A little-known federal loan program called the Railroad Rehabilitation and Improvement Financing program, created by Congress in 1998 to aid short-line railroads in financing modest improvements, represents a risk of taxpayers’ money.
That was also the year Congress created the Transportation Infrastructure Finance and Innovation Act’s (TIFIA) loan program, which I have long supported. TIFIA is prudently managed by the Federal Highway Administration, but more important, Congress built in several taxpayer safeguards for TIFIA loans, none of which apply to RRIF.
Staying On Track
RRIF has up to $35 billion worth of loan-making authority, only a small fraction of which has been used thus far. Since the legislation did not specify its applicability only to short-line railroads, Amtrak has taken advantage of it a couple of times.
Also, a California start-up called XpressWest applied for a $5.5 billion RRIF loan in 2010, which was nearly the total estimated cost of its proposed high-speed rail line from Victorville, California to Las Vegas. That project was vetoed in 2012 after a highly critical Reason Foundation study led to the intervention of several members of Congress.
TIFIA’s taxpayer safeguards include limiting a TIFIA loan to a fraction of the project budget. That limit was originally 33 percent, but Congress unwisely increased it to 49 percent two years ago. Other safeguards include requiring primary financing to be investment-grade, and requiring documentation of a dedicated revenue stream to pay the debt service on the loan.
Taxpayer Safety Rails Needed
The importance of adding these safeguards was highlighted in mid-February when a bipartisan Amtrak bill was introduced in the House. A section about rebuilding the Northeast Corridor calls for dedicating 40 percent of RRIF funds to the proposed project. .
Maybe I’ve missed something, but without taxpayer safeguards such as a 33 percent RRIF limitation and requiring an investment grade rating on a project’s debt, and without a reliable revenue stream to pay back the loans, there is a high probability of these RRIF loans turning into de facto grants.
Robert Poole ([email protected]) is a Searle Freedom Trust Transportation Fellow and director of transportation policy for the Reason Foundation. An earlier version of this story appeared at Reason’s Out of Control Policy Blog at http://www.reason.org/blog/. Reprinted with permission.