Railroad Financing:

Stakeholders' Views on Recent Changes to the Railroad Rehabilitation and Improvement Financing Program

GAO-16-714R: Published: Jul 13, 2016. Publicly Released: Jul 13, 2016.

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What GAO Found

The Fixing America’s Surface Transportation (FAST) Act, which was enacted in December 2015, made a number of significant changes to the Railroad Rehabilitation and Improvement Financing (RRIF) program, but the Department of Transportation (DOT) and the modal administration that is responsible for the program, the Federal Railroad Administration (FRA), are still in the early stages of implementing these changes. DOT officials said they are still assessing how to implement the changes through updated guidance and standard-operating procedures. FRA officials said that they do not have a comprehensive implementation timeline because some aspects of their implementation are contingent on how DOT structures the National Surface Transportation and Innovative Finance Bureau (Finance Bureau)—a new body created by the FAST Act that will be responsible for administering RRIF and other DOT credit programs, among other things.

Stakeholders GAO spoke to said that changes in the RRIF program could increase demand for RRIF loans, especially for large passenger rail projects. Expansion of the program to include a broad definition of joint ventures and transit-oriented development creates potentially new alternative revenue streams to finance multi-billion-dollar station redevelopment.  Stakeholders also said that realizing the potential for new investment brought about by the changes to the RRIF program will depend on how FRA implements the changes.

Stakeholders GAO spoke to identified advantages and disadvantages of using the RRIF program to finance passenger rail infrastructure projects compared with other financing options. Low interest rates and long, flexible repayment terms were among the advantages most often cited by selected stakeholders. In general, loans’ interest rate determinations and their loan repayment terms are similar for both RRIF and the Transportation Infrastructure Financing and Innovation Act (TIFIA) loan programs. However, the requirements for the applicant to pay a credit risk premium and long or uncertain application-review time frames are among the disadvantages most often cited by stakeholders. The TIFIA program, in contrast to RRIF, uses federal appropriations to pay the costs to the government of providing financial assistance.

In commenting on this report, the DOT’s Assistant Secretary for Administration said that the department valued the stakeholders’ views cited in the report and was committed to implementing the FAST Act amendments to the RRIF program in a manner that increases use of the program. He further noted that DOT is working to gain loan processing efficiencies by aligning RRIF processes with those of other DOT credit programs and that the RRIF program’s consolidation into the Finance Bureau (called Build America Bureau by DOT) will serve to enhance those efficiencies.

Why GAO Did This Study

America’s rail transportation infrastructure, including its passenger rail system, requires substantial repair as well as new capacity to accommodate growth. Financing the various rail infrastructure projects will be challenging. Congress has not funded FRA’s High-Speed Intercity Passenger Rail program—a program used to fund passenger rail projects—since fiscal year 2010 and appropriations to Amtrak have remained relatively steady at about $1.4 billion over the last 5 years. One potential source of funding is FRA’s RRIF program, which is a $35 billion loan and loan guarantee program to finance, among other things, freight and passenger rail facilities. Since the program’s inception in 1998, about $2.7 billion in loans have been executed and no loan guarantees have been made. The FAST Act made a number of changes to the RRIF program intended to increase use of the program.

Section 11611 of the FAST Act includes a provision for GAO to transmit a report, within 180 days of enactment, that analyzes how the RRIF program can be used to improve passenger rail infrastructure. This report presents information on: (1) the changes made by the FAST Act to FRA’s RRIF program and the status of implementing these changes; (2) views of selected stakeholder’s about the potential impacts of these changes on the RRIF program, particularly in terms of types of projects financed, potential sources of repayments, and overall use of the program; and (3) views of selected stakeholder’s on the advantages and disadvantages of using the RRIF program for financing passenger rail infrastructure projects as compared to other sources of financing. To address changes made by the FAST Act to the RRIF program and the status of implementation, GAO reviewed the FAST Act and other statutes, interviewed FRA officials, and reviewed past studies of the RRIF program. To obtain stakeholders’ views on the RRIF program and the impact of FAST Act changes, GAO selected four passenger rail projects that represent a mix of project size, geographic location, project development status, potential use of the RRIF program for project financing, and the potential for transit oriented development. For these projects, GAO interviewed public and private stakeholders, such as city governments, transit agencies, Amtrak, commuter rail agencies, and private development firms. GAO also reviewed FRA’s documents and interviewed its officials. To obtain stakeholder views on program advantages and disadvantages, GAO interviewed stakeholders in the four projects selected, as well as FRA, Office of Management and Budget, and other industry officials. The results of GAO’s work are not generalizable to the universe of stakeholders that have, or may, participate in the RRIF program.

For more information, contact Susan Fleming at 202-512-2834 or FlemingS@gao.gov.

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