Introduction
The Railroad Rehabilitation and Improvement Financing (RRIF) program offers long-term, low-interest loans to railroad operators for improving rail infrastructure. Congress has authorized $35 billion in loan authority for the program, but freight railroads have been relatively unenthusiastic. Since 2000, RRIF has made 34 loans to 26 operators for a total of $2.7 billion, representing $2.9 billion in 2015 dollars. About two-thirds of the nominal loan amount has gone to government-controlled entities for passenger rail projects rather than to freight operators. From 2000 through 2014, private railroads' total investment in structures was approximately $109 billion in 2015 dollars. RRIF supplied less than 1% of freight railroads' capital expenditures for track and other structures over that period. The program is intended to operate at no cost to the government and does not receive an annual appropriation.
In recent years, sponsors of intercity passenger rail projects have shown increasing interest in the program. Part of this interest may be explained by a growing interest in passenger rail services and the scarcity of other funding assistance for such projects, which tend to be extremely costly. Legislation recently passed by the House of Representatives seeks to shorten the time taken to complete loan application reviews and would specify that 40% of the available loan authority be reserved for improvements to Amtrak's Northeast Corridor, the most heavily used passenger rail corridor in the nation. The prospect of large loans for private, intercity passenger rail projects raises questions about potential risks to the RRIF program, because such a project may have no source of earnings until and unless it is completed and, even then, may not be able to generate sufficient revenue to service its loans.
Railroad Industry Background
The railroad industry has changed significantly since Congress created a forerunner of RRIF in 1976. At that time, the nation's railroads were in great financial difficulty, investment in infrastructure and equipment had lagged, and there were questions about the future viability of the industry. Subsequently, Congress significantly deregulated the industry, making it easier for carriers to consolidate and to shed less profitable routes. Since that time, mergers have reduced a large number of regional rail companies to a handful (known as Class I carriers).
Deregulation allowed the large railroads to focus their construction and maintenance efforts on heavily trafficked main lines and to stop service on routes that were not profitable. Some of this lightly used trackage was sold to smaller operators, which believed they could build business by working closely with shippers that used or might use the line. These smaller railroads, collectively known as short line railroads, are classified by the Federal Railroad Administration (FRA) as Class II and Class III carriers.1 Although there are now only 7 Class I railroads operating in the United States,2 there are more than 560 short line railroads.3
The Class I freight railroads—large, profitable commercial entities—are able to finance improvements out of their considerable revenues, as well as by issuing stock and by borrowing in the commercial market. In 2015, they reportedly plan to spend around $29 billion on their networks.4
Class II and Class III railroads have fewer financing options. Their revenues are smaller, their lines of business typically are more limited than those of the Class I railroads, and their creditworthiness generally is lower. However, nearly half of the nation's short line railroads have come under the control of 27 holding companies,5 potentially offering them easier access to private financing. In addition, a number of short line railroads are terminal switching, port, or harbor rail lines that have a relationship with a Class I railroad, which may help them obtain financing, and some short line railroads are owned by states. These entities typically have easier access to the financial markets than do stand-alone short line railroads. 6
Amtrak, the national intercity passenger rail provider, operates at a loss and relies on federal grants appropriated annually to continue operations. Amtrak's primary service corridor is the Northeast Corridor (NEC), a rail line running from Washington, DC, through New York City to Boston. This line also is used heavily by commuter rail operations and even hosts some freight service. There is an estimated backlog of $9 billion to $15 billion in capital investment needed to restore the aging NEC infrastructure to a state of good repair, and additional billions would be needed to make possible expanded service on the line.7
RRIF Program
Congress created the RRIF program in 19988 and revised it in 20059 and 2008.10 The program allows the U.S. Department of Transportation (DOT) to provide credit assistance for rail infrastructure by making low-cost direct loans or providing loan guarantees to project sponsors. Eligible recipients of this assistance include railroads, state and local governments, government-sponsored corporations, and joint ventures that include at least one railroad.
The RRIF program replaced a railroad financing program that Congress created in 1976.11 The original program allowed DOT to provide financial assistance for rail infrastructure by purchasing preference shares or issuing loan guarantees. The authorization to purchase preference shares expired in 1996.
In the 1998 revision that renamed the program, Congress authorized DOT to make direct loans as well as loan guarantees, set an overall cap of $3.5 billion on the total amount of outstanding debt that the program could have at any one time, and reserved almost 30% of that ($1 billion) for projects benefiting short line railroads. In 2005, Congress increased the limit on outstanding debt to $35 billion and increased the amount reserved for smaller freight railroads to $7 billion. The increase was not due to demand for the program—the program had issued a total of less than $1 billion in loans at that point—but in hopes of boosting interest in the program.
Projects eligible for RRIF assistance include acquiring, improving, and rehabilitating track, bridges, rail yards, buildings, and shops (or refinancing existing debt that was incurred for these purposes); and developing new rail or intermodal facilities. Loans can be for up to 100% of the project cost, with repayment periods up to 35 years.
The RRIF program is designed to operate at no cost to the government. Applicants are charged a fee of 0.5% of the amount requested to cover the cost of processing their applications. Borrowers are charged another fee (the credit risk premium) at the time a loan is issued to cover the potential cost to the government of the loan not being repaid. The amount of the credit risk premium is based on several factors, including the financial condition of the applicant and the amount of collateral securing the loan.
This no-cost-to-the-government structure is why it was not controversial for Congress to raise the maximum outstanding loan amount from $3.5 billion to $35 billion. But the up-front costs of an RRIF loan may deter would-be applicants. By contrast, the other major DOT credit assistance program, the Transportation Infrastructure Finance and Innovation program (TIFIA), covers the cost of the credit risk premium for loan recipients (known as TIFIA's subsidy cost). And for private loans, the processing costs and credit risk premium typically are folded into the loan repayment schedule rather than being charged up front.
Program Overview
The RRIF program is one of four credit programs run by DOT;12 it is administered by FRA. RRIF loan applications are reviewed by FRA, independent financial analysts hired by FRA, DOT's Office of Credit Oversight and Risk Management, and DOT's Credit Council.13 If the loan is recommended for approval, the credit risk premium is reviewed by the Office of Credit Oversight and Risk Management and the Office of Management and Budget. Final approval is decided by the FRA Administrator.
The interest rate on RRIF loans is equal to the rate paid by the U.S. Treasury to borrow for a similar period of time as of the date the loan is approved. That is, the recipient is able to borrow money at the lowest rate available, that paid by the federal government itself, and for a longer period of time than most other types of loans would permit. RRIF borrowers can ask to defer loan repayment for a period of six years (though interest accrues during this period). Alternatively, FRA can guarantee a private loan based on a rate DOT determines to be reasonable.
In addition to the statutory elements of the program, Congress has put other restrictions on the program. For example, for FY2015, the program is limited to a total loan amount of $5.6 billion in any one state, and as in previous years the use of any federal funds to pay the credit risk premium on a loan is prohibited.14
Congress specified15 that in evaluating RRIF applications, FRA should favor projects that
- enhance public safety;
- enhance the environment;
- promote economic development;
- enable U.S. companies to be more competitive in international markets;
- are endorsed by the plans prepared under Section 135 of Title 23 by the state or states in which they are located;16
- preserve or enhance rail or intermodal service to small communities or rural areas;
- enhance service and capacity in the national rail system; and
- materially alleviate rail capacity problems that degrade the provision of service to shippers and would fulfill a need in the national transportation system.
Program Performance
The RRIF program has used relatively little of its lending authority. RRIF may have a maximum of $35 billion of outstanding loans and loan guarantees. It currently has about 6% of this amount committed.
The RRIF program has issued 34 loans for a total amount of $2.7 billion as of May 2015 (Table 1).17 The loans ranged in amounts from $53,000 to $967 million. Although loans can be made for up to 35 years, 10 of the 34 loans have been repaid in full.
|
Fiscal Year |
Recipient |
Amount |
|
2002 |
Amtrak |
$100,000,000 |
|
2002 |
Mount Hood Railroad |
2,070,000 |
|
2003 |
Arkansas & Missouri Railroad |
11,000,000 |
|
2003 |
Nashville and Western Railroad |
2,300,000 |
|
2004 |
Stillwater Central Railroad |
4,675,250 |
|
2004 |
Wheeling & Lake Erie Railway |
25,000,000 |
|
2004 |
Dakota Minnesota & Eastern Railroad |
233,601,000 |
|
2005 |
Great Smoky Mountains Railroad |
7,500,000 |
|
2005 |
Riverport Railroad |
5,514,774 |
|
2005 |
The Montreal Maine & Atlantic Railwaya |
34,000,000 |
|
2005 |
Tex-Mex Railroad |
50,000,000 |
|
2005 |
Iowa Interstate Railroad |
32,732,533 |
|
2006 |
Virginia Railway Express |
72,500,000 |
|
2006 |
RJ Corman Railway |
11,768,274 |
|
2006 |
RJ Corman Railway |
47,131,726 |
|
2006 |
Wheeling & Lake Erie Railway |
14,000,000 |
|
2006 |
Iowa Interstate Railroad |
9,350,000 |
|
2007 |
Nashville and Eastern Railroad |
4,000,000 |
|
2007 |
Nashville and Eastern Railroad |
600,000 |
|
2007 |
Columbia Basin Railroad |
3,000,000 |
|
2007 |
Great Western Railway |
4,030,000 |
|
2007 |
Dakota Minnesota & Eastern Railroad |
48,320,000 |
|
2007 |
Iowa Northern Railroad |
25,500,000 |
|
2009 |
Georgia & Florida Railways |
8,100,000 |
|
2009 |
Permian Basin Railways, Inc |
64,400,000 |
|
2009 |
Iowa Interstate Railroad |
31,000,000 |
|
2010 |
Denver Union Station Project Authority |
155,000,000 |
|
2010 |
Great Lakes Central Railroad |
17,000,000 |
|
2011 |
Northwestern Pacific Railroad Company and North Coast Railroad Authority |
3,180,000 |
|
2011 |
Amtrak |
562,900,000 |
|
2011 |
C&J Railroad |
56,204 |
|
2012 |
Alameda Corridor Transportation Authority |
83,710,000 |
|
2012 |
Kansas City Southern Railway Company |
54,648,000 |
|
2015 |
New York City Metropolitan Transportation Administration |
967,100,000 |
|
Total |
$2,695,687,761 |
Source: U.S. Dept. of Transportation, Federal Railroad Administration, "Railroad Rehabilitation & Improvement Financing (RRIF)," Executed Loan Agreements, at http://www.fra.dot.gov/Page/P0128.
Notes: Loans in bold have been repaid. The total amount of loans that have been made is $2.9 billion in 2015 dollars (nominal dollars values adjusted to 2015 dollars using the Total Non-defense column from Table 10.1: Gross Domestic Product and Deflators Used in the Historical Tables: 1940-2020, published in Executive Office of the President of the United States, Office of Management and Budget, Fiscal Year 2016 Historical Tables Budget of the United States Government, available at https://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/hist.pdf).
a. Montreal Maine & Atlantic (MMA) was responsible for the July 2013 derailment and explosion of oil transport cars in Lac-Megantic, Canada, which resulted in extensive damage and the deaths of 47 people. MMA entered bankruptcy in August 2013; its loan is in default, with $27.5 million outstanding.
Of the 34 loans made, two-thirds were executed prior to 2008 and only 1 has been approved since 2012 (see Table 1). FRA reported that in FY2014 it was evaluating 13 applications totaling $10 billion.18 FRA treats loan applications as confidential, although some applicants have stated publicly that they have applied for RRIF loans. FRA may approve a loan for less than the amount requested; in one case, that of the Dakota, Minnesota & Eastern Railroad, the company applied for a $2.5 billion loan and received a loan of $48 million.19
Public-sector entities have emerged as the largest borrowers under the RRIF program. Most loans to public-sector entities have been intended for passenger rail projects. However, one, an $83.7 million loan to the Alameda Corridor Transportation Authority in 2012, was to support a freight project.
RRIF Program Issues and Options
Need for Program
The policy rationales for the RRIF program are that railroad companies, especially short line companies too small to raise money in the bond market, need better access to long-term, low-cost financing to maintain and expand their networks, and that the safety and efficiency of their networks is a public concern.20 However, it is not clear that railroads, even short line railroads, have significant difficulty financing the maintenance and expansion of their networks. FRA looked at the safety record of short line railroads, taking accidents as a proxy for the condition of the infrastructure (that is, if the infrastructure were deteriorating, the number of accidents likely would increase). FRA found that the number of infrastructure-related accidents per million train-miles on short line railroads declined significantly between 2001 and 2013, from more than 8 accidents per million train-miles to fewer than 4 accidents per million train-miles. FRA stated that "the positive trend, illustrated by a decreasing accident rate, suggests improving maintenance and investment.... "21
Another measure of short line railroad infrastructure condition is its capability to handle 286,000-pound rail cars. Since the late 1980s, Class I railroads have moved from maximum car weights of 263,000 pounds to 286,000 pounds. Track and bridges must be strengthened to handle these heavier loads. According to the Association of Short Line Railroads, 39% of short line route-miles were able to handle the 286,000-pound cars in 2002, whereas 57% of a larger number of total route-miles could handle the heavier cars in 2010. FRA stated, after examining both the safety and capacity numbers, that "these data points and trends illustrate that these carriers in aggregate are maintaining their systems and enhancing infrastructure to meet their customer needs."22
On the basis of a 2013 survey of Class II and Class III railroads' estimated spending requirements for infrastructure and equipment, FRA estimated that the total investment needs of short line railroads would be $6.9 billion over the five-year period from 2013 to 2017. The survey respondents anticipated that they would be able to cover about 70% to 75% of their estimated spending needs for infrastructure and equipment during that period, with most of the funding coming from their revenues; they expected about a quarter of the funding to come from other sources, chiefly state (9%) and federal (8%) grants and loans.23 The survey results suggested an estimated gap of around $265 million per year between the available funding and the amount short lines felt was needed.24
Alternatives to RRIF
RRIF is only one of several federal and state programs available to reduce the cost of railroads' investment in infrastructure. Others include the following.
Section 45G Tax Credit
This tax credit, first enacted in 2004, allows Class II and Class III railroads to reduce their taxes by 50% of the cost of track maintenance expenses incurred in a year, up to a limit established by multiplying the railroad's track mileage by $3,500. The cost to the federal government in forgone tax revenue is estimated at $165 million to $202 million per year, which represents investments of roughly $300-$400 million annually.25 In contrast to the RRIF program, this tax credit is targeted exclusively to short line railroads. It does not require the recipient to undertake an uncertain loan application process, with its attendant costs, or to comply with laws that govern RRIF loans, such as the Buy America Act and the National Environmental Policy Act.26 The tax credit last expired on December 31, 2014. Legislation to reinstate the credit and extend it through the end of 2016 has been introduced in the 114th Congress (H.R. 721/S. 637).
TIGER Grant Program
Congress created a National Infrastructure Investment discretionary grant program within the Office of the Secretary of DOT in 2009. This program, popularly known as the Transportation Investment Generating Economic Recovery (TIGER) grant program, made over $4 billion in grants through FY2014. Grants require a 20% match in urbanized areas; in rural areas, no local match is required. Although only governmental entities are eligible to receive grants, applications may represent public-private partnerships. Passenger and freight rail infrastructure projects are eligible uses of TIGER funds. Freight rail projects (including port improvement projects with a rail component) have received nearly $810 million in grants; short line railroad improvement projects have received more than $270 million.27 The program is very competitive, with several times as much funding requested each year as the $500 million typically available for grants.
TIFIA Loan Program
The TIFIA loan program, like the RRIF program, was authorized by Congress in 1998. As of the end of calendar year 2014, the program had assisted 47 projects with a total value of almost $72 billion; the federal value of credit assistance provided was more than $19 billion, at a direct cost of more than $1 billion (representing the cost of the credit risk premium and the administrative costs of processing applications).28 Eligible projects include "rail projects involving the design and construction of intercity passenger rail facilities or the procurement of intercity passenger rail vehicles" and "intermodal freight transfer facilities."29 Although five intermodal projects involving rail freight have received assistance, no TIFIA loans have been approved for pure rail projects. Congress appropriates funding to cover the credit risk premium cost of TIFIA loans, reducing the cost of loans to recipients.
In the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141), the 2012 surface transportation authorization legislation, Congress authorized $1.75 billion to administer the program and cover the credit risk premium. Since DOT assumes a loss ratio of around 10%, the $1.6 billion available after administrative costs gave it the capacity to provide about $16 billion in TIFIA loans or loan guarantees during FY2013 and FY2014.30
|
RRIF |
TIFIA |
|
|
Limit on Total Value of Outstanding Loans |
$35 billion |
— |
|
Number of Loans/Loan Guarantees Provided |
34 |
47 |
|
Average Assistance Value |
$79 million |
$379 million |
|
Loan Amount as % of Eligible Project Costs |
Up to 100% |
Up to 49%, typically no more than 33% |
|
Loan Term |
Up to 35 years |
Up to 35 years |
|
Up-Front Cost |
Up to 0.5% of loan amount for processing, plus the credit risk premium |
$400,000 to $500,000 for loan processing |
Sources: U.S. Dept. of Transportation, Office of Inspector General, Audit Report: Process Inefficiencies and Costs Discourage Participation in FRA's RRIF Program, June 10, 2014, CR-2014-054, at https://www.oig.dot.gov/sites/default/files/RRIF%20final.pdf; U.S. Dept. of Transportation, Federal Highway Administration, TIFIA Program Guide, at http://www.fhwa.dot.gov/ipd/pdfs/tifia/tifia_program_guide.pdf.
Notes: These programs are not mutually exclusive; at least one project, the redevelopment of Denver Union Station as a multimodal center, received loans from both RRIF and TIFIA.
a. The amount of TIFIA loans is limited by the funding available to the program to cover the subsidy cost of the loans. For the period FY2013-FY2014, the amount available for subsidy covered an estimated $16 billion in loan authority. TIFIA reported that as of December 31, 2014, its 47 loan commitments totaled more than $19 billion in federal assistance, of which $10 billion had been provided since the beginning of the FY2013 authorization period. U.S. Dept. of Transportation, Federal Highway Administration, FY2016 Budget Estimate, pp. III-116 to III-119, at http://www.dot.gov/sites/dot.gov/files/docs/FY2016-BudgetEstimate-FHWA.pdf.
State Programs
A number of states have established grant, loan, and tax benefit programs to help short line railroads finance infrastructure or equipment purchases. In its report on Class II and Class III railroad capital needs and funding sources, FRA reported that, in a survey of how short line railroads expected to fund their needs in the near future, respondents expected to get a greater percentage of funding for infrastructure and equipment investments from state programs (9%) than from federal programs (8%).31
Supportive Policy Options
The primary competition for short line and regional railroads is the trucking industry. The degree of competition is affected by the extent of regulation and taxation on the rail and truck sectors. Trucks operate over publicly provided infrastructure (the highway network), whereas railroads are financially responsible for their own infrastructure. Although federal and state taxes on diesel fuel contribute to maintaining the highway infrastructure, studies indicate that heavy trucks cause much more damage to highways than they pay in fuel taxes. This problem is exacerbated by exemptions Congress has provided to limits on truck weights, which raise the productivity of trucking vis-à-vis railroads while increasing the amount of damage the trucks cause to the highway infrastructure.
Congress could aid the short line and regional railroads by, for example, increasing the amount of fuel tax paid by heavy trucks to a level commensurate with the damage they cause to the highway infrastructure and limiting exemptions to truck weight restrictions. Such changes also would benefit the Class I railroads. However, these changes could increase the cost of shipping goods by truck, adversely affecting trucking industry employment. In addition, higher truck rates could affect rail shippers by giving railroads room to raise their own rates.
Program Effectiveness
There are many possible ways of evaluating the effectiveness of the RRIF program. By one measure on which Congress has focused—the extent to which railroads have made use of RRIF loans—the program has not been very effective because less than $3 billion of the $35 billion in loan authority that Congress has provided to the program has been used. However, the $35 billion in loan authority appears to have been set somewhat arbitrarily, rather than reflecting an analysis of railroad investment needs that could not be met by other means. The fact that the RRIF program has lent far less than the amount Congress authorized in 2005, particularly to private-sector borrowers, may indicate that freight railroads' ability to finance their investment needs without recourse to government support may be greater than Congress believed.
In its 2014 audit of the program, the DOT Inspector General's Office published information about numbers of applications received over a period of roughly 3.5 years from January 1, 2010, to April 30, 2013. According to the audit, 29 applications were submitted during that period (see Table 3).
Table 3. Status of RRIF Applications Received Between January 1, 2010, and April 30, 2013
(status as of December 31, 2013)
|
Application Status |
Number of Applications |
|
Awarded |
4 |
|
Denied |
4 |
|
Withdrawn |
12 |
|
Pending |
9 |
|
Total |
29 |
Source: U.S. Dept. of Transportation, Office of the Inspector General, Figure 5 in Audit Report: Process Inefficiencies and Costs Discourage Participation in FRA's RRIF Program, CR-2014-054, June 10, 2014, at https://www.oig.dot.gov/sites/default/files/RRIF%20final.pdf.
Congress has expressed a desire that the program be used more heavily, especially by short line railroads, and has identified two aspects of the program that may be reducing its attractiveness: the uncertain length of the loan review process and the cost to the applicant of the loan.
Length of Review Process
By statute, an RRIF loan application is supposed to be approved or disapproved within 90 days. But that 90-day clock does not begin until a loan application is considered complete. In its audit, the DOT Office of Inspector General found that unclear program information resulted in incomplete loan applications that required FRA to work with applicants on completing the applications. In combination with the extensive loan review process, which involves FRA, outside reviewers, the DOT's Office of Credit Oversight and Risk Management and its Credit Council, and the Office of Management and Budget, the audit revealed that the loan application process took a long time and had an uncertain outcome for loan applicants.32 The combination of the lengthy process and uncertain outcome discouraged potential applicants from making use of the program, the audit found.
In response to the audit findings, FRA said the RRIF program would take steps to speed up the process, such as publishing comprehensive guidance for the program, making pre-application meetings mandatory, and working with the DOT Credit Council to streamline the review process.33
Loan Costs
Federal law requires that federal credit programs operate at no cost to the government. The government faces two primary costs for loan assistance and guarantee programs: that of administering the program, including evaluating applicants, and that of a borrower failing to repay its loan.
To cover the cost of administering the program (including evaluating loan applications), the RRIF program charges loan applicants a nonrefundable fee of up to 0.5% of the loan amount. To protect against the possibility of defaults, federal law requires that loan programs keep enough money in reserve to cover the estimated cost to the government of defaults on the loans made. This reserve amount, which in the case of the RRIF program is paid by the borrower, is referred to as a credit risk premium. A credit risk premium is calculated for each loan, based primarily on the financial soundness of the borrower and the amount of collateral pledged by the borrower. Credit risk premiums for the RRIF program generally have been between 0% and 5% of the loan amount.34 For example, Amtrak pays a 4.424% credit risk premium for its 2011 RRIF loan.35 If collateral of sufficient value is pledged, no credit risk premium may be required. The RRIF program refunds the credit risk premium to borrowers as their loans are closed out.
The 2014 audit of the RRIF program noted that some short line railroads had pointed to the credit risk premium as discouraging them from applying to the program. In response, FRA stated that it has no discretion to subsidize the credit risk premium for applicants. Such a step would require congressional action. As noted above, for several years Congress has included in DOT appropriations bills a provision barring the use of federal funds to pay the credit risk premium.
Other Costs to Borrowers
There are other costs to participation in the RRIF program that are harder to measure. For example, to qualify for a loan, an applicant must comply with requirements of the National Environmental Policy Act (NEPA) and a "Buy America" requirement.36 NEPA requires that FRA review a project's environmental impact. The Buy America Act requires that a project receiving a government loan use steel, iron, and other manufactured goods produced in the United States, unless the project sponsor receives a waiver from FRA.37
Loans to Passenger Rail Projects
Growth in Lending to Passenger Rail Projects
The RRIF program was created primarily to support freight rail service, and FRA says that its priority is to make capital available to short line railroads.38 But a significant portion of RRIF assistance has gone to intercity passenger rail service, especially since 2008. The recipients of the greatest amount of assistance have been the New York City Metropolitan Transportation Administration (one loan for $967 million) and Amtrak (two loans totaling $663 million). As of May 2015, just over two-thirds of the total assistance provided by the program has gone to passenger rail projects (see Table 4).
|
Category |
Number of Loans |
Total Amount of Loans |
Average Loan Amount |
|
Freight |
29 |
$838 |
$29 |
|
Passenger |
5 |
$1,857 |
$371 |
|
Total |
34 |
$2,696 |
$79 |
Source: CRS, based on FRA RRIF grant information.
One cause of this disparity is that the large Class I railroads have made little use of the RRIF program, whereas the short line railroads typically have smaller, and thus less expensive, projects than the passenger rail projects for which RRIF funding has been sought. Another cause may be the lack of alternative funding sources for intercity passenger rail projects. In calendar year 2009, Congress appropriated $10.5 billion (later reduced to $10.1 billion through a rescission of appropriated funding) for grants for high-speed and intercity passenger rail projects.39 The availability of that funding generated significant interest on the part of states to establish or expand passenger rail service; FRA reported receiving applications for a total of more than $75 billion.40 Congress has provided no funding for this program since calendar year 2009, and some organizations interested in passenger rail services may have turned to RRIF as an alternative or supplemental source of funding.
Unique Risks
Lending to intercity passenger rail projects creates some unique challenges for RRIF. Government-run passenger rail projects often fail to make an operating profit, and few of them anywhere in the world generate sufficient operating profit to cover their capital costs.
Amtrak, the federally owned intercity passenger railroad operator, is responsible for more than one-third of all funds borrowed from RRIF. Amtrak states that it is servicing these loans with revenue from its Northeast Corridor operations, with interest and principal payments in FY2015 projected to be $25.5 million. However, Amtrak does not earn an operating profit and relies on an annual appropriation of approximately $1 billion from Congress to cover its costs. Thus, the railroad's ability to repay its RRIF loans depends on the receipt of other federal funds. Amtrak's most recent audited financial statement reflects an outstanding balance of loans from RRIF of $277.7 million as of September 30, 2013, with additional approved loan amounts to be drawn. Amtrak expects to continue drawing down its RRIF loans through FY2019.41
In 2010, RRIF extended a $155 million loan to the Denver Union Station Project Authority for the reconstruction of Denver Union Station as an intermodal passenger station. The loan is serviced from the proceeds of tax-increment revenue from development around the station, with a backstop commitment from the City and County of Denver.42
Several private entities seeking to build and operate passenger rail projects have expressed interest in RRIF loans in recent years. Privately owned companies operate passenger rail services in many countries, but they typically pay only a portion of the cost of building and maintaining rail infrastructure, which usually receives some form of government support.
One entity that has begun construction, All Aboard Florida, a subsidiary of Florida East Coast Railway, a freight rail company, reportedly applied for a $1.87 billion RRIF loan to develop 110-mile per hour passenger service between Miami and Orlando.43 The company later told the press it is seeking other financing to supplement or replace the RRIF loan.44 XpressWest, a proposed privately funded high-speed rail line between Las Vegas and Southern California, reportedly applied for a $5.5 billion RRIF loan in December 2010.45 The chairs of the House and Senate Budget Committees sent a letter to the Secretary of DOT on March 6, 2013, opposing the loan as being too risky;46 on June 28, 2013, DOT issued a letter saying it had suspended review of the XpressWest loan application due to the applicant's difficulties in satisfying Buy America requirements and providing documentation for the loan request.47 The Texas Central Railway, a private group proposing to build a high-speed line between Dallas and Houston, has said that it is considering seeking a loan from the RRIF or TIFIA programs but that it presently is not eligible to apply.48 To date, FRA has approved no RRIF loans to private passenger rail operators.
If such loans are extended, they are likely to be quite large relative to the loans RRIF has extended for freight projects and may pose different risks. RRIF loans for freight projects typically are for the purpose of improving an operating railroad that already generates revenue from customers. Those existing facilities may serve as collateral for the loans. Some of the private passenger rail projects now under development, by contrast, involve provision of new services on trackage that has yet to be built, potentially leaving the RRIF program with a significant risk of loss if the project is not completed
Legislative Proposals in the 114th Congress
The Administration's surface transportation reauthorization proposal, the GROW AMERICA Act, proposes changes to RRIF.49 It would authorize FRA to make grants under a new Local Rail Facilities and Safety program to pay for the credit risk premium for short line railroad loan recipients.50 This change would make the program more attractive to short line railroads by reducing their up-front cost of getting a loan. The act also would cap the maximum RRIF share at 80% of total project costs for projects greater than $100 million that receive a grant to subsidize their credit risk premium.
The House Transportation and Infrastructure Committee marked up a passenger rail reauthorization bill in February 2015 that included proposed changes to the RRIF program. The bill, H.R. 749, would require that 40% of the assistance available through the RRIF program be available only for improvements to Amtrak's Northeast Corridor;51 in effect, this requirement would set aside a minimum of $14 billion RRIF loan authority for passenger rail projects. The bill also would specify that positive train control projects52 are eligible for RRIF loans. It would attempt to shorten the application process by requiring that an application be determined to be complete or incomplete within 45 days of submission and by mandating that an application be approved or disapproved within 90 days of being determined to be complete.
S. 797, the Railroad Infrastructure Financing Improvement Act, would make significant changes to the RRIF program. It would make real estate development activities "physically or functionally connected" to a passenger rail station eligible for RRIF loans, a provision that might assist major property developments planned adjacent to New York Penn Station, Philadelphia 30th Street Station, Washington Union Station, and other major rail hubs. The bill would add a number of items that could be offered as collateral "in lieu of any tangible asset," extend the maximum loan term to 50 years (or more), and authorize the appropriation of funds to cover credit risk premiums for applicants.