Page 22: of Marine News Magazine (September 2016)

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FINANCE

Those who propose tolls or lockage fees typically empha- ? nancing. The ISA model also assumed that there would size that what they are proposing this is just one suggestion be contributions from the Federal government and other and that other ideas are welcome if they will address the sources totaling approximately $405 million, for a total undisputed and urgent needs at hand. To help the inland of approximately $555 million, which could be applied waterways industry avoid being perceived as only naysay- to address the needs of several lock and dam installations ers who oppose tolls and lockage fees but who do not offer on the Illinois River in addition to those of La Grange constructive alternatives, I wish to present—or perhaps it and Peoria. The ISA model assumed a ? nancing term might be more accurately said, to recall—a public-private of 30 years, bond proceeds (i.e., debt) in the amount of partnership approach that largely follows what has been $128 million in two tiers with interest rates of 3.50% and recently suggested by ICGA and ISA, but without the tolls 4.75%, respectively, and an annual return of 11.0% on an or lockage fees component. equity investment of $22 million.

The models of debt and equity ? nancing that have been

WIST ON THE LAN suggested by ICGA and ISA recall those that were pro- A T P posed in studies done in 2013 by the Texas Transporta- A variation on this theme that should be considered tion Institute for the United Soybean Board and by the would be the issuance of the same amount of total ? nanc-

Horinko Group for the U.S. Soybean Export Council, but ing, i.e., $150 million, but comprised entirely of bonds with this difference: the 2013 studies included proposals or other forms of debt. According to the presentation by to use some portion of the fuel tax revenues that are paid ISA, this amount should be suf? cient to address the needs into the Inland Waterways Trust Fund to provide the nec- of at least the La Grange Lock and Dam and the Peoria essary debt service and return on equity for such ? nancing. Lock and Dam. Assuming that this bond ? nancing would have the same term as in the ISA model, i.e., 30 years,

S F R and that the same amount of annual revenue, $11 million,

ORTING OUT THE UNDING ULES

The use of funds received by the Inland Waterways Trust would be available from the Inland Waterways Trust Fund

Fund to support the issuance of bonds is also contemplated for the payment of interest and principal on these bonds, by Section 2004 of the Water Resources Reform and Devel- this would translate into an effective interest rate of 6% opment Act of 2014 (WRRDA 2014). That section of the on the bonds, which would be attractive in today’s interest statute requires the Army Corps of Engineers to study “po- rate environment.

tential bene? ts and implications of authorizing the issuance The ISA model assumed an interest rate of only 4.75% of federally tax-exempt bonds secured against the available on the portion of the bonds with a Standard and Poor’s proceeds, including project annual receipts, in the Inland rating of BBB, generally considered the lowest rating that

Waterways Trust Fund.” By a memorandum dated June 28, quali? es as investment grade. Even further, if those bonds 2016, the Corps issued “implementation guidance” which were tax-exempt, a possibility contemplated by Section was simply a report that the study has not yet been started 2004 of WRRDA 2014, then such an interest rate would since no funds have yet been speci? cally appropriated for it. represent an even higher effective return to the holder of

In the model presented by ISA at the Waterways Sym- such bonds. On the other hand, if the interest rate on the posium in November 2015, annual revenues of approxi- bonds turned out to be less than 6%, then either a greater mately $11 million were projected to support a total of amount of ? nancing could be raised for the same $11 mil- approximately $150 million of combined debt and equity lion of annual debt service, or the required annual debt service on $150 million of bond proceeds would be less, or the length of the ? nancing term could be shortened.

Anyone who has re? nanced a home mortgage to take ad- vantage of declining interest rates knows how these factors relate to each other.

To be sure, committing a certain amount from the In- land Waterways Trust Fund to support a long-term bond ? nancing would make those funds unavailable for any oth- er infrastructure projects during the term of that ? nanc- ing. However, the ISA and ICGA models, the studies for the United Soybean Board and the U.S. Soybean Export

Photo: Stefan Danielski

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