The Public Purpose
Number 19 January 1998

Proposed ISTEA Federal Credit Enhancements:
The Next Savings & Loan Style Bailout?


The Transportation Infrastructure Finance and Innovation Act (TIFIA) is being considered as a part of the ISTEA reauthorization (provisions were included in the Senate passed ISTEA reauthorization in 1997 --- S. 1173, Chapter 2, Sections 1311 through 1322). TIFIA would:

One of the driving forces behind TIFIA is the interest on the part of the state of Florida to obtain federal guarantees on the bonded indebtedness that will be required to finance the proposed Tampa-Orlando-Miami high speed rail line (200 mph).

The Florida High Speed Rail Project: An Example

The Florida high speed rail project provides a good example of the risk that could be assumed by the federal government under TIFIA. Florida is seeking federal bond guarantees for this project, presumably under the proposed TIFIA program (Florida also seeks an outright grant of $300 million toward the project, claiming that this $6.5 billion program cannot proceed without that contribution).

Failure to meet projections would create substantial risks for taxpayers.

The Broader Risk

But the Florida project is just the "tip of the iceberg" as regards the potential federal liability. Federal programs are necessarily national programs that generally attempt to treat all states equitably, or at least similarly. There will be political pressure to expand TIFIA to provide similar levels of credit enhancements in virtually all other states. The very availability of the credit guarantees will generate any number of projects that are commercially infeasible (though consultant reports will routinely find them to be feasible before the fact).

TIFIA is likely, therefore, to become a costly federal program. The federal credit guarantees would require that project costs be covered by user fees and dedicated sources of revenue. However, projections of user fees have been notoriously flawed. Projections of project costs have been similarly flawed. The "user fees and dedicates sources of revenue" are likely to provide insufficient financial protection to the federal government.

It is not inconceivable that TIFIA could eventually require a "savings and loan" style "bailout." This could occur at both the financial and political level. Federal credit guarantees would be called as a result of the bond defaults. There would be substantial political pressure for a "national" solution, that would not require state and local governments to reimburse the federal government for its losses.

While the proposed program is relatively small at this point --- $10 billion --- it is easy to imagine federal obligations rising to $100 billion or more, as the program is expanded in future years.


1. Public Law 102-240 Section 1036(d) required USDOT to report on the commercial feasibility of high speed rail. The report indicates that the high speed rail options studied "do not meet the traditional private-sector criterion for "commercial feasibility." The report then goes on to redefine commercial feasibility to include "consumer surplus" and benefits to the "public at large" --- wholly subjective and demonstrably non-economic benefits. It would not be inappropriate to consider the report as unresponsive to the Congressional mandate.

2. Mette K. Skamris ande Bent Flyvbjerg, "Accuracy of Traffic Forecasts and Cost Estimates on Large Transportation Projects," Transportation Research Record (Washington, DC: Transportation Research Board, National Research Council), 1996.

3. The author prepared this report for the James Madison Institute. Developer spokespersons have attempted to dismiss the report by claiming that the author is "anti-rail." The author is not anti- rail, he is anti-waste. The facts, as outlined in the report, demonstrate that (1) high speed rail would make scant contribution to reducing traffic congestion and (2) that what little it would accomplish would cost many times the cost of available alternatives --- in short the proposed Florida high speed rail line would be wasteful of public (tax) resources. These conclusions are based upon analysis of the data contained in Florida Department of Transportation and developer studies --- using their projections (which experience shows are likely to be overly optimistic). The author would support any cost effective strategy to materially improve transportation, tax supported or truly commercial (non-tax supported).

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