Debt Service Reserve Pilot Program, 78267-78268 [06-9912]

Agencies

• Federal Transit Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 71, Number 249 (Thursday, December 28, 2006)]
[Notices]
[Pages 78267-78268]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-9912]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration


Debt Service Reserve Pilot Program

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Notice; Solicitation of Proposals to Participate in the Debt 
Service Reserve Pilot Program.

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SUMMARY: This solicitation is for proposals from pubic transportation 
agencies currently receiving grant funds under the Urbanized Area 
Formula Program at 49 U.S.C. 5307 to establish a debt service reserve 
fund in connection with bonds to be issued in support of a public 
transportation project.

DATES: Complete proposals may be submitted to FTA at any time prior to 
June 1, 2009.

ADDRESSES: Proposals must be submitted electronically to 
Paul.Marx@dot.gov and Katherine.Mattice@dot.gov. The subject line of 
the e-mail should read: Proposal for Debt Service Reserve Pilot 
Program.

FOR FURTHER INFORMATION CONTACT: Contact Paul Marx, Office of Budget 
and Policy, (202) 366-1675, e-mail; Paul.Marx@dot.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. General Program Information
II. Guidelines for Preparing and Submitting Proposals
III. Proposal Review, Selection, and Notification

I. General Program Information

A. Authority

    Section 3023(3) of the Safe, Accountable, Flexible, and Efficient 
Transportation Equity Act--A Legacy of Users (SAFETEA-LU) established 
the Debt Service Reserve Pilot Program under 49 U.S.C. 5323(d)(4). This 
section establishes a pilot program to reimburse not to exceed 10 
eligible recipients for deposits of bond proceeds in a debt service 
reserve that the recipient establishes pursuant to section 
5302(a)(1)(K) from amounts made available to the recipient under 
section 5307.

B. Background

    Debt service reserves (generally one year's debt service 
requirement) are usually required when a project sponsor issues debt 
bonds) in support of its project. The debt service reserve may 
represent as much as 10 percent of the face value of the bonds and must 
be

[[Page 78268]]

held until the bonds mature or are substantially repaid. This 
represents an opportunity cost to the public transportation provider's 
capital budget. By allowing this expense to be reimbursed with grant 
funds, the pilot program hopes to make the public transportation 
agencies's capital programs more cost-effective, and possibly to reduce 
the agencies' total cost of borrowing.

C. Eligible Applicants

    Public transportation providers, who currently receive grants under 
the Urbanized Area Formula Grants Program (section 5307), and issue or 
intend to issue bonds for eligible transit capital projects, and who 
wish to have the related debt service reserve reimbursed with funds 
available to them under section 5307, must submit a proposal. For the 
purposes of this pilot program there is not difference between bonds 
secured with purely local funds (such as a sales tax revenue bonds) or 
bonds secured with anticipated receipts of future grants fund (grant 
anticipation bonds). This pilot program is not intended to apply to 
public transportation agencies that issue bonds for which no debt 
service reserve is needed (as when certain bond insurance is present). 
These agencies may seek reimbursement of the financing costs associated 
with such bonds under existing authority. The pilot program is also not 
intended to apply to borrowing from a State Infrastructure Bank (SIB), 
even if such a bank required a debt service reserve. FTA reads the 
combination of conditions for eligibility--i.e., ``an eligible 
recipient of section 5307 funds'' and ``bond proceeds deposited in a 
debt service reserve''--as being prescriptive of the applicability of 
this pilot program.

D. Eligible Expenses

    For the purposes of this pilot program, the blood proceeds 
deposited into the debt service reserve constitute the eligible costs 
to be reimbursed with section 5307 grant funds. Subsequent debt service 
payments and project costs will remain eligible for reimbursement, as 
authorized under section 5307. Thus, the sole effect of this authority 
is to accelerate the reimbursement for the debt service reserve.

E. Matching Requirements

    The Federal share for capital expenses, including payment of the 
debt service reserve, may not exceed 80 percent. All local and state 
revenues generally are eligible for inclusion in the local match with 
the exception of farebox and farebox-related revenues.

F. Proposal Evaluation Criteria

    Proposals from eligible Urbanized Area Formula grant recipients 
will be evaluated on the following basis.
     The proposal involves a bond issuance to occur within one 
Calendar Year.
     The proposal includes a clear financial goal to be 
achieved by the bond issuance.
     The bond issuance is likely to be rated (prior to any bond 
insurance) at least ``investment grade'' (i.e., BBB+, Baa or higher).
     Without limitation, the bond issuance may be for revenue 
bonds secured solely by farebox revenues, provided the sum of Federal 
project reimbursement does not exceed 80 percent of eligible project 
costs including the debt service reserve. (See matching requirements 
above).
     The proposal includes a description of the cash-flow or 
project acceleration benefit anticipated from use of the debt service 
reserve reimbursement.
    To the extent possible from the proposals received, FTA will seek 
to provide for geographic and size of public transportation authority 
diversity in the approval of pilot program participants.

G. Program Requirements

    Grants made for projects that include Federal reimbursement for 
financing costs are subject to Federal requirements that apply to all 
grants made under section 5307. This includes the requirement at 
section 5307 (g)(3) that states, with regard to debt financing, the 
``amount of interest allowed * * * may not be more than the most 
favorable financing terms reasonable for the project at the time of 
borrowing.''

II. Guidelines for Preparing and Submitting Proposals

    FTA is conducting a national solicitation for proposals from public 
transportation agencies wishing to participate in the Debt Service 
Reserve Pilot Program. FTA will grant authority for not more than 10 
agencies to use apportioned Urbanized Area Formula Grant funds to 
reimburse the cost of depositing bond proceeds into a debt service 
reserve. Public transportation agencies will be selected to participate 
on a competitive basis. To the extent possible, FTA seeks proposals for 
bond issuance to occur in calendar year 2007. However, if fewer than 
ten proposals are received FTA will process proposals for bond 
issuances after 2007 on a first-come first-served basis.
    Proposals should be submitted electronically to: Paul.Marx@dot.gov. 
and Katherine.Mattice@dot.gov.
    Proposals must be received by FTA no later than June 1, 2009. The 
public transportation agency designated to receive apportionments under 
the Urbanized Area Formula Grants program (section 5307) will submit a 
proposal that includes:

1. Applicant Information

    Basic identifying information, including:
    a. Agency;
    b. Contact information for notification of project selection: 
Contact name, address, fax and phone number.

2. Project Information

    Every application must:
    a. Identify the project in support of which bonds will be issued, 
the amount of the bonds, the term(s) of the bonds, the source of 
security for the bonds (e.g., pledged asset or revenue) and the 
projected interest rate(s);
    b. Provide a sources and uses of funds statement/budget for the 
project, taking into account the bond issuance;
    c. Document sources of funds likely to be used to match FTA funds;
    d. Document the benefit to be derived from issuing the bonds, the 
benefit anticipated from reimbursement of the debt service reserve, and 
how the reimbursement, which constitutes program income, will be used.
    e. Include a narrative portion (not more than 8 pages, double-
spaced) that addresses: the historic role of debt in the public 
transportation agency's capital or operating plans, where the pilot 
program proposal fits within that context, and what proportion of the 
current capital plan the debt issuance and the debt service reserve 
represent.

III. Proposal Review, Selection, and Notification

    FTA will evaluate proposals based on the degree to which a public 
transportation agency has planned and justified the issuance of bonds 
or other debt to advance a transit capital project funded with section 
5307 funds.
    FTA expects to announce public transportation agencies selected to 
participate in the pilot program in a Federal Register Notice in early 
2007.

    Issued on December 22, 2006.
James S. Simpson,
Administrator.
[FR Doc. 06-9912 Filed 12-27-06; 8:45 am]
BILLING CODE 4910-57-M