]]

term debt, used for the acquisition of a significant amount of rail 
assets, FRA will require the applicant to demonstrate significantly 
more than minimal public benefit from the transaction. Circumstances 
where the acquisition is required to preserve essential rail service or 
where a public agency is acquiring a rail property for direct public 
benefit (e.g. use for public transportation) are more favorably 
considered.
    Applicants: A list of eligible applicants is provided in 45 U.S.C. 
822(a). The RRIF Program was originally established as a means to 
provide access to capital for critical infrastructure improvements by 
the Class III and Class II railroads. Although the RRIF program has 
changed since its creation, FRA views the original purpose as one of 
the highest priorities for the use of RRIF financial assistance.
    In recent months, FRA has seen increased interest for RRIF 
financing by public authorities and publicly owned and/or controlled 
railroads providing passenger service. The public interest in using 
federal credit is easier to identify in situations where the credit 
program preserves or expands transportation services used by the public 
or where the credit reduces the burden on public agencies and federal 
or State taxpayers to provide such services. The challenge in 
considering public transportation for credit financing comes from the 
fact that few, if any, of these systems generate sufficient revenues to 
cover all of their costs. Indeed, public policy frequently finds 
sufficient value in the non-monetary benefits of increasing the 
utilization of such systems to justify the use of public funds to keep 
fares low. FRA as a potential lender will look to other revenue sources 
for assured repayment.
    Some public transportation entities have access to relatively 
reliable long-term sources of revenue (e.g. a sales tax or access to a 
dedicated revenue stream) or can offer the full faith and credit of 
their States as a guarantee that the RRIF loan will be repaid. In such 
cases, FRA's ability to make findings on the likelihood of repayment is 
easier than for applications that can only be repaid through ongoing 
actions by future Congresses or State legislatures. Solely relying on 
future appropriations for repayment may not be optimal and could result 
in a 100% credit risk premium. However, FRA will consider 
appropriations as a repayment source if it is part of an overall 
financing package that uses other revenue streams to service the debt. 
Among the factors that FRA will consider, in addition to the public 
benefits derived from the financing, will be the history of support for 
the public transportation entity in the past and the extent that the 
total amount of debt service, including the RRIF financing, falls 
within the historic range of debt service obligations of the entity 
that has been publicly funded.
    Loan Amount: Pursuant to 45 U.S.C. 822(d), the RRIF Program is 
authorized to provide up to $35 billion in direct loans and loan 
guarantees at any one time. The RRIF Program is subject to authority 
provided in annual appropriations. Appropriations are not required to 
pay for the credit risk premium, but merely grant FRA the authority to 
obligate the remaining balance of the $35 billion authorized. The 
balance currently available is approximately $34.6 billion. The timing 
and sequencing of this volume of credit assistance could, under some 
circumstances, create dislocations in the rail industry, which could 
create inflationary pressures and lead to inefficient practices, 
particularly in light of other federally sponsored rail investments 
occurring over the next several years. FRA sees the need to balance the 
volume of RRIF-financed work at any one time with a need to timely 
realize the Department's strategic goals. FRA will not set an arbitrary 
limit on the size of an application or the total dollar value of 
applications under consideration at any one time. FRA will 
periodically, however, assess whether the volume of RRIF-assisted rail 
capital improvements is continuing to have a positive impact on rail 
investment in the U.S.
    Ability To Repay: Pursuant to 45 U.S.C. 822(g), and as a 
prerequisite to making loans or loan guarantees, the FRA must make a 
number of findings including the finding that ``the obligation can 
reasonably be repaid, using an appropriate combination of credit risk 
premiums and collateral offered by the applicant to protect the Federal 
Government * * * .'' To this end, FRA will evaluate the credit risk of 
the application including the financial strength of the applicant or of 
the project and the potential recovery in the event of default 
including the nature and value of collateral if offered.
    Additionally, pursuant to 45 U.S.C. 823(a), FRA is permitted to 
establish terms and conditions for loans and loan guarantees made under 
45 U.S.C. 822. To this end, FRA will continue to require terms and 
conditions in its RRIF loan documents sufficient to ensure that 
applicants will repay their loans with interest within the term of the 
loan.
    Pre-Application Discussions: The application process can involve a 
substantial amount of work and expense for potential applicants, 
particularly for smaller railroads or entities proposing larger 
projects that might require additional levels of review, such as 
projects requiring an environmental impact statement to comply with 
NEPA. Regulations governing the RRIF Program have always included 
provisions for pre-application discussions, which provide a foundation 
to better address expectations about both the timing and ultimate 
outcome of the process. FRA will use the pre-application meetings and 
requests for clarification to develop a project outline, including a 
preliminary analysis of the benefits of the proposed financing.
    Evaluation Charge: Demand for funding under the RRIF Program has 
increased significantly in the past two years. In addition to the 
increased volume of applications, FRA has noted a significant increase 
in the size and complexity of the proposed transactions.
    FRA has typically staffed RRIF transactions solely with FRA 
attorneys and not employed outside counsel. As a result, while we are 
permitted to pass on the cost of outside counsel as an evaluation 
charge under 45 U.S.C. 823(k), we have not had a need to do so. Given 
the increased demand for RRIF loans and the increasing size and 
complexity of the transactions submitted for our consideration, we 
expect to employ outside counsel more frequently in the future. We 
believe that employing outside counsel will both enhance our ability to 
structure and document our transactions in a way that best protects the 
taxpayers' investment and helps us manage the increased volume of 
complex financing proposals more quickly and efficiently.
    While we may include the cost of outside counsel in our evaluation 
charges, the total evaluation charges for a given transaction will not 
exceed one-half of 1 percent of the principal amount of our loan, as 
provided in the statute. We do not expect that we will employ outside 
counsel for traditional RRIF loans to Class III applicants, unless the 
loan contains complicated structuring or documentation issues.

    Issued in Washington, DC, on September 24, 2010.
Joseph C. Szabo,
Administrator.
[FR Doc. 2010-24467 Filed 9-28-10; 8:45 am]
BILLING CODE 4910-06-P

